The Necessity of Basic Financial Literacy

If you suddenly found yourself on the financial outs—no home, no car, no job—do you think you could rebuild your life? What if you found yourself in the position of dropping from a professional or technical position into a working class job? At Get Rich Slowly, J.D. conducted an email interview with Adam Shepard, the author of Scratch Beginnings: Me, $25, and the Search for the American Dream.

The premise is straightforward. After reading Nickel and Dimed, Barbara Ehrenreich‘s social survey of the difficulties facing the working class, Shepard decided to pursue his own social experiment. With $25 in his pocket, Shepard set up camp in Charleston, South Carolina, with the goal of having a job, a car, a place to live, and $2,500 in savings after one year. Within 10 months, he’d accomplished his goals and actually ended up with twice his goal amount in savings.

Beyond the social issues of low-paying work, Shepard does an excellent job of highlighting many of the concepts we discuss at Behavior Gap: delaying gratification, finding ways to make money work for you versus just spending it, and having a vision of your goals. These principles, whether you’re living on minimum wage or bringing home millions, apply to everyone. Perhaps the consequences of forgetting these principles take longer to feel if you’re making lots of money, but they’ll ultimately catch up with you. Rich people are not exempt from needing to make smart financial decisions. And you can’t forget what you’re working towards:

It’s important to question: Am I making the most of my situation? Am I on track? Am I prepared to be disciplined for 2, 3, 5, 10 years? This isn’t to say that we need to be robots—there’s a lot to be said about how happy we were down in Charleston as penny-pinchers—but we need to maintain that focus. And also, are we imparting our knowledge – and mistakes – on others…our friends, our family, our children? That’s how we really begin to break the cycle of the persistence of the same lifestyle.

And whatever you do, don’t lose sight of that prize that you’re shooting for.

As J.D. points out at the end, knowing the financial basics, and how to apply them, can make a difference:

After re-reading Nickel and Dimed and interviewing Shepard, I feel more strongly than ever that basic financial literacy is one of the most important skills we can teach people to help them improve their quality of life. Poverty is a complex issue—there are no easy answers. Nations have been wrestling with the problem for centuries. But one small piece of the puzzle is teaching people the basics of personal finance.

If you were tested on the basics, do you think you’d pass or is there room for improvement?

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