A few years back I wrote about financial literacy. You may not know, that November is Financial Literacy month in Canada. Financial literacy should be an all year round kind of thing. Just like Movember it’s nice for folks to think about a topic. Like any health issue you should not only be worrying about money and Financial Literacy in November. You should be worrying all year round about your finances.
Why do you need financial literacy, or an understanding of your financial situation? To paraphrase John Lydon “Ever get the feeling you’ve been cheated ?“. That phrase, is why you need financially literacy. You worked hard for that money, but you need to understand the rules of the money game, or you might just lose it.
How do you stop being cheated?
- Don’t pay for a year, scams for high end electronics and their warranties are a perfect example of needing to know the rules. Seems easy enough, you need to pay off the debt before a year transpires and you will not be charged any interest on the Electronic Thingy you purchased. Some more of these rules are:
- Many plans now are not “don’t pay for a year” they are in fact “make equal payments for a year and no interest”. Be sure you understand this, or if you under pay a single payment you may owe a whack of cash at the end of the term.
- The “no interest” sounds like a great deal. The cost of the no interest loan is built into the cost. Any interest you might end up paying is pure profit for the vendor.
- What does your warranty really get you? Replacement? Repair? If you answer, “The guy told me it was replacement”, did you read that in the agreement? Sales folk makes a very nice commission on that warranty (in fact I think he pockets most of it). Be sure what the salesman said is what is written in the contract.
- Seems easy isn’t it? How many folks do you know that end up paying the interest on these “don’t pay for a year” deals? You don’t know of any? No one will admit they screwed up. Learn the rules.
- Investing rules? Libraries have been written about all the “rules of investing”. Folks are still buying Mutual Funds that claim they “Beat the Market”, or have “Guaranteed Growth”, but can they say that without it being true?Depends on the context they made the statement, isn’t it?
- If I create a mutual fund and for the first 4 years, it “beats the S&P 500 for growth”, I can make that claim in any advertisement I want, and it is truthful, can’t I? Research of this fund would uncover this truth, so always check these types of claims. What if I created 500 funds 5 years ago, but only allowed “internal trading” of it, and only made the 1 that did beat the S&P 500 for 5 years available to the public? I can make the claim still, I don’t need to mention the 499 failures.
- If I say that in 5 years your money will Growth by 3% a year guaranteed, you might want that, but if you didn’t look closely to see, that if you tried to take your money out before 5 years, you’d have extensive penalties, would that change your point of view? You have your guaranteed growth, however, you also have a locked in investment.
There are so many more of these kinds of truthful statements, that still are not really what you think the truth is.
Learn the rules of the financial game, that is what financial literacy means to me. What does it mean to you?