A few years back I wrote about financial literacy, and you may not know, that November is Financial Literacy month in Canada, although, financial literacy should be an all year round kind of thing. Just like Movember (which I am actively participating in after removing the Big Cajun Beard) it’s nice for folks to think about a topic, but 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 (well maybe not worrying, certainly thinking about it).
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 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.
Some practical examples that I have overheard or been part of, that if the individual involved had known up front “the rules of the game” (by reading agreements, or better still researching things first), they might not have ended up getting “cheated” out of their money (in this instance you feel cheated, but in fact, you just didn’t know the rules):
- 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. What other rules or hidden things you are unaware of?
- 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, but that is already built into the price you are paying. 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? “The guy” makes a very nice commission on that warranty (in fact I think he pockets most of it), be sure what he said is what is written.
- 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? Maybe it is because no one will admit they got caught by this, so learn the rules.
- Investing rules? Good lord there have been libraries written about all the “rules of investing” but 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 onthecontexttheymade 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?