Wednesday, August 31, 2016

Financial Illiterates

I get a fair number of people writing to me, both online and off, about all kinds of issues.  Most of the time, they're brand-related topics, although like this blog, some of those topics stretch the very bounds of "tangential."  I am surprised, however, at one deficit common to so many of them:

Financial illiteracy.

Mind you, the people with whom I engage are not uneducated in the general sense.  They run the gamut, from high schoolers to post-graduates.  Some are intuitively brilliant; others incredibly motivated and disciplined.  So it's not that they're stupid or naive.  They're simply not educated about how money, finance, business and the economy works. They lack critical thinking skills.

It's not completely their fault.  Try finding a middle school, high school, college or even a graduate school that teaches people how to think critically or actually do business.  I'm not talking about that useless crap that passes as a "business education," like Introduction to Accounting 101."  I'm talking about the drive, the initiative, the critical thinking and decision-making that propels people into business success.  And don't get fooled by "entrepreneurship" classes, either. They may show you the lay of the land, but not how to successfully navigate it.

To see what I mean, try Frankel's Financial Literary Test yourself or on any of your peers.  It's really simple. One question:

What would you do with $1,000?

The top answers are usually, "I'd buy something nice for my Mom," followed by, "I'd buy something nice for my Dad."  After that, you may hear, "I'd buy something really nice for myself," and occasionally, "I'd pay down my credit card."

All wrong.

The correct answer is, "I'd see how fast I could turn it into two thousand."  If you hear anything else, you've lost.

It's a mind set thing.  And this is why just about every MBA I meet is so thoroughly disappointing.  Sure, they know how to read a balance sheet and a financial statement, but rarely know how to do the one thing that drives business success:  spot and exploit an opportunity.

One reason why so many people have so little money is because, let's face it, it's been a tough economy since 2008.  But lots of people have managed to succeed even during these tough times, not because they were connected or privileged , but because they not only knew how to recognize opportunities, they actually hunted them.

Prior to America's Great Softening in the 1970s, the top rated characteristic of Americans was self-reliance.  The vast majority of citizens took pride in the notion that if they didn't kill, they didn't eat. Everyone, sporting the bluest blue or whitest white collar took pride is his ability to seek out opportunity, and once found, exploit it to his advantage.  It's how he provided for himself and his family.

That's only half the equation, however.

The second part of financial literacy comes about after success, when questions arrive as to what can be done with the proceeds of success.  Once again, Frankel's Financial Literary Test comes into play.  I'm impressed by the number of people who have no idea what to do with their money after they've made it. Prominent citizens -- not just students fresh out of college -- have no idea how entrepreneurial investment, the stock market, bonds, fiscal or monetary policies affect them. The same laziness that likely landed them in their corporate law firms prompts them to turn over their earnings to financial managers whose only real talents are in herding "easy money" clients into company-created mutual funds.  The very same funds, by the way, that take the hardest hits when the economy goes south.

Especially at the time of this writing, there are no simple answers for "reliable income" or "financial security."  And despite the free seminars being offered on TV and radio,  there are no courses that provide "survival skills" for the financially illiterate.  You can teach people how to flip houses, but you can't teach them motivation. You can only convey the importance of recognizing opportunity.

It's the foundation on which successful lives -- and successful countries -- are built.


Blogger eydryan said...

But then, how can someone learn this skill? I'm very slowly building up my business and I find everything quite difficult to navigate, from deciding where to expand, to thinking about whether it's all worth it...

11:25 PM  
Blogger Rob Frankel said...

It's actually *critical thinking skills* that should have been part of your schooling, and failing that, your parenting. The first trick is to notice its absence. Then, at this stage, I would guess you'd have to find some sort of mentor. IT's not how it should be, but it is what technology has managed to do to us: dumbing down everything to point and click, rather than understanding and executing.

7:13 AM  
Blogger eydryan said...

While I agree that this should be taught, I don't see how learning common sense and critical thinking can really teach you about investments and demand. If anything, after all my education it still seems like businesses are still, for the most part, a unique blend of inspiration, hard work, and a lot of luck, with a slight improvement of the odds if you learn the theory and study the case studies.

8:58 AM  
Blogger Rob Frankel said...

Oh, it can be taught, believe me. I have three kids that can attest to just need parents who know it and are willing to teach it.
That's why the business world has consultants!

9:30 AM  

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