Did you know that the average person spends $1.22 for every $1.00 earned? That is a negative savings rate! According to Ben S. Bernanke, Federal Reserve Chairman, “There is a desperate need for greater financial literacy among consumers.” And he is right!
The average credit card debt is $10,000. The average person close to retirement has only $60,000 in a 401(k). Furthermore, one out of three people put off retirement because they don’t think they are in a position to retire. Of those who do retire, 90% don’t feel financially independent. And, despite all of this, only 10% of adult consumers are working with a financial advisor.
These statistics are alarming and lead us to believe that many people just don’t understand how money really works. This lack of fiscal literacy is the second blind spot on the road to financial independence.
In his book, Rich Dad, Poor Dad, Robert Kiyosaki says the rich don’t work for money… money works for them. The middle class and poor work for money. Many of us don’t understand this. Why? We don’t understand because it’s not how we were taught. Often times the reason we manage our money the way we do, is because it’s how we were taught (or not taught) by our parents and grandparents.
Schools typically do not teach us (or our children) how to handle money and make smart financial decisions. Growing up, we do not learn the importance of saving, investing, budgeting, etc. As students head off to college, they are ill prepared for the dangers of “easy money” with credit cards, and have not thought ahead to living a life saddled with exorbitant student loan debt.
Decades ago, mortgages were something to avoid at all costs and paid back as quickly as possible. And nobody would have predicted the dramatic increase in paying for a college education. The rules of money and opportunities have changed. Pensions and social security are no longer as reliable as they used to be. Today mortgages – when managed properly – are being used strategically to maximize tax benefits, manage cash-flow and asset accumulation.
The good news is, the sooner you become fiscally literate, the sooner you will learn how to avoid the “four financial blind-spots”, and the more time and opportunity you will have to achieve your financial goals. And you’ll do this with fewer financial accidents along the way. Understanding money and how to make it work for you is the key to your financial freedom!