38% of US households have credit card debt. 43% of people with student loans aren’t making payments.1 Most people feel like they could be doing better with their money. In fact, the average American feels like a failure when it comes to finance.
What’s making everyone so financially insecure, and how can we keep that from being passed on to the next generation? We aren’t trying to make our kids filthy rich, but we want them to be financially secure. Money shouldn’t be a major stressor for our kids, and it doesn’t have to be.
Let’s take a look at what keeps people financially insecure, and how to battle it…
1. A Financially Insecure Childhood
“Overcoming poverty is not a gesture of charity. It is the protection of a fundamental human right, the right to dignity and a decent life.”
Nelson Mandela
This is the biggest one, because it takes so long to overcome. I’ve met more than a few millionaires who don’t feel financially secure, because of the conditions they grew up in. When you grow up with nothing, you always have that stigma. You never feel like it’s enough.
People who lived during The Great Depression era still have habits that were ingrained in them during those years of deprivation. If you grew up poor, you still have habits that you took with you from your childhood. Some of these habits are helpful (e.g., frugality, planning), and others are harmful (e.g., hoarding, greed). Despite your situation as a child, it is possible to find financial freedom and security.
How do you battle that?
Well, the numbers help a lot. When you can see that you’re on the right track to live a financially secure life, it helps you breathe a little easier. When you have a goal set, you have something to reach, and you know when you get there. If you don’t have a plan, you’ll stay financially insecure. We’ll talk more about a plan in a moment, but first let’s discuss what a poverty-stricken childhood [and many other childhoods] leads to…
2. Not Being Financially Literate
“There is a secret psychology of money. Most people don’t know about it. That’s why most people never become financially successful. A lack of money is not the problem; it is merely a symptom of what’s going on inside of you.”
T. Harv Eker
Two-thirds of American adults can’t pass a basic financial literacy test.2 That shouldn’t come as a surprise since finance isn’t really taught in school. Most people have no idea what they’re doing with their money, even if they earn a lot of it.
How do you battle that?
Start by taking the time to learn how money really works, and then pass that down to your kids. Teach your kids about money… teach them finance terms, teach them to invest, teach them to budget. Even if they’re in their teen years, it’s never too late. Financial literacy and security comes down to controlling where your money goes…
3. Not Controlling Your Money
“You must gain control over your money or the lack of it will forever control you.”
Dave Ramsey
Financial illiteracy leads to out-of-control spending, and no direction for your money. Around one-third of Americans actually keep a budget.3 If you don’t have control over your money, it will never matter how much you make. When you earn $5 million per year, and spend $6 million, you’re still broke.
The fact is, money doesn’t solve money problems most of the time. A change in habits and behaviors solves money problems. The amount you make is rarely the issue. What you do with what you have is not only all you can do, but it’s what makes the difference between financial peace and financial panic.
How do you battle that?
Simple: a budget. There’s freedom in a budget. It’s not binding like people think. It allows you to get the most out of every dollar you earn. You work hard for your money, you might as well take the time to plan where it goes, and speaking of a plan…
4. Not Having a Plan
“Planning is bringing the future into the present so that you can do something about it now.”
Alan Lakein
One-third of the adults in the US have saved absolutely nothing for retirement, and less than 50% have over $10,000 in savings.4 People aren’t ready for retirement, and most don’t even have a plan.
How can you reach a goal when you don’t have one? How can you reach financially security if you don’t even know what that means for you? You won’t get anywhere without a financial roadmap.
How do you battle that?
Get a plan. There’s the 4% rule, which is a conservative estimate that states you can withdraw 4% of your retirement investments, and still have it grow at a rate that ensures you don’t run out of money. So you would save enough to be able to live on 4% of it. That’s one option, but it’s more conservative than necessary, according to financial expert, Michael Kitces,5 and the 4% rule will likely leave an abundance of money left over. If your kids start investing early (even in their 20s), they won’t have to worry. On another note, if they understand the dangers of debt, saving and investing will be easier…
5. Not Understanding How Debt Works
“The man who never has money enough to pay his debts has too much of something else.”
James Lendall Basford
US consumer debt is over $4 trillion, with credit card debt making up 1/4 of that.6 People are starting to wake up and realize minimum payments are practically the same as not making payments. However, Americans are still spending on credit like it’s Monopoly money.
When we amass mountains of credit card debt, it will weigh on us and make financial security impossible. We must not only understand the dangers of debt ourselves, but teach our kids to avoid it.
How do you battle that?
Pay your credit cards off, in-full, every month. If you can’t do that, you shouldn’t be using credit cards. Debit cards are a great alternative if your credit spending is out of control. Compound interest is a great tool when it’s working for you, but when you’re in consumer debt, it’s working against you. One tool that can protect against a lot of unexpected, sudden debt (such as medical expenses) is insurance…
6. Not Having Adequate Insurance
“Getting into debt because you wanted a car you couldn’t afford is one thing, but getting into debt because of some major unexpected expense is another thing. The two have more in common than most people realize, and financial literacy can cure both.”
Kalen Bruce
In 2017, almost 30 million Americans didn’t have health insurance.7 The numbers haven’t changed much. Insurance is a trillion-dollar industry, and there are thousands of insurance companies across the US.8 Yet, so many Americans not only don’t have enough insurance, they don’t even understand most insurance.
How do you battle that?
If you can’t afford to replace it, insure it. Educate yourself, and then educate your children, on appropriate types and amounts of insurance. Consider the types of insurances you may need: health, home, rental, auto, life, disability, and the list doesn’t stop there. You can learn more about how insurance works in point #11 here. Adequate insurance is part of the bigger financial picture…
7. Not Seeing the Bigger Picture
“I work really hard at trying to see the big picture and not getting stuck in ego. I believe we’re all put on this planet for a purpose, and we all have a different purpose… When you connect with that love and that compassion, that’s when everything unfolds.”
Ellen DeGeneres
Life isn’t all about working to survive. We work so we can live, not the other way around. Why are you really working? To pay bills and have a nice house, or to life a full life, and leave a legacy to your children? A financial plan shows you the bigger picture. There has to be a goal… an endgame.
How do you battle that?
Take a step back and evaluate your financial situation. Set some goals and determine where you want to be in 5, 10 or 20 years. Spend time in silence thinking about where you really want to be in life. You’re important. Take the time for yourself. It’s also important to be thankful for where you are and what you have…
8. Not Having Enough Gratitude
“Gratitude is the healthiest of all human emotions. The more you express gratitude for what you have, the more likely you will have even more to express gratitude for.”
Zig Ziglar
It’s so easy to get caught up in chasing things. Things like happiness. Which is something you’ll never have by chasing it. People are ungrateful, and we all know that, but did you know it will keep you financially insecure? If you always seek more, you’ll never appreciate what you have.
How do you battle that?
Practice gratitude by starting small. List three things you’re grateful for every morning. It won’t be hard to find those things, and if it is, you may want to look at your mindset. Teach your kids to be grateful and thankful. If you teach them that from the start, they won’t feel financially insecure for long.
Further Book Reading
- The Total Money Makeover by Dave Ramsey
- The Automatic Millionaire by David Bach
- Minimalist Budget by Charlie Mason
