In a recent interview I gave to ThriftCultureNow.com, I was asked to comment on three causes of poor money management in America, and offer some solutions for each issue.
Let me start by backing up to another question that summarized how I feel about American culture in general when it comes to money. From the interview linked to above:
“…it’s sad to see that with so much freedom and choice, Americans have largely chosen over-spending, over-borrowing, under-saving, lack of financial education, and other poor money habits. This has resulted in actually limiting the choices we have because we’re stuck in an eternal rat race with fewer and fewer ways out.”
The ultimate paradox, in my mind, is how we’ve dug ourselves into a hole by insisting that we get a shovel. But that’s a discussion for another day. Here are three reasons I gave for the problems Americans face and the solutions I proposed:
#1: Ignorance and Lack of Direction
Ignorance is such a dirty word, but it just means we don’t know—in this case, I believe we don’t know what we should know. Personal finance is such a wide field that “without a game plan, we’re simply trying to float our heads above water and hope luck comes our way and bails us out.” Without continuously learning more, we’ll just keep doing everything we’ve always done.
My solution proposes basic financial education as a part of life growing up, both at home and at school. Throughout our life, we need to read about and practice good money management, investing, frugality, and more—just like we better ourselves in other areas.
#2: Analysis Paralysis
On another level are those people who understand what they need to do–some understand it very well. The problem is that we can very easily get overwhelmed by it all. There are too many choices, too many things to do, and too many “personalized” routes we can take.
Instead of breaking down all of our financial goals into small, manageable pieces, it’s easier for us to ignore our money (good and bad) entirely, and maintain the status quo. This kind of “analysis paralysis” isn’t a good thing–we need to consistently make choices and be actively involved in our money, for better or worse.
One of the solutions I proposed is that we need to make money management simpler. Goals, guidelines, and paths to success should be easy to understand, straightforward to follow, and most importantly–able to adapt to each of our unique situations without losing the principles that drive it. Presenting these kinds of ideas on a more specific level is one of the core goals of this very blog.
#3: We Love Buying Stuff
We are simply too attached to the pleasure we derive from buying stuff. Sometimes, this is a good thing—it drives us to excel and shoot for more. Other times, it’s a crutch and drives nothing but jealousy and regret.
Since birth, we’ve been taught that the best reward for earning money is spending it:
“I worked hard for this money, and I deserve to buy this.”
This is repeated by dads, moms, bosses, employees, college kids, retirees—it seems no one is immune. No one also considers that the best peace of mind comes from the feeling of having enough—enough to buy, but not having to; enough to cover emergencies, but not having to; enough to enjoy almost any luxury in life because we’ve saved diligently for it.
It’s another interesting paradox—we try to get pleasure and comfort from buying, when the real comfort comes from not.
What would make your list?
Your turn to do a little blogging: suppose you had to name three reasons why we’re doing such a bad job with our finances as a country. What would you say? Share your thoughts in the comments.
Photo by epicharmus
Fiscal Fizzle 
Financial Education is KEY!! My parents did not teach me, I did not teach my 18 year old son as I am only learning later in life. He walked into Wells Fargo to inquire about a savings account. He walked out with a credit card with a $600 limit, and no job. So you can probably guess what happened after that. 6 months later, we are learning together and I am teaching him what I should have taught him since he was a toddler. I think it might not be too late for him, but it is going to be a challenge. It makes me sick that I did not learn at his age, as I would be financially well off right now if I had even an ounce of financial knowledge. There needs to be a MANDATORY class in high school, that is just as important as English and Math, Financial Peace.
Water under the bridge, my friend, and it’s been tough for me as well to let go of past regrets. I’m so glad you’re turning things around for yourself and your family.
I had the opposite experience RBC. My parents taught me a lot about finances and I am ever thankful. Wells Fargo also stuck my 18 year old son with a credit card and a bunch of overdrafts. But, he knew better, because I told him many times not to do it.
Financial education is the key, along with sound regulation to combat predatory lending pratices. But, in the end, people make their own choices. And many of those choices aren’t very wise.
I have always thought personal finance needs to be taught in schools. We learn so much other stuff (and some i dont feel as important) and this should be too. In high school, my junior year (the 90s) we had to set up a company and sell products but no one taught you how to manage your own money. We were taught to write checks in typing (how long ago that was) but not personal finance. Makes no sense.
I agree a required course is needed, kind of like “home ec” from the old days. I’ve seen many school systems set one up, which is promising.
Actually, personal finance is a required course today as part of high school Economics. I’ve taught it; and it’s a lot of fun to see how much money high school seniors think they’ll be making right out of school:)
However, for years it was not a requirement, and that gap has created huge challenges in our country.
I think we are in trouble because we spend way too much money on things that we really don’t need
I’d like to think the recent economy has changed some people’s perspectives and the frugal movement is starting to take hold. We certainly were living in an age of consumerism.
I’d like to think so, too. But nearly every article I read seems to warn that we’re likely to return to uber-consumerism as soon as times pick up. I’m keeping my fingers crossed for this time around.
It is unfortunate that the economy hasn’t started a frugal movement. The even bigger issue is that Americans are not only spending more today, but they are also saving less! Yes, financial education is key…but we have to make it fun!
Three reasons? I’d say short-term thinking, a lack of patience, and (as you mentioned) the “I deserve it” line of thought.
Kids begin acknowledging money by 9. They need to be taught about finances starting at that time. Either in school or better at home. My daughter learns a finance term every day. She says she wants to be a millionaire.
Kids need to learn to underspend and the parents need to teach them the diff of want vs need.
Before teenagers get a credit card maybe they should take a finance test similar to a drivers test. Poor judgement at either task results in disaster.
Yes, I just started allowance this year for my 9 year old. Although I am never sure how much to regulate the spending? If she wants to blow the whole $5 on Justin Beiber trading cards, should I allow it?
Yes, teenagers should definitely have to take a test before being issued a credit card. My son would have failed as he did not even know what the APR meant. He also did not know that when you transfer money from your CREDIT card into your CHECKING account, there is a $10 fee each time. He did this a total of 5 times, sometimes only transferring .50 CENTS!!!!, Yes 50 CENTS! And the apr is 24%, cash advance!
UGH I am so mad at Wells Fargo, that I am closing my accounts and no longer doing business with them. They used my son to fill a quota for the month on how many credit applications they could get and it was disaster for him. The worst is that I as a parent we have no control once they are 18. I am lucky that he is working with me on getting it straightened out, but it has to start when they are little.
In response to your question about your daughter’s allowance money, I would like to share how my parents handled this when I was a child. My siblings and I each received a set amount of money per week based on our age. If we didn’t do our chores for the week, we didn’t get the money. This taught that we were not entitled to money for nothing.
We got the entire allowance amount every Sunday morning and were allowed to spend it however we chose. At the end of each month, we had to return HALF our total monthly allowance (and also half our gift money from birthdays, holidays, or milestones) back to my mom so she could deposit it to our savings accounts. When possible, we went to the bank with her. In my mind, this was the most important step in teaching us to save, as it models saving in the real world.
This method would have been much less effective if they’d skimmed 50% off the top (like a 401(k) plan) before giving us the allowance. This would save the same amount of $, but we wouldn’t have learned to manage it ourselves. I suggest getting your daughter a bank for home use and also opening a child savings account in her name. If possible, take her along with you to the bank to do deposits so she makes a connection that her money is going to the bank and not disappearing. She can save the rest of her money in her bank at home. Then when she wants to spend the money on Justin Bieber cards, remind her that she needs to save $2.50 of each allowance for the bank at the end of the month. She has a choice to make and consequences if she doesn’t make good choices. You can also remind her that if she saves her money for a month, she can buy something larger and maybe more valuable than buying something small each week.
When I got older and wanted things my parents determined were “wants” not “needs”, they sometimes offered to pay for half. I would have to make the decision to pay the other half or go without. Over time, this type of thinking will hopefully sink in and become second nature to her. Good luck!
The only way we can save ourselves from this mess which Americans are into nowadays is to inculcate the habit of savings among all fellow Americans else we are going to land ourselves in Big Trouble.
I like to add:
-Relaxed Rules: When I was in college, my father had to cosign for me to received $200 gas credit card because I had no income and credit. My daughter received a credit card offer at 11. The laws were relaxed in the 1970’s and the industry became predatorial. The rest has been history.
-Lack of self discipline: I had to train my husband, to the point of death at one time, to ask me before swiping the card. He just couldn’t say no. No one gets into debt if they can walk away for bigger reasons than “now”.
I love the point about relaxed rules. We’ve definitely paid a price for freedom.
You seem to place the blame entirely on the individual citizen and certainly all the points you make are valid. But the truth is that there are macro forces at work in our economy that are exacerbating those personal failings.
I just had a $100,000 CD role over. The new rate? One-half of one percent! I avoided all the pitfalls you mention but to what end? The government is artificially suppressing interest rates to their own gain but while the low rates help consumers and corporations their actions in this regard hurt the prudent saver.
The playing field is simply not level. Income for the middle-class has seen no real growth for a decade. Meanwhile the country is awash in money but because the field is titlted in their direction the rich are getting richer while the middle-class is in decline.
It is more important than ever to be financially literate. But it might not be enough. Even if you act contrary to the actions you list, even if you are financially literate, save a part of all you earn, and avoid the traps of easy credit and consumerism, it takes a lifetime to build real financial security.
An extended period of unemployment or any occurance of lowered income and you will be knocked off that path to financial security. It happens every day, and it is only hubris to think that you are immune, particularly if your job contributes more than 50% or so of your total income.
All great points; I don’t mean to downplay the macro driving forces, but they are, for all intents and purposes, uncontrollable to me. So I try to focus on anything I can do personally to improve my situation. I agree completely that avoiding these three alone is not the solution to long-term financial health, we must always strive to do more. 🙂
Hi Wojo – I guess I’ve had my head in the sand because I didn’t know you were back from your hiatus from last year!
I think one of the primary reasons for our money problems stems from one of our greatest strengths–OPTIMISM!!!
That may sound like a paradox, and I suppose it is, but we’re so certain that everything will work out, that tomorrow will be even better than today, that we don’t prepare for a rainy day. There’s nothing to save for if tomorrow will always be better. Does that make sense?
Makes perfect sense! (And I obviously need to do a better job at marketing! LOL)
For me, it can be summed up in one word: Entitlement.
People feel that they deserve a certain standard of living, irrespective of whether they have the money to pay for it or not.
I find that emulating how people spent money in the 50’s and 60’s is a great way to remain financially safe. While not always completely possible, it is still doable to some extent. Financial education wasn’t necessary 60 years ago. If people couldn’t afford something, they went without. Simple, huh? I’m not talking about necessities like food and health care. I’m talking about things many of us feel entitled to because we’ve been spoiled by capitalism.
60 years ago, people didn’t have so many monthly expenses as we have today. No internet, cable television, cellular phone, video game memberships, movie rental memberships, etc. Going out to eat was less common. Going to the movies was less common. People didn’t have to spend money to have a good time. They weren’t buying 3 dollar cups of coffee and certainly were not buying bottled water. Their homes were lightly furnished, and didn’t look like they were hit by a Walmart tornado. There wasn’t a television in every room. They did not have credit cards. They didn’t have so many consumer choices. They were less wasteful. They didn’t toss out funtional possessions because they weren’t the most modern or stylish. They didn’t need walk-in closets because they didn’t have large wardrobes. They didn’t have kitchens full of unnecessary appliances like rice cookers, pressure cookers and Showtime rotisseries. Most people did not have air conditioners. They didn’t have the more expensive options when purchasing a car. No built-in gps, televisions and heated seats.
They were also less concerned with luxury. Americans today seems to always shoot for upper-middle-class lifestyles, even when it is beyond their means. 60 years ago, people were more content with leading a simple middle-class life. More face-to-face socializing. More physical activity. More personable, in general.
I can understand having financial troubles when it relates to medical bills, car insurance, etc. But most of our financial woes are due to our increasing, unnecessary need to spend money on anything but the basics. We have been programmed to belive life will be dull and pointless unless we have as many possessions as possible.
As a world-traveler, I can tell you that I have met some of the most happy people who were living very simple lives when compared to an American. Many tend to be more social, physically fit, and less dependant on things we feel are necessities.
Mark, Thank you for your thoughtful comment and many great examples of how we’ve inflated our lifestyles.