FINANCIAL LITERACY, INVESTING

Three Lessons That Have Brought Me Happiness

Joseph A. Davis, CDFA®

November 27, 2017

This morning I read an article from the Wall Street Journal discussing financial literacy. While I think the article was really good in a lot of ways, it really did miss the overall point.  What’s that saying? “Close, but no cigar.”

The article completely failed to answer the overall question, why? Why do most Americans lack basic financial literacy? My wife says I like to think I know all the answers! She’s probably right, but I do know the reason why. At least I think I do. The primary reason why, is because money, and how to build wealth, are not taught in school.

Yes, money & finance are taught in school. We learn the overall use of money and/or the economics of money. We can major in finance, economics & other areas. We can even earn Masters & PHD’s so we can teach others. But you’re never really taught how money works. Even the entrepreneurial programs suffer from the same issues. The problem is that most educators don’t know how money works either. Most never have had the necessary experiences to learn for themselves – so we get text book answers with little to no substance. How can we learn when those that teach don’t really know?

My concern is that we will financially FAIL as a country if we continue to save & invest as our parents did.

My concern is that we will financially FAIL as a country if we continue to save & invest as our parents did.

Need proof? While the basic premise of “save & invest” is commonly understood, why do most people fail to do this? More importantly, how is saving money, when most people earn ordinary income, coupled with inflation, advantageous in a low to zero interest rate environment? Or, why should we be focused on building wealth? Do you think it’s evil to become wealthy? Do you categorically think of investing & savings as synonyms?

If you don’t know, or if my questions bother you – then it’s the result of a small financial education. Don’t take this the wrong way. I fell for it too. Speaking as a Gen Xer or Millennial (I was born in 1981 – I’m foggy on which group I’m in), my concern is that we will financially FAIL as a country if we continue to save & invest as our parents did. I refuse to fall into this trap & I refuse to let it happen to my children.

Tim Shiner taught me to watch out for the “vice” in advice. There is a ton of truth to that. For anyone reading this I would advise the same. There are A LOT of people smarter & wealthier than me. If you know them – you should seek them out. I seek out mentors through books. It’s faster, cheaper & I don’t need to beg them for lunch. While I myself am still on my own entrepreneurial/investing journey, I have learned a few things along the way.

“The more educated we become, the smaller the perceived risk & the greater our control over it.”

1. Investing requires us to take risks and it can be calculated. Some risks can be eliminated, controlled or minimized. Other risks cannot & are completely out of our control. The more educated we become, the smaller the perceived risk & the greater our control over it. However, don’t get cocky. I’ve been burned & you will too. When looking at taking a calculated risk, most of us start to become fearful. Fear can turn into a massive chasm disabling us from any action at all. The sheer thought of crossing this chasm is too great for most individuals. 

Unfortunately, too often we misplace the word “risk” with “fear.” The interesting thing about fear is that it’s exceptionally motivating. Fear will allow people to do amazing things but it can simultaneously incapacitate you as well. The irony (if that’s the right word) is that the only way to understand if our fear is real or perceived, is to embrace the thing that is making us fearful. Only then can we truly understand the issue.

Sir Earnest Shackleton is one of my heroes. While his personal life was lacking & most of his business ventures failed, it was said of him that, “if disaster strikes and all hope is lost, get down on your knees and pray for Shackleton!” He saved the lives of dozens of men & accomplished things that no man had ever done. His leadership skills were unparalleled despite deep character flaws. He was a man who faced fear head-on and won despite ridiculous odds.

Access to credit, or capital, comes quite easily for us in our country. Capital allows us to grow businesses and employee millions which makes our great country flourish.

2. From August 2000 until August 2002 I lived in Cambodia. It was an amazing experience & I fell in love with this country and its people. Unfortunately, Cambodia suffers from tremendous amounts of poverty. While political & other factors contribute to this problem, one that was quite obvious to me was that they have little to no access to capital.

In comparison, access to credit, or capital, comes quite easily for us in our country. Capital allows us to grow businesses and employee millions which makes our great country flourish. From time to time I see articles and information about micro-loans being made to individuals in third world countries. We applaud the success of these individuals who are quite literally pulling their families out of the dirt and into decent standards of living. All of this is made possible through capital or in other words, debt.

Yet the average American is taught that debt is bad. Yes, we need to be careful with debt. But debt can be an amazing tool & in this interest rate environment, it is. Did I mention that debt comes tax-free?

“Instead of studying the investment or business to death for the next 20 years, take action. Take small, calculated steps & just do it.”

3. Building wealth simply requires action. Earlier this year I heard that, “if more information were the key, we would all be billionaires with six pack abs!” For those of you seeking to build wealth but are fearful, I would say the following: Instead of studying the investment or business to death for the next 20 years, take action. Take small, calculated steps & just do it.

Make a 3-month goal to accomplish an amazing task & do it. Don’t do a one-year plan. That’s too far. You’ll procrastinate & accomplish nothing. Three months will force you to commit. If 3-month planning is too much, then go down to 1-month, a week, a day!

Start each day by making your bed so that if you fail you can at least come home to a nice bed. If you fail, which you may, then you have learned. You will be better off for it. These lessons will come no other way. The result will be a more educated, less fearful, motivated you!

There are a MILLION excuses for not taking action. I’ve heard them, thought them & said them. I can tell you for certain that it is never a good time of year to invest. It is never a good time of year to start a business. And it is always a bad time of year to prospect for clients. The market is too high, or it’s too low, or my personal favorite, that can’t be done here.

There are a MILLION excuses for not taking action. I’ve heard them, thought them & said them. The market is too high, or it’s too low, or my personal favorite, ‘that can’t be done here.’

There are a MILLION excuses for not taking action. I’ve heard them, thought them & said them. The market is too high, or it’s too low, or my personal favorite, ‘that can’t be done here.’

Take a leap of faith & take action!  Start doing whatever it is that is scares you.  An amazing thing will happen too!  You’ll start learning (making mistakes) and through those opportunities you will slowly start building success.  Then eventually, you’ll be able to look back at that great chasm of fear, and realize that it wasn’t that bad at all.  In fact, you’ll wonder what it was that scared you in the first place.

Ultimately, your experiences will make your life rich and worthwhile. And then maybe, just maybe, you’ll be able to lift others up along the way, relishing in their success, which leads to happiness. I like to think that is why I am here. It’s my hope I can lift a few others along the way.

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