Beyond Financial Literacy

Turns out April is “Financial Literacy Month” and the National Foundation for Credit Counseling is weighing in by releasing the initial results of their third annual Financial Literacy survey. As this is currently a hot topic nationally, Congress will be briefed with the full report later this month.  They will hear, among other alarming statistics, that fully 41% of respondents gave themselves a grade of either “C, D or F” when it comes to understanding money and/or making good money decisions.  We are definitely not making the Dean’s List here.

So what’s the problem? Evidence suggests that economic and financial stress is damaging health across gender lines but apparently affecting women to an even greater degree. According to 2008 American Psychological Association’s Stress in America survey more women than men (84 percent to 75 percent) expressed fear about the economy, and many reported new physical and emotional symptoms, such as headaches, irritability, insomnia, fatigue, overeating and chest pain.

With this kind of evidence, why aren’t we more proactive in preventing this stress from taking such a toll on our health and wellbeing? We know that the medical side of the health/wellness movement took a dramatic turn as they discovered it was both healthier and less expensive to prevent disease than to treat it after onset. Similarly, ask anyone who has ever tried to dig themselves out of a financial hole, it is always more stressful and expensive to dig out of a money pit that stay out of one in the first place.

I’m convinced that much of the problem can be attributed to a couple of reasons…first, there’s too much financial information for us to process and secondly, the communication of money concepts are often overly complicated.  In the past few weeks, I have been discussing pros and cons having tons of data within clicking distance.  Information, and even education, is only valuable only if we have a simple way to determine its relevance to our personal situation and forge a confident, clear path toward decisive action.

So taking off from last week’s example where we looked breaking down a complex topic like Estate Planning by forming a few simple, high level questions, let’s consider something similar for managing money in tough times.

The big picture money questions in tough times are:

• Do we need money for an essential expenditure or a non-essential expenditure?
• Am I going to spend within the next 5 years or beyond the next 5 years?

I will explain the five year timeframe in the next blog, but with these simple questions we can create four buckets of money and form very straightforward action plans for each. The four buckets are…

• Esssential, Now (less that 5 years)
• Non Essential, Now
• Essential Future(more than 5 years)
• Non-Essential Future

Next week… walking through simple money management strategies for each of these buckets.