talking about the way he handled his finances, comedian Steve Martin said, “I love money. I love everything about it. I bought some pretty good stuff. Got a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too.”1
Unfortunately, liking money and even accumulating lots of it, doesn’t go hand in hand with knowing how to use it wisely.
Though we are a wealthy nation, many Americans feel that the solution to their financial challenges lies in simply bringing in more money. For anecdotal evidence, just ask anybody you know. But you can also see this idea reflected in the overwhelming popularity of stimulus payments, the rise in so-called side hustle jobs, and the continued growth of the lottery market.2
This is not to say that many people do not have much to spare above basic living expenses, especially as the cost of housing has continued to skyrocket in many parts of the country.
But people at all income levels could be doing much better with what they have, and a big part of the problem is ignorance about how finances actually work. This general lack of understanding was borne out in a study by the Financial Industry Regulatory Authority (FINRA) that found that while 71% of Americans claim to be financially literate, only about 34% can correctly answer a short quiz about basic financial concepts like compounding interest.3
Unfortunately, without adequate financial knowledge, people tend to make poor decisions, leading to unneeded anxiety about their finances.
According to advisor and financial writer Rick Kahler, the first step people need to take is not cramming their heads with new knowledge, but consciously “unlearning” their internalized fallacies about money. This is often not easy to do, because much of what we think about money is intertwined with other long-held core beliefs.4
On top of this, says Kahler, is the additional burden of societal shame people feel about their financial situation. People feel embarrassed about making too little. People feel embarrassed about making too much. And then there’s the shame that comes with knowing you haven’t been doing a good job managing your money.
Prudent investors know that financial education can (literally) pay dividends down the road. And a trusted advisor will not only be a source of accurate information and valuable experience, but they can serve as a confidential money counselor. Someone with whom you feel comfortable sharing every aspect of your financial life, the good as well as the potentially embarrassing.
It feels good knowing that you have an accurate view of how your financial plan is supposed to work. It feels even better when you know you have less cause for worry.
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