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“One is not born, with a capacity to make sound financial decisions, it comes through education, reading the right material, and also training.” -Strive Masiyiwa, businessman, entrepreneur, and philanthropist
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Over the last few years, I’ve had the chance to consult with different people at different stages of life. The one thing that’s been obvious is that financial literacy is not directly correlated to age or wealth. I’ve spoken with young and older people who are both financially literate and illiterate.
The same statement holds true for financial status. I’ve been amazed at the number of wealthy people who have a limited understanding of basic finance, which doesn’t seem to make sense. These people generally surround themselves with financially savvy professionals and never need to learn the language of finances to succeed.
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So, How Does One Overcome These Problems and Become Fluent in the Language of Finance?
I’ve come to believe that learning the language of finance is similar to learning any language. There are basic concepts that need to be learned and practiced. There are basic steps to learning a language, and these same basic steps can be implemented when learning the language of finance.
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Basic Language Learning Steps
- Site words– when learning a new language, they are basic words that are memorized. When learning the language of finance, there are basic financial terms that should be committed to memory.
- Primers– children start reading with easy material, in which simple root words are repeated with one or two letters changed. This allows children to implement a rhythm to reading, and learn to sound out words. Learning finance is similar. There are basic words that are used in different ways. Just like children reading a primer, the finance student should start reading easily digestible articles, and books.
- Reading, writing, and hearing– primary school teachers use all three of these teaching aids to immerse children in language. When learning about finance, students should be reading, making written notes, and listening to lectures and recorded material.
- Neural connections– neural pathways are neurons that are connected and send signals from one part of the brain to another. There are parts of the brain specifically dedicated to language, learning, and understanding. Once a language is committed to memory, it is normally retained for a long period of time but, if unused will gradually fade and be lost. This is because the neurons are no longer stimulated and new and existing neural connections are not maintained. New languages must be practiced and continually reinforced to create fluency. Just like any other language, financial fluency will not be maintained if it is not continually practiced and reinforced.
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Everyone’s brain is wired differently, and unfortunately, some people don’t have the gift of language learning. I feel the same about finances, and some people find it very hard to understand and grasp the principles of finance. But, even a poor language student can learn basic words and have a basic understanding of almost any language.
In my function as a CRPC™ (chartered retirement, planning counselor) I am often asked to clarify and explain financial terms and resolve financial problems. Speaking with someone who doesn’t understand the language of finance is like speaking to someone who doesn’t understand the same language. In many cases, I am speaking a finance language that many people don’t understand, or may only have a basic understanding of the financial lingo.
Not understanding the language makes it much harder to understand the financial concepts presented and makes my job of presenting these concepts in a manner that can be understood much harder.
Keeping this same theme, people who need to speak and interact with someone fluent in another language will often use the services of an interpreter. In finance, these interpreters would be known as CPAs (certified public accountants), CFPs (certified financial planners), and planning and retirement counselors.
But, like me (a CRPC™), CPAs, and CFPs are generally better at interpreting than teaching. Does that mean if you don’t fully understand their language that you give up trying to learn?
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No! Instead, Try These Steps First:
- First– give yourself a little grace! No one’s born with an innate ability to understand finances, any more than a young child comprehends speech.
- Second– just like learning any language, you must start slowly and simply. Learn basic financial vocabulary and basic financial principles.
- Third– once you have a basic understanding of finance, then you can proceed to more complex principles. At this point reading good books about finance, finance blogs, and finance podcasts will all be beneficial.
- Fourth– seek out a Mentor. This person is not necessarily someone that you have to pay. It can be someone with a proven and comprehensive understanding of finance who is willing to share and guide you toward financial fluency.
- Fifth– don’t get frustrated and quit. I’ve been educating myself for over fifty years and I still have much to learn. Financial literacy takes time. Financial fluency may take a lifetime.
- Sixth-take responsibility. Always remember that no one is going to care more about you and your family than you will care. You owe it to your loved ones to provide them with the best financial circumstances possible. This can best be accomplished with a high-level understanding of family finances.
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Media for Learning
Some of the better finance books that I’ve personally read:
Personal Finance Desk Reference– Ken Little
My copy is a 2007 edition, but this is still one of the best financial reference books written.
The Only Investment Guide You’ll Ever Need– Andrew Tobias
I have an older edition, but this book was revised in 2022.
The Simple Path to Wealth– JL Collins
The Millionaire Next Door– Thomas J. Stanley
Rich Dad Poor Dad– Robert T. Kiyosaki
Think and Grow Rich– Napoleon Hill
The Richest Man in Babylon– George Clason
The Psychology of Money– Morgan Housel
Books I’ve not personally read but are considered by others to be excellent:
The Total Money Makeover– Dave Ramsey
Money: Master the Game: 7 Simple Steps to Financial Freedom– Tony Robbins
I Will Teach You to be Rich– Ramit Sethi
Die With Zero– Bill Perkins
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Final Thoughts
- Each person is ultimately responsible for their wealth or lack of knowledge. But, no one is going to care more about you than you care.
- Learning about finance is like learning a new language.
- Find someone who has a better understanding and ask them to become a Mentor.
- Financial literacy takes time. Financial fluency may take a lifetime.
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