When Financial literacy is not enough

A lot is being written about Financial literacy. In its basic definition, Financial literacy is is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.

There has been a lot of lamentations over the fact Financial literacy is not taught at schools. Although things are starting to change on that front, and I totally agree with the importance of this subject, I believe Financial literacy alone is not enough.

Let me elaborate a bit.

YOU NEED SOME MONEY TO APPLY FINANCIAL LITERACY CONCEPTS

Yep, that’s brutal and cynical but it is the (hard) truth.

You initially don’t need money to learn about Financial literacy, but you do in order to implement what you learned. For example, debt repayment and investing are 2 pillars of Financial literacy.

If you don’t have any -or enough-money to pay off your debt or to start investing, you won’t go very far with your personal Financial plan. The money conundrum needs to be sorted out first.

YOU NEED TO ADDRESS YOUR PERSONAL BELIEFS ABOUT MONEY

So you think your Financial decisions all come from a rational, logical, cold place? Think again!

A lot of our decisions come from deeply-ingrained beliefs we all have about money….as well as other aspects of our lives and ourselves. Some beliefs can be very limiting and hold us back.

Behavioral Finance is a relatively new subject field that studies the psychology behind financial decision-making. We all can learn a lot from this. Some common beliefs around money can trigger overconfidence, avoidance or inertia.

If you want different results with your money, look at the belief system behind what you are doing and how you are feeling. This can work in other aspects of your life, by the way.

The first step is to identify the belief and accept it. Then you can figure-out how to change it, if it is a possibility.

CONSISTENCY IS KEY

In order to be successful, you need to consistently apply the Financial literacy principles you learned as well as addressing your beliefs in an equally consistent manner.

This is where most people fall off the wagon. It can take time to change deeply-ingrained beliefs. Relapses are to be expected. If money is lacking, you may think it is pointless to apply these principles. Please, don’t do this!

Consistency and perseverance is what will yield results.

final word

I look at Financial literacy as being one leg of the “Financial chair”. If you are missing the 3 other ones -money, beliefs and consistency-, the chair will be, at best, shaky.

Financial literacy is a good start. But it simply is not enough.