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This is the Key to Financial Literacy for the New Generation

Sadly, the average investor is incompetent. This is why financial education should be at the top of your priority list.

summary

• Traditional money advice is outdated and no longer effective.

• Most people lack basic financial literacy—and don’t even realize it.

• Financial education is the key to control, freedom, and true wealth.

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There once was a time when the world of money was fairly straightforward. For the most part, you could do alright if you followed the old advice of “go to a good school, get a good job, buy a house, save money, and invest in a diversified portfolio of stocks, bonds, and mutual funds.” Sounds perfect.

But eventually, the world of money became more and more complicated. The dollar was taken off the gold standard, creating volatile swings in its value. Defined benefit plans, aka employer-funded plans, were abandoned in favor of defined contribution plans, necessitating investment in the stock markets by employees not financially educated. The financial adviser class rose as a result. And the world of money became increasingly global, making it harder to keep up on the markets. The result has been a baby boomer generation that is not ready for retirement, and a looming financial crisis.

One would have hoped that the baby boomer generation would have at least learned from their mistakes and focused on financial education for their children, the millennials, but they did not.

According to a poll by Harris, "Nearly 80 percent of millennials are not invested in the stock market."

When asked why:

• 40% said they don't have enough money

• 34% said they don't know how

• 13% blamed student debt

All of these are the symptoms and excuses of those who lack a financial education.

If you don't have enough money it's because you have never been taught how to make money outside of getting a good job—old money advice.

If you don't know how to invest it's because you weren't taught how money works and were probably told to save and buy a house—old money advice.

If you have so much student debt you can't afford to invest, you believed the lie that you needed to go to a good school to be successful—old money advice.

Basic financial literacy: a novelty trait

“U.S. retail investors lack basic financial literacy…(and) have a weak grasp of elementary financial concepts.” That’s the summary of a special report from the U.S. Securities and Exchange Commission a couple years ago.

They based their report on a few different studies, one of them coming directly from the Financial Industry Regulatory Authority (FINRA). This is the organization that serves as an overseer and watchdog for brokerage firms.

In their financial quiz they ask, here’s a simple question FINRA asked average people. “If interest rates rise, what will typically happen to bond prices? Will they rise, fall, stay the same, or is there no relationship?” Here’s the disappointing part—only 28% of the people correctly answered that bond prices would fall.

Think about it: What this one simple question shows is that of all the millions of people out there who have their money in 401(k) plans, mutual funds, and bond funds (many of which hold bonds), just a little over one in four know how interest rates affect bond prices. Even though this is just one basic question, it’s a symptom of the bigger problem facing beginning investors. Our system doesn’t give us financial education, so it’s up to each one of us to gain it for ourselves.

How big is the problem? The report goes on to say that among teachers who are tasked with teaching financial topics in our schools, fewer than 20% of them felt very competent in this role. This is how financial ignorance spreads through our society, because not even the teachers can properly help young people gain this skill and knowledge.

They love to keep us in the dark

But make no mistake, many financial advisors want us to remain ignorant about investing for ourselves. That’s because when Wall Street handles our investing for us, they make a lot of money. One of the tricks they use is to convince us that we’re not smart enough to handle our own investments. By keeping us ignorant, many of these experts thrive. As long as people are handing over control of their financial future to others, then advisors such as financial planners and stock brokers will have a lot of job security.

While there are good advisors out there who are willing to work with hands-on investors, it just takes a special breed of advisor because it requires a lot more work for them to give you the help you deserve.

For financial advisors, though, it’s much easier—and often professionally safer—to advise clients to conform to their company’s boilerplate strategies than to create a strategy that fits a client’s goals.

With a 401(k) or similar retirement plan, there is no individual strategizing at all. Within your plan, it’s typical that your only options are to choose from a handful of pre-made funds. That kind of push-button investing doesn’t make you smarter. Even worse, it doesn’t require any expertise from your 401(k) company.

As long as people remain in the dark about how to take care of their own money, they will probably never demand anything more than what they are getting right now. We have become trained to accept whatever these companies give us. The longer they can keep us uneducated, the more money they will make. It’s the perfect business model if you’re in the 401(k) or mutual fund business.

The truth is, it takes almost zero expertise to manage these funds since they are typically tied to the overall stock market—or a specific portion of it. This means they are betting your future on the luck of the market with virtually no additional management to protect your investment.

Ignorance puts you at serious risk

Here’s a thought for you:What you don’t know CAN hurt you—and probably will hurt you at some point.

This is especially true of investments. The people with the most knowledge will win the most money. The people with little knowledge will lose the most money.

When we can’t do something for ourselves, we are forced to rely on others. And when we rely on others, we are also surrendering control to them. Because of a lack of education, many people have become totally dependent on outside advisors, such as their 401(k) companies, to take care of their money. They depend on these unknown advisors to make their dreams come true.

Perhaps we are so trusting of these faceless financial advisors because of an illusion that has been created. There is a perception that they possess almost magical predictive powers far beyond our own abilities, even to the point of, supposedly, seeing the future. Even more, we are made to feel that these special powers are beyond the reach of ordinary mortals like you and me. It has come to the point where our culture just assumes we can’t learn these skills for ourselves, that we can’t do the “magic” that they do. So we quietly kneel before the 401(k) companies and lay our futures on their altars, completely at their mercy.

Our worst enemy isn’t ignorance–it’s apathy

What may be even worse for investors is not caring about what’s happening to their account. Isn’t it a lot easier to pick up the mail, pull out another quarterly statement, shake your head again at the poor results, and do nothing about it—than to contemplate the alternative?

Because asking tough questions and doing something about it can seem difficult and overwhelming. Apathy is easy, but it can cost you a bundle in the long run.

Is it because we’re lazy? Or maybe we think that somehow a hero on a white horse will ride in at the last minute and add several zeros to the numbers on that quarterly statement? In this story, there is no savior but you. No one but you has the reasons and motivation to change the way the story ends.

If we can somehow get past the apathy that is holding us back to proactively take care of our own money, we can point ourselves toward the future we truly desire.

Don’t just invest; be an investor

One of the most common mistakes new investors make is that they focus on what investments they want to own rather than what they want to become. A person with no knowledge or understanding can own investments. But to truly take control of your financial future, you need to gain the skills of an investor that will help you achieve the results you desire.

As you concentrate on growing your knowledge of investing through education, you will enjoy becoming more aware of the investing techniques people use in the stock market to achieve monthly cash flow and retire early. In time, you will not only realize that it can be done, but that you can become competent in how to invest intelligently for your own success.

The ultimate goal is proficiency—the ability to take the right steps that lead to the desired results. Those who are proficient have become investors, while those who fall short of proficiency merely have investments and must depend on others.

It’s not too late

So, let’s say you’re a millennial who’s been navigating life with the antiquated money advice you grew up with; here are some things you can do to change your financial future.

Invest in financial education

Take charge of your financial future. Don't rely on or expect someone to do it for you. Examine your schedule and ruthlessly cut out activities that suck up your time but provide little value. Then, fill that time with a prescribed course of financial study. Read books and blogs, listen to podcasts, attend seminars and network, and find a mentor.

Stop saving for retirement

And start saving for investments. With your newfound financial knowledge, don't just sit on your savings. Put it to work in investments. And don't think that means just the stock market. Look into all four asset classes: real estate, commodities, paper, and business. Start small, learn, and build from there. Treat it like a real life video game.

Learn to delay your gratification

Once you start seeing some success investing, it will be tempting to "treat yo self." Don't. At least not yet. Rather, use your earnings to invest more. Once you master investing, then use your cash flow to cover your liability purchases like cars, vacations, and more. But only once you've replaced your salary with investment income. Until then, delay your gratification.

If you do these three things, you will change your financial fortune. And you will be lightyears ahead.

Make investing a life skill

We can be more than simply a worker bee in life. We have amazing brains that can learn new things and acquire new skills. We can be men and women of many talents. We have the capacity to learn things that can be valuable to us. We can develop hidden talents when we decide it‘s important to us.

If generating money through investments is important to us, we can acquire new skills that will bless our lives with freedom, time, and great satisfaction.

Just as people take lessons to play a musical instrument… learn to prepare a gourmet dish… or take a motorcycle safety course… you are allowed to invest a little time in learning new things after the formal ‘education’ of high school and college.

However, people are less likely to search for solutions if they do not know there is a problem. If financial freedom is your goal, implement these concepts to get started. These skills can transform your life.