Being Smart Doesn't Mean You Know Squat about Managing Your Money

While reading the August issue of Money magazine, my eye was drawn to a caption that ran beside a picture of a husband, his wife, and their son. It said:

"Two master's degrees between us and we can't balance a checkbook."

I guess this is why intelligence is linked to income but not to net worth. People can be smart and earn a big income, but because they can't even do the simple things when it comes to money (like balance a checkbook), their net worth ends up in the toilet.

But how do people end up this way? Seriously. A fifth-grader can balance a checkbook. And if you have Quicken or something like it, even less of an education is required. How (and why) do people go through their lives with such little financial knowledge? It blows me away.

Comments

[Ben Estevan]

ya thats right !!
managing money is very difficult

[sky2evan]

Managing money (ie personal finance) is a skill that can be learned - and SHOULD be learned at an early age... and TAUGHT IN SCHOOL.

Ironic that money is so highly valued in society - and yet it is only an "optional" course throughout the first 12-16 years of a child's education.

Poor spending habits are just like any other bad habits - they're acquired at an early age, and then become relatively fixed over time & difficult to change.

[Lynnae]

I agree with Ben. I also think that parents do not dedicate enough time (if they spend any time at all) teaching their kids how to manage money. I remember the summer before I went to college, my mom taught me how to balance a checkbook. And that was it. That was all the financial knowledge I had before I left home. That's scary.

Now that I'm a parent, my kids are learning at a young age!

[Nofie Iman]

My parents taught me to manage money seriously, no matter how much it is. I believe that financial education is important as we already know that a lot of people tend to turn into poor spending habits and get into financial distress.

Anyway, FMF, I have questions for you:

1) Do you share with your child how much you have put into a savings/fund/insurance/unit-link account for them?

2) Have you provided them with some sort of savings account/trust fund in case of your death or injury?

[SweetTxMama]

Budgeting can be very simple but I think people just have to be proactive and do it. I think people tend to procrastinate when it comes to creating a budget and just let it go. Combine that with keeping up with the biggest & newest everything can spell out big trouble. I agree that these basics need to be taught early on so it is second nature to our children. I know I am teaching my 6-year-old now. We talk about spending and (the more important) saving all of the time while out shopping. She has walked away from buying an item much more than buying something after I've asked this question: How many weeks of allowance did you have to save for that 1 little item? Do you think it is worth it? I would love to see that kind of thing reinforced in our schools.

[Madame X]

It is ridiculous that someone that educated can't balance a checkbook... but these stories always kind of annoy me. It's as though people want to come up with reasons that intelligence has no value: "oh, don't get a masters degree, those are just for those eggheads who can't do anything practical like balance a checkbook..."

[Miguel]

I have to agree with Madame X. The media always highlights the extremes to get your attention. After awhile, it just gets annoying. And I notice that FMF in particular seems to promote this stuff. What's with the hostility towards people with advanced educations?

I know plenty of people with advanced degrees who can balance checkbooks and then some.

But, really, this is an issue that tends to cut across class boundaries - there are people educated and uneducated that are too lazy to pay close attention to their spending and live beyond their means.

So, what else is new? Why would you even think that a degree in something like say politics or hisotry or even engineering should make someone more or less financially savy?

[m]

I'm fairly certain those people could balance a checkbook. I think it's more a figure of speech or an exaggeration. Either way, there are plenty of reasons why an intelligent person might have little financial knowledge. Where did your interest in personal finance come from?

Many who grow up with money a big issue (whether because they have a lot of it or not enough of it or the family or the individual is just very money oriented), grow up focused on finances. Some grow up in families where money is not discussed, and perhaps even where the pursuit of money is looked down upon. You take a guess how people growing up like that might not know much about personal finance and as adults not realize that there is so much to know that they are ignorant of.

Or, often, if you don't make much money, you may think, these things don't apply to me; such concerns (investing, retirement accounts, etc.) are for people who are doing well.

Those are just some examples. There are tons of reasons why intelligent people may be weak in the area of personal finance. I don't see what is really so unusual or hard to understand about it.

Not everyone is exposed to the same environment or information in life, and often when you don't know something, you aren't even aware of what it is exactly that you don't know. Until something makes you aware that there's info. out there that you don't know AND that it can and does apply to you, it doesn't even occur to you to get out there and educate yourself about it.

[JJ in Balt]

mmmm- it really is a situation that cuts across all economic and "class" levels. IMO, seems to me it is a combination of two things - Focus & Action.

We are all bombarded with requests for a piece of our time and as humans, we all have very diverse interests. Combine those 2 things and you will find that many people just do not focus on their financial situation. The first "problem" is not the need for financial skills but learning how to make your money and finances a part of your daily/weekly life. I know this sounds like heresy - but I found that some of the people I have coached could not believe that I would spend time reading 5 finance blogs each day. Get my point? This is a new world for many. So, when asked for advice, I first help people/family/friends learn to focus on their personal finance.

The 2nd issue is action. Once you have a focus, then what do you do? That is where people need to be taught not only concrete money management skills but also how to access information on Money and finances. Everyone learns differently and at their own pace, so finding the right fit for financial education can be an intimidating task for some folks. That is where you ( readers of this blog) can be of tremendous help in guiding people. (Rant- I have found some of the blogs are not as helpful as they could be to "newbies". People should not be put down because they did not spend their past 20 years saving every penny or investing in index funds etc.) If you have an opportunity be a guide for someone.

Well, I am off my soapbox now, thanks for listening

- JJ

[Lazy Man and Money]

I can't balance a checkbook either. I never felt the need to learn. I've always simply kept $1000 extra in my checking account, made sure that at the end of the month there were no false charges, and the balance seems "within a couple of hundred dollars to being right" (just eyeballing it). If the banks' computers can't do basic math I've probably lost a few dollars.

I realize the statement was meant to be a general lack of financial education, but let's not take it too literally. Balancing a checkbook is hardly a necessary skill to be very successful managing your money.

[Lord]

Rather than a matter of difficulty, it is a matter of desire. Most are simply bored by it. They would rather be doing anything else. Rather than focus on budgeting which is boring, focus on net worth and profit and loss which are exciting. Focus on goals and progress towards them. Know the difference between a task and a goal. A task is drudgery relieved to be over. A goal is pleasure enjoyed to strive for.

[Thomas]

they probably make more than they normally spend so budgeting the books doesn't take presidence. I have a budget, but don't balance my checkbook in the conventional sense.

[Todd]

FMF keeps repeating the canard that intelligence is not linked with new worth in spite of evidence on his own web site that this isn't true. While the correlation may not be perfectly linear, there's no question that income and net worth are related. Indeed, the most recent Survey of Consumer Finances by the Federal Reserve Board makes that clear. Thus, if
income and intelligence are related, intelligence and net worth must perforce be related as well.

[Elena]

I manage all our family finances (I know where everything goes literally to a dollar), but I don't know how to balance a check book, either. I didn;t know it needed to be balanced.

[Todd]

For the most part, I manage the family finances, although my wife and I are both involved in every major decision. My wife balances the checkbook, though.

For the record, it's not very hard to do. You look at your statement from the bank, compare it to your checkbook balance and account for any outstanding checks. If the bank says you have $500 in your checking account and you show you have $200 and you have $300 in outstanding checks that haven't cleared yet, then your checkbook is balanced. Piece of cake.

[Iva]

I think you'll find that education and money knowledge aren't as linked as most people would think. I recently read a study about the amount of teenagers in debt which suggested money education should be a part of high school, and after working in the debt industry, I begin to agree that education on money could result in better consumer spending habits and money management.

[AEO]

Managing money is not that complicated and every one can easily learn how to do it. All you need is to pay attention to your budget. It that simple.