5 Scary Things About Financial Literacy (and 5 Reasons Why You Shouldn’t Be Scared of Them)
Overcome these frightening financial spooks with a little help from the pros.
Why Are Finances So Scary?
When we were children our biggest fear was lights out. With the impending darkness, we conjured spectres and monsters from every bump in the night. In time, most people realized that these fears were irrational; figments of overactive imaginations.
As adults, our fears have morphed into more realistic, tangible worries impacted by our everyday lives. While we may no longer fear monsters, we do fear the weight of our decisions and the very real possibility of failure that comes with adult responsibilities.
One of the most common fears? Money, of course.
Money is a necessity of life, yet many people find dealing with money extremely difficult. In serious cases, chrematophobia affects the way people function in daily life when earning and spending money. Some people are afraid of the ability of money to corrupt, while others fear financial failure.
According to one study, the U.S. population is feeling financially anxious, with 85 percent reporting financial anxiety and 36 percent reporting that it’s only getting worse.
If a fear of money is at all linked to a fear of the unknown, then there is only one way to overcome it: shining a light on finances.
We don’t talk about money enough. As a society, the taboo associated with money conversations persists to this day. In response, many people wash their hands of financial matters altogether.
To address this, we spoke with financial experts to dispel five scary (but in reality not-so-scary) fears that their clients often bring up. Take note and you’ll conquer your financial boogeymen in no time.
1. Doing Irreversible Damage, Ellie Thompson, Money Therapy Consulting
The financial aspect my clients find most scary/off-putting is the fear of doing something irreversibly wrong with their money.
The language of money is unique and if they can’t speak the language they feel frozen in financial decisions made for them by family and friends, employers, or a financial advisor. Therefore, no action happens with their finances.
If you don’t have a great grasp or understanding of money, it can seem terrifying.
I tell my clients that there are very few financial decisions that cannot be undone but that they need to know what those decisions are.
To remedy their fears, we structure a plan for education around money before we discuss their current financial situation. This includes understanding what money is, how it is used, and what their options are. Education eases the majority of their money fears.
2. Being Overwhelmed, Brad Ruttenberg, TheMoneyTwins.com
Many people find themselves in analysis paralysis. They don’t know where to START.
Personal finance is overwhelming with all the stuff we’re supposed to be doing with our money. Add to it the incredible amount of experts all voicing their opinions every time you search Google.
You don’t need to tackle it all at the same time. Keep in your mind, “Before you can build for tomorrow, you need to be prepared today.”
Take care of the things that will protect you from today’s risks before worrying about saving and investing for your future goals.
Keeping a budget, making sure you have the right amounts of insurance, and building your emergency fund come before 401(k) contributions and college savings.
3. Filing Taxes, Jai Kumar, PriorTax.com
- Keeping track of business expenses.
- Filing taxes in time.
- Understanding the forms and schedules they must file under.
- With whom to file taxes, online service vs. a trusted accountant.
You can collect your bank statements and automate the tracking process using any budgeting and accounting software. Ask your bank for it—almost all banks integrate with or provide an expense tracking solution.
The earlier you file, the better. For one, you can get as much help as needed and it actually becomes less frightening over time.
There is extensive information out there [about tax forms and schedules].
[With whom to file taxes] depends on the complexity, but even online sites provide a dedicated accountant to help with any tax situation.
4. Investing in the Stock Market, Timothy Wiedman, PHR® Emeritus
The stock market is too complex and dangerous for most small investors to succeed.
Generally, folks under the age of 45 should have most of their investments in the stock market—but should do so intelligently.
I’d recommend using low-cost stock index mutual funds or ETFs (exchange-traded funds) that mirror the market as a whole. Thus, it could make good sense to put 90 percent of total investment funds in the stock market…, and then allocating the remaining 10 percent of investment funds to a low-cost bond index fund. Investing in low-cost index funds does not require any particular investing savvy, but still provides much better returns than would be possible in almost any fixed-income investment portfolio. Further, low-cost, widely-diversified index funds don’t require constant attention from their investors—and won’t cause any lost sleep for most folks.
Finally, over the long haul, stocks have a lengthy history of rising returns. Sure, an occasional bear market will provide a bump or two along the way; but according to Kiplinger’s Personal Finance, since 1949, the U.S. economy has been in bull market territory 82 percent of the time—so the periods of bear market busts have been relatively short indeed!
Other mutual fund families such as Fidelity, Charles Schwab, T. Rowe Price, and several others also offer similar index funds; so comparison shopping would be prudent. But investors should always keep an eye on a fund’s expense ratio as well as its annual performance numbers. All other things being equal, in the long run, low-cost funds perform better than funds that have higher expenses.
5. Using Retirement Funds, Travis Gatzemeier, GuardianFinancialManagement.com
A majority of clients find that as they get within a few years of retirement, the planning aspect becomes much more important.
The accumulation phase is the easy part, as long as someone has a disciplined savings plan.
Once someone enters their distribution phase in retirement, many clients have a hard time understanding how they can use their wealth accumulation to live the rest of their life while maintaining a similar lifestyle. On top of that, I find that clients don’t know when to start planning for the distribution stage, and some feel like they are starting too late.
Retirement should be worry free.
Part of retiring is understanding what you have accumulated and the various methods of asset allocation that can be provided with the appropriate balance of growth and income.
Many people wait too long to start planning their distribution stage. It’s only frightening to clients when they feel they have started to plan too late. The sooner clients can get a clear view of a financial plan for their distribution stage, the less they will worry about it as retirement day comes.
Ellie Thompson is the founder of two Washington, D.C., -based startups: Money Therapy and Venyou. Before her startup experience, she was an employee of J.P. Morgan and HelloWallet mastering all things money. You can find her on Facebook at @MoneyTherapyCo.
Brad Ruttenberg joined his twin brother Matt in creating The Money Twins. It’s his mission to show young families what it takes to “reset” their finances, stop wasting time living paycheck to paycheck and start using their money to build their dream life. You can find him on Facebook at @TheMoneyTwins.
Jai Kumar is the marketing manager at Rapid Filing Services. Rapid Filing Services provides users the ability to prepare and file prior- and current-year tax returns to the IRS with free customer support. They aim to always make taxes simple to understand, easy to file, and secure to have a peace of mind. You can find him on Facebook at @PriorTax.
Timothy Wiedman spent 13 years in operations management working for two different Fortune 1000 companies. Dr. Wiedman then spent the next 28 years teaching college courses in business, management, and human resources. He holds two graduate business degrees, earned a professional certification in financial planning at Old Dominion University, and taught two different college courses covering personal finance and retirement planning. You can find him on LinkedIn at @timothy-wiedman-01513411.
Travis Gatzemeier is a wealth manager at Guardian Financial Management. Travis’ experience ranges from financial derivatives to personal finance. Now, Travis focuses on helping clients save for their short-term goals, while also planning for a secure retirement. He believes that everyone can benefit from a personalized financial plan, regardless if they’re a young professional or retiree. You can find him on Twitter at @T_Gatzemeier.