Are you financially literate?

The Freakonomics blog posed the question today – Are we a nation of financial illiterates?

Maybe so.

Andrea told me about a couple on TV this morning who were seeking help from Dave Ramsey. The woman had recently decided to stop working and be a stay-at-home mom. However, the couple didn’t adjust their spending accordingly, and had accumulated $12,000 in debt in only a few months.

Here’s the crazy part. Their house payment is $2300 a month. Total income is $2500 each month. Really? Did they not think this through? We all make bad financial decisions, but that one is off the charts.

The family was unwilling to adjust their standard of living. I’ve got to think that they were living beyond their means even when she was working…

I was talking with Mike Snow Sunday about the upcoming “Financial Peace University” classes at GracePoint. There was some discussion about Andrea and I leading a class. However, our living room isn’t really big enough to host a small group.

Warning: I’m going to get on my soap box and brag for a second.

When Andrea and I bought a house nine years ago, we bought a house that we could afford on my salary alone even though she was still working. Not my salary in the future. My salary nine years ago. Sure, I’d love to have a second bathroom, a two-car garage, a music room, etc… But I really don’t want your house payment. It’s probably more than double mine. Our relatively small mortgage frees us up to do things like pay down school loans faster, save money for retirement and rainy days, and most importantly, give generously.

The downside is that my living room isn’t really big enough to host a small group… It’s okay. We don’t really have the gifting of hospitality anyway…

We don’t always make the best financial decisions, but I’m quite proud of that one nine years ago.

P.S. Mike Foster over at Deadly Viper is downsizing his house.  I’ve known several people that have done that over the years.  I think it’s probably a good idea for a lot of people.

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8 Responses to Are you financially literate?

  1. That will preach.

  2. I know I am financially illiterate. Well, maybe just slow.

  3. mandoron says:

    Sorry if I got too preachy…

  4. BDO says:

    Not illiterate. Just selfish. We know what we are doing, but we want, what we want, right now.

    http://www.beatingdebt.wordpress.com

  5. Not at all! It’s great to share a lesson you’ve learned with others. I learned credit cards are BAD, ergo, we don’t have any! We pay cash for ALL our Christmas presents and more than once, we’ve had to tell our families (not the kids), sorry, there is only enough $$ for our kids and THEY UNDERSTAND!

    I think we live in a culture so bound in instant gratification that we don’t even realize what we do to our kids. I would say it’s this culture that breeds materialism, obesity, addiction and a number of other social ills. You are on the money (no pun intended, but it’s fun!) with your comments!

  6. Why not upside your income? Just a thought. My wife and I made the same decision years ago about buying a small house we could afford on 1 salary. We never regretted it. Since then we have learned how to invest and eventually learned that being an employee was never going to make it for us. So we started a business, then another business. We will start a third this fall. Meanwhile we have bought a second home in the mountains and continue to increase our investments. Ramsey does a great job with debt, but that is really only the first baby step to financial independence. You have to become an investor (not mutual funds) and a business owner to finish the process.

  7. mandoron says:

    Thaks for commenting David.

    I agree that it’s important to understand how to make money. But I don’t think the goal in our life should be accumulating wealth. Our goal should be acheiving contentment, which has more to do with mindset than money

    Financial freedom comes from not owing everything to someone else – you get to make the decisions on what to do with your money – and, from learning how to be content. It’s good to have “wealth” goals, but we just need to make sure that it doesn’t drive us.

  8. I find myself torn with your post. Certainly contentment is a worthy goal. And clearly agree that it is a mindset. However, dependence is something that clearly is a problem. Like it or not we live in a society framed by capitalism. Hence, we must assure ourselves the ability to build wealth or suffer the fate of dependence on family, friends or government. I know many folks who lived contented, debt free lives, who are now, in their old age, dependent on government and family to be able to eat and have a roof over their heads. I hear and see their fear. That is why I believe financial independence it critical to living a full and contented live. And why I believe just being out of debt is only part of the puzzle. I also have experienced the terror of being laid off from a job (and I had already acquired some wealth to get me through the unemployment). The data on forclosures, for example, is clear that job losses is the #1 reason for people losing their homes. And number 2 is a sickness! So for me contentment is building enough wealth to have financial independence, so I never have to worry about paying a mortgage or any other expense. I am not quite there yet, but soon would be able to live off of my investments without having to downsize my lifestyle. Debt is a tool. Used properly it can supercharge one’s wealth accumulation. And in my opinion a certain amount of wealth is critical to a full contented life in this society.

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