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How Much Do You Really Know About Money?

Published October 20, 2021

7 minute read

David Ning

By David Ning

One of the issues that seems to be brought up continually is that of financial literacy. Money plays such a big part in our lives. It’s why we strive for a higher education, go to work, and build careers. We have to deal with money almost daily — earning it, spending it, and saving it. Considering it’s such an important aspect of modern life, it seems like there are plenty of people who don’t really know much about money at all. How much do Americans really know about money? How much do you know about money?

Most of Society Knows Little About Money

If my life only happened online, where I write about money and talk to people who are also interested in financial topics on a regular basis, then everybody I know seems to be very knowledgeable on the subject. However, things change drastically once I step away from my computer.

My friends and I talk about stock investments and debt management from time-to-time, However, it’s clear that most of them only have a basic understanding on what they are really doing.

This extends to my family too. I’m really the only one who knows anything about money, beyond the simple basics. At least most of my family is frugal. They have the spending and debt side of things down. However, they are still missing out on opportunities to make their money work for them.

Most People Are Overconfident

Each year, FINRA studies financial capability. That study includes a literacy test. The results are always interesting. Recent studies indicate that many Americans think they know a lot about money. They rate their abilities quite high. However, when answering a six-question financial literacy quiz that’s fairly simple, only a very small portion of Americans get all the questions right.

It sounds like many people don’t actually know as much about finances as they like to think. Unfortunately, financial literacy is fairly low in our country. After all, businesses like payday loans continue to thrive even though they are always terrible deal.

Financial literacy is one of the things that many people cite as a serious problem when it comes to money management. They’d like to save more. Or invest more. Or be in less debt. They just don’t really know how to get started. In order to effectively manage any resource, you need to know the ins and outs of how that resource works. The more educated you are about money, the more likely you are to make better financial decisions.

Not Knowing Can Be Dangerous

If you don’t actually know as much as you think you do about money, you could be blundering. Even worse, you could be costing yourself while simultaneously thinking you’re on top of your finances. This can be detrimental. You’re likely to keep making poor financial decisions, ever confident that you are doing the right thing.

Even more difficult, though, is doing the right thing with your finances when you don’t know what the right thing is. That’s why it’s important to gain a decent working knowledge of how money works.

Knowing Doesn’t Automatically Help

The hope is that better financial literacy leads to better money-related decisions. Unfortunately, as you’re probably aware, even knowing everything isn’t always enough. After all, we don’t always do what we know we should.

Most of us know that we should have a rainy-day fund. Despite that, more than half of Americans don’t have enough money to cover a few months worth of expenses, according to the FINRA survey. On top of that, many of us struggle to truly live within our means. Credit card debt (and other types of debt too) continues to plague many American households — even those that “know better.”

Taking Action Is Hard

Even though you might know what you should be doing with your money, actually taking action is the hard part. Sometimes, taking action requires changing long-ingrained habits. Other times, it requires adopting a whole new financial philosophy. It can be difficult — and downright unpleasant — to make the necessary changes.

Getting out of debt is a good example. You might know that you should pay down your debt faster. The interest rates are costing you every month, after all. However, making debt reduction a priority means you probably have to cut back on spending in other areas. That usually means eliminating “fun” expenses, like eating out, concerts, or going to the movies. No one wants to skip those things.

As a result, there are plenty of people who know what the “right” money decisions are, but still refuse to make them. They just don’t want to make the sacrifices necessary. That kind of thinking will eventually catch up to you (and your wallet). It doesn’t matter how much you know about money if you’re not willing to act on that knowledge. In order to really be effective, you have to combine what you know with real action.

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Commit to Making Better Decisions

It can’t be repeated enough: you have to practice what you learn. Otherwise, all your financial know-how isn’t worth much at all.

On the other hand, those who keep learning (and taking action) to improve their finances will find success. They will likely see their financial situation continue to improve until they are someday no longer concerned about money at all.

Are you ready to get started? Here are a few steps to follow that can help you make better money decisions as you become more financially literate.

Figure Out What You Value

It’s amazing how few people actually take the time to determine what they really value. What’s most important to you? Is it helping others? Or living a debt-free life? Or being able to spend more time with your partner or kids? Regardless, you need to know exactly what you value the most. Which things are essential in your life?

Most people are happiest when they connect with others and have good experiences. After taking a close look at what you value, you might find that “material stuff” actually isn’t high on your list.

Keep in mind, too, that what you value most might change depending on your stage in life. During your peak working years, you might value weekends off to spend with your family. Or maybe you’re focused on setting aside as much money as you can for retirement. When you’re older, you may value travelling more, or setting time for volunteer work. You should regularly re-evaluate your short-term and long-term goals.

Acknowledge What You Need to Get What You Value

Next, look at what needs to happen in order to get what you value most. Most of the time, you need a plan. If you want to live a debt-free life, you need to make a plan to pay off your current debts. Then work out what you need to do to avoid more debt in the future. If giving to charity is important to you, examine your finances and make sure you can afford to give.

You might need to change your schedule in order to get what you value most. For example, could you give up an hour of TV each day to work on a home business? It could help lead you to that financial freedom we all crave.

Take a hard look at what it will take to bring your lifestyle and your finances in line with your values. Then make a plan to get there. It doesn’t have to be all at once — you can make small changes over time.

Before Spending Money, Ask If It Advances Your Goals

Once you know what you value and you have a plan in place, it’s time to put your money where your mouth is. Before you spend any money, ask yourself if the cost is helping you reach your goals. Some things are non-negotiable, of course, like groceries and housing costs. But for those “extra expenses,” stop and think about whether they are adding enough extra benefit.

The occasional frivolous purchase isn’t a bad thing. The reality, though, is that we’re happier when our spending aligns with our deeply held values and helps us reach our long-term goals.

Ask yourself if your expenditure will advance the cause. Will it help you live in greater harmony with your values? If you can confidently answer “yes” to these questions, your money decisions will work towards your larger financial goal.

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Don’t Get Too Hung Up with the Perfect Plan

I know so many people trying to find that perfect time to get into the stock market. Instead, they’ve missed out on the last few years of a relentless bull market. They probably could have doubled their money if they weren’t so hesitant.

I also know plenty of people who are trying to wait until that perfect mortgage refinance deal comes along before they will pull the trigger. Subsequently, they keep paying a higher interest rate than they have to. That’s real money these people have missed out on.

There’s an old saying that my close friend spouts regularly: “perfect is the enemy of good.” When it comes to money, things aren’t always going to line up exactly the way you want them. Don’t wait for the “perfect deal” when there’s a very good deal already staring you in the face.

The future is unpredictable. Any good plan is better than no plan at all. Don’t let the desire to make perfect decisions keep you from taking any action at all.

How Much Do You Know About Money?

We all want to make better decisions with our money. This is especially true after we’ve made a serious mistake. Even if you haven’t messed up your finances in the past, you can still want to make better financial decisions in the future. After all, you could be maximizing your future potential with better decisions today.

So, we ask again, how much do you really know about money?

You can only plan for a more secure future by taking the time to learn more about money today. It’s not always easy to get in the mindset that allows you to make better financial decisions. Too often, we aren’t even aware that we could be doing something better. Or, if we are, we aren’t sure how to change the way we make decisions.

The Bottom Line

The only real solution is to keep at it. Keep learning and keep making improvements. Financial literacy is a journey, not a destination. What do you think? Are you financially literate? Even more importantly, do you put into practice what you know?

David Ning

Experienced Finance Writer

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs MoneyNing.com, where he discusses every day money issues to encourage the masses to think about their finances more often.

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