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A shocking 43 percent of Americans are not financially literate but think they are, according to research by the Milken Institute. Although this may seem to be an individual problem, the truth is that it actually causes significant problems all the way up to the national level.
Think about it like this — let’s say someone was never taught about things like loan agreements, compounding interests or return on investment. Without that knowledge, they might, hypothetically, sign for a loan they don’t understand and can’t afford, to buy something that may not have any objective financial value. This is purely a hypothetical situation that could never happen, right?
Why financial literacy matters
When people are financially literate, they not only understand how money and the economy work, but they also tend to make better financial decisions. This leads to greater financial stability, wealth accumulation and opportunities. Now extrapolate that out over a few generations.
If a family improves their financial situation by 20 percent over a lifetime, imagine how much better off their children will be. Now imagine those children improving their own financial situations by 20 percent over their lifetimes, followed by the next generation.
It puts families in a better position to afford quality education, invest for retirement or even start a business. Not to mention the added peace of mind that comes from being financially stable and the fact that it can enable them to afford better healthcare to live longer, happier and more productive lives.
How major life events impact financial requirements
I’ve seen this first-hand, growing up with an entrepreneurial mindset and then a career as a dentist, before a crisis in my own life forced me to restructure everything.
My daughter was blindsided by leukemia, epilepsy and late-stage liver failure. While I was making great income running a successful dental practice, I immediately realized that wouldn’t help us because to support my daughter through this challenge properly, I would have to take time away from my practice, which meant no income.
So I sold my practice, invested the proceeds into real estate, and spent the next year, as I think any parent would, doing everything in my power to help my daughter overcome this. (She did and has since gone on to become a happy, healthy and productive adult.)
When the holidays rolled around that year, I sent out our usual Christmas cards with a family letter sharing the news of what was happening with my daughter, including that I had recently sold my dental practice. Understandably, many people were concerned and reached out to offer support, but a lot also asked how I was now supporting myself after having sold my practice.
Once they heard that it was through real estate, many wanted to learn how to do what I was now doing. This initially led to me sharing my knowledge, but quickly turned into more formal coaching, and then eventually, the mastermind group and investing community.
Even back then, I knew a lot more than the average person on financial topics. However, I soon saw how much I still did not know because as I got involved in larger and more complex real estate deals, I uncovered multiple layers that I had never even considered before.
Unfortunately, there wasn’t a lot of good material on the topic back then, and there was only a handful of what you would consider “experts” by today’s standards, and the only way to learn from them was to go to their conferences or buy their books.
Today, we have access to all of the world’s information with no more effort than a few keystrokes.
With more young people becoming more financially literate, we will see our families, businesses, communities and even the nation as a whole become financially stronger and more resilient.
Over time, that will lead to a better standard of living and more opportunities for everyone — and that’s the kind of legacy I want to leave behind.
Dr. David Phelps is the CEO and founder of Freedom Founders in Dallas. Connect with him on LinkedIn and YouTube.
