Sunday, June 26, 2011

financial dyslexia

The term 'financial literacy' has been bounced around for at least 10 years that I can think of - and recently was in the headlines again when MP Simon Power made the hardly-surprising announcement that the financial literacy programmes, supposed to be delivered by the Min of Ed, appeared to be either not working, or not even being delivered.
My last blog was about how couples can achieve financial compatibility when they have different money languages.  But consider this - if so many people are actually financially illiterate, then their chances of even having a money language are severely limited.
Moreover, I believe that many NZ'ers are not only illiterate when it comes to matters financial, they are actually dyslexic.
By this, I mean that despite the (admittedly minimal) education that have had about budgeting and managing money, and possibly the fact that they grew up in a house with what could be considered good financial habits, thanks to the influx of 'easy money' and our consumer based culture, the are now faced with completely skewed, even incomprehensible messages from the finance industry.

Where one person will see a dodgy finance company, or be able to understand the high risk/high return concept, many others will simply see the lure of a high interest rate and consequent (they hope) increased income.
Where one will see that a hire purchase is simply a fools game, many many more will gladly take on loans for consumables with  outrageous interest rates, all the while seduced by the mentality of 'have it now' and 'low monthly payments'.

In fact the value of money has, in my view, diminished.  Consumers want more, and want it now, and the finance companies are only too happy to oblige them with online loans, no-application credit cards, and seductive lines like 'buy now, pay later' or, the deceptive 'no payments for 18 months'.  So, the financially gullible purchaser (and that means most of us), is programmed to stop thinking about the long term, and simply  enjoy the short term pleasure of owning a new gadget, or car, or entertainment system.

The irony is of course that the value of the goods decreases at almost the same alarming rate that the interest cost of that good increases.  But as the clever marketing people remind us, that thanks to the considerate and flexible terms of the financier, we do not even need to  think about the fact that the $1000 TV is in fact going to cost us not $20 a week but more like $2000 or more, over the next two years - by which time we will want to upgrade again and start the cycle, again.  The consumer literally cannot, or will not, see this anomaly as the financial education they are receiving is cleverly, and frighteningly, packaged in the 'whats in it for me' wrapping paper that we all love to look at and open.

So, how do we change a culture?  Is it even possible to change the way consumers view their saving/spending habits - and therefore can decipher their own financial dyslexia?

To begin with, there just has to be some changes in regulations.  
- Firstly, make it compulsory for financial institutions to supply   true costs of borrowing - total credit card interest and so on..  The government is working on this.  That will scare some people.  But not all
- Secondly, there needs to be true income testing for borrowers.  It's just way too easy to get money.  No more complimentary credit cards, no more application free loans.  As a country we simply can't afford it.
- Thirdly, introduce financial education at the earliest age.  Even a 5 year old can learn about money in/money out at it's most basic.  And this needs to be a core part of education for all children, right through school.

Finally, and this is the hard one - we need to each make a conscious decision about our spending and saving.  The best way to teach is to model behaviour.  That doesn't necessarily mean having a budget pinned to the fridge (although it might do), or only buying groceries on special (although that's a good idea!), or going without some of life's pleasures.  

But it does mean a total change in attitude - as long as we continue to be a patron of consumerism, it will continue to try to own us.  

10 simple steps to deciphering money and becoming financially literate

1. Know where your money is coming from and going.  Take the time to write a budget (there's a great template at
2. Write a list of goals - especially those that are going to require a financial investment
3. Put a no-circulars sign on your letter box - no pamphlets, less temptation
4. for 3 months, keep every bill, invoice and account.  At the end, look at exactly where your money went. Does it match your budget? What needs to change?
5. Chop up your credit card.   NEVER NEVER NEVER NEVER (did i mention NEVER) purchase something on HP.  The only exception to this is a health/employment crisis
6. Open a second bank account and start saving. Even if it's only an automatic payment of $5 a week, it's a good habit to get into.
7. Make some rules - what are you NOT prepared to give up/go without?  What will have to change to make this happen? What are you going to say goodbye/not now/maybe later to?
8. Tell others.  lobby your kids school/your work place/your place of study to include some financial education in their day to day schedule.
9. Apply all the above to your children (as appropriate).  Even the very young can understand about money coming in (pocket money) and how they are going to spend it
10.  .If you're struggling get help.  Seriously.  Budget advice.  Bank.  Online coaching.  Do it now.

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