Imagine you’re riding on an elevator with three teenagers. You’re in your dirty, run-down apartment building and it’s 10pm and nobody is expecting you at home tonight. The teens are somewhere around the age of 15—nothing but jeans-saggin’ and attitude. If you’re reading this and you happen to be 15, then pretend those kids are a few years younger than you.
Suddenly, the elevator gets stuck! It grinds to a halt between floors. You don’t know what’s wrong, but your gut tells you you’re going to be here for a while. Everyone checks their cell phones…no reception. After twenty minutes of hushed cursing, you realize that you may be waiting it out ‘til morning when the union maintenance guy shows up.
You start making small talk, “Y’all kids go to school?” The kids ask you equally ignorant questions, “So, you live in this building?”
To avoid the pain of silence you tell them about your job, your benefits package, that douchebag Jeremy from accounting, and how you also have a passive interest in personal finance.
Eventually one of the kids speaks up. He’s the least jeans-sagginest of the three.
Hey mister, bein’ that you’re a bigshot businessman, I have a question for you. I just started working at 7-Eleven, and I was wondering if there’s anything I should do with my money?
You freeze. Oh. Good. Lord. You’re about to be found out! What do you know about personal finance and investing. You go to your iPhone and type into Google “Things to do with the wages from a 7-Eleven gig when you’re 15 years old” only to realize… blast it all, no service!
Things are looking grim, the teens start to look like a pack of roving hyenas gazing at a wounded zebra. You briefly consider trying to force yourself to pass out, only hesitating over fears of what may become of your body come tomorrow morning. You panic. You need to say something. Get it together, Man! You blurt out with your voice cracking:
Well, first thing would be, don’t simply spend the money because you have it. Make sure you have savings adequate to pay for any emergency expenses that might arise. Use a traditional IRA so you avoid taxes and invest some of it in the stock market. Maybe invest in a solid low-fee ETF like SPY, VIG or VYM. Once you’re comfortable, buy a few shares of a company you like or that you use. May I suggest Urban Outfitters? I’ve heard good things about the belts from Urban Outfitters. Ticker URBN. Good company, and very nice belts.
Save! You start talking about expense ratios and dividends. According to a trusted commercial valuer before you know it, you’re getting into the nuances of Roths vs. Traditional IRAs. The kids are enraptured, and from the heights of your soapbox the financial wisdom floweth like the River Nile. The hours pass as if they were but mere seconds, and when Cliff from the Elevator and Escalator Repairman’s Local 370 shows up at 8:45 the next morning, you almost have to force yourself off the elevator.
You finally get to your apartment and you are perplexed. You just gave a nine-hour elevator lecture on personal finance and investing, so why are you still living in a dirty building with a bunch of jeans-saggin’ 15-year-olds?
This, fine readers, is a problem so many of us face. If each of us were confronted with such a situation as our hypothetical man, I believe nearly all of us could spout the basics: maintain a decent emergency fund, live below your means, avoid debt and interest, seek diversification and high-quality low-fee funds, speculate responsibly, minimize taxes.
We should be full of advice. I mean, advice is everywhere–and not just in the massive financial blogging community. Just look from today in major news outlets:
CNN Money: Don’t Make These 2 Big Investing Mistakes
MarketWatch: 5 Ways to a Happier Financial Life
MSN Money: The Key To Retirement Security
USA Today: Ten Ways to Live Frugally
CNBC: Afraid You’ll Outlive Your Money? Do This.
Then, my blog, while still small, already has a handful of articles on financial advice:
Passive vs. Active Expense Optimization
Dividend Growth Investing (and again)
The point is, there’s no shortage of advice out there. Most of it we’re already fully aware of (how many times do I need to be reminded to skip my morning Starbucks?). So why, then, do so many people have such a difficult time saving, investing, retiring early, and living a financially independent life? I mean, even after ALL this advice, the personal savings rate in the U.S. is only 4.9% and the average retirement savings of 55 to 64-year-olds is only $12,000!!!
Maybe I can explain why this is. One recent study published in the journal Management Science found that studying financial literacy has a “negligible” impact on future behavior, and that within 20 months almost everyone who has taken a financial literacy class has forgotten what they learned.
Why does financial advice, despite its ubiquity, do so little good in actually helping people’s financial situation? Because of this simple equation:
Information + Action = Success
Information we have. Action we do not. You can easily impart information on somebody (see many links above). Far more difficult, though, is imparting action. The answer to our society’s collective financial problems, my friends, is not a lack of advice, it is a lack of inspiration.
If you’ve been a regular reader thus far of my blog (Shout-out to the 27 active readers I have out there. Holla!), then you may have gotten the idea that I’m much more about instilling inspiration, motivation, and passion rather than providing rehashed advice.
That is NOT to say, though, that I will not provide financial advice. I LOVE giving financial advice! I plan on starting an ongoing “Case Study” series to try to bring others into the fold of desiring financial independence and taking the “Red Pill” version of life. These case studies will be chock full of financial advice. However, I’ve lived in the real world long enough to know that advice is only as good as the abilities of the person to put that advice into action. When I talk to people about improving their financial situation, the first questions I ask are not about expenses or income (those topics come later, no doubt), but I first talk about their dreams, ideas, values, and desires. These intangibles are what drives action, which is almost certainly more important than information.
I will always concentrate on trying to inspire others. The “Get Inspired” category (at the top) will probably always be the most active part of this blog. With things like getting others to see their own perfect life, helping define one’s retirementality, and getting others to recognize the futility in working (parts one and two), I hope to instill the initiative, the motivation, and the drive to turn that advice into action.
I’ll continue to offer both sides of the equation, hoping to lead you (and myself) to success. But just understand this, information is the bike, action is the rider. You bike ain’t goin’ very far just sittin’ in the garage.
Get Acting!
Eric
It’s so true, there is plenty of advice out there! to me its kinda the same problem as with the “obesity epidemic”, plenty of advice out there, everyone seems to know what they should be doing to keep themselves healthy but not everyone can keep it up. It seems our primitive brain is not very good at denying ourselves rewards, with food or with spending. You definitely don’t get the same neurochemical stimulus from eating a salad or putting some extra money in a savings account, but the feeling you get from buying a cheeseburger or a new outfit! WOW!
The concepts of early retirement or diet are relatively simple but for us humans, not so easy.
Quit Work For Life – Susie recently posted…You Need a Mall Diet
True! It’s not what you know; it’s what you do with what you know.
It’s not terribly difficult to find quality personal finance information. Since I’ve started paying more attention to blogs like this one, I’ve found no shortage of good advice, and inspiration, too.
What most people lack is the personal motivation to get educated and make the necessary changes in their lives. It took me years to “find time” to get my finances in order. Meanwhile, I spent dozens of hours every month watching my favorite teams (Go Sports!), fantasy football, watching bad comedies, mindless web surfing, etc…
Eventually, something I read lit a FIRE under me, and I haven’t been the same since.
Best,
-Physician on FIRE
Great comment to a great article. I think people want to get control of their money, but they are afraid, afraid of facing the chaos, facing what they don’t know, facing complexity in all its scariness. It just seems like so much that it is easier not to begin!
Amen! Inspiration is critical. My inspiration comes from finding ways to make the world a better place. Also I want to climb really tall mountains! I’ll spare you the rest of my list. We all need a powerful motivation if we are going to reduce our consumption spending and free ourselves to pursue… well… whatever inspires us. Thanks.
Great article. I also refer to it as “paralysis by analysis”. Everything is easy in hindsight but at the time of making the decision, it is information over load and fear of making the wrong decision.
Awesome content here! You’ve definitely brought up some valid points that aren’t just personal finance related. Something that a lot of “advice” is missing is the ability for the listener to relate. Being able to relate is such a key in learning and being inspired. It’s also important for the person giving the advice to be able to relate. I used to coach high school basketball and I learned very quickly that my ability to relate to the players, because I to played for the program, was one of my most valuable attributes as a coach.
I often try to give financial advice to some of my close family members and it’s extremely difficult on both ends because I don’t walk in their shoes and they don’t walk in mine. I live a very different life from them so it just makes those conversations that much more difficult. What I’ve found as a better solution is to point them to someone or something that they can relate to instead of trying to give them advice myself.
Great post!