Why a Little Financial Information is Dangerous

Just cuz you’re following a well-marked trail doesn’t mean that whoever made it knew where they were goin’.”
— Texas Bix Bender

I respect people who are self-educated, and I respect people who continue to educate themselves about various topics, even after they’ve finished their degrees. As legendary basketball coach John Wooden used to say, “It’s what you learn after you know it all that really matters.”

That said, a little financial self-education can go a long way – toward completely destroying your financial future!

Why? Because when you cobble together your financial education with bits and pieces of advice you see on the internet, read in articles or hear on TV, you’re not really building a strong foundation of financial literacy. It’s like that old story of the 12 blind monks and the elephant. Each monk felt a different part of the elephant and used just that part to figure out what the whole animal looked like!

So one blind monk tells you to pay off all your credit debt ASAP, while another tells you that you need to build up a rainy day fund. One insists that you max out your 401(k), while another says to secure your future by paying off your mortgage. And the blind monk standing at the elephant’s tail thinks the economy stinks – so you need to get yourself a stash of precious metals!

When it comes to personal finances, you really need to see the whole elephant

In your financial education, you also need to be cautious about following the pack. It’s pretty obvious that “the pack” hasn’t been doing too well over the past couple decades.

Since 2000, folks have lost their shirts and their retirement funds investing in the stock market – not once but TWICE – and we’re now painfully aware that our homes aren’t “guaranteed” to appreciate. The pack’s credo of “Get a college degree and you’ll get a good job” has been de-bunked by all those grads flipping burgers and drowning in college debt.

As General Patton warned:

“If everyone’s thinking the same thing, then someone isn’t thinking.”

But what about learning from the financial gurus? Those talking heads who spew their advice on your TV screen? If they’re on national television, they must know what they’re talking about, right?

Not necessarily so. Often these “experts” have their own biases. Their financial advice is based on their own personal preferences, political persuasion, life style, goals and personalities. If it works for them, they figure it will work for everyone. Others benefit financially from particular products or programs they promote (which might be okay if they disclose that relationship).

Just because someone is confident, well-coiffed and a regular on CNN or Bloomberg doesn’t mean they have all the answers!

So what to do? The majority of people reading this blog haven’t been trained in personal finance, and I doubt many of you would care to do the thousands of hours of research into financial products and strategies I’ve done. (I know. I need to get a life, right?) But you can ask some basic questions whenever presented with financial advice. For example:

  • If I found this idea on a scrap of paper on the street, instead of hearing about it from so-and-so, would I be inclined to pay any attention to it?
  • Is there any evidence to back up this advice? If I really look closely, does the evidence still make sense to me?
  • What about this idea that sounds or feels right to me? What sounds screwy?
  • Does this advice really pertain to me, my situation, my goals, and the life I want for myself and my family?

For more insight into how to secure your family’s financial future, start by finding out what your Financial IQ is, when you take this fun and quick quiz.

yellow-quiz

It’s National Financial Literacy Month, and here at Bank On Yourself, we’re doing our part to give Americans the financial knowledge they need to make wise financial decisions.

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