There is an interesting post here that talks about a study in England that determined 18 to 40 year olds were less financially capable than their elderly counterparts. The post points out that there appears to be a growing gap between people who are rich and those who aren’t. It is as if the middle class is disappearing.
In my opinion, one of the reasons for this is a lack of financial education. I’m not sure entirely why, but I think there are greater number of people with lesser money skills in this 18 to 40 category than there were 30 years ago. This may be partially because of the use of computers. People aren’t used to doing calculations automatically in their head so they don’t always think through the full impact of spending and debt. It also may be due to increase availability of credit. It is very very easy to get banks to loan you money whether it is on a credit card, mortgage, or a variety of other factors. Interestingly enough this is also due to computers. Lending organizations calculate the risk of any transaction and they expect to have some losses. With computers they can look at a great number of variables at the same time so they don’t have to be quite as careful about who they loan money to. Before computers, humans were only able to look at a few variables to determine the chances that someone wouldn’t default on a loan. This required loan officiers to be much more careful who they would loan money to.
If you want to be one of the people who understands finances you’ll have to be proactive. Don’t ignore things that you don’t understand. If you don’t know how your company 401k works, invest the time in finding out. Don’t worry about looking dumb–most of your co-workers probably don’t understand it either. If you don’t understand how income tax is calculated, spend some time at irs.gov or reading books until you have at least a broad picture of how the government calculates yoru taxes.
Financial education doesn’t come easily, but it is very worth the investment. You can’t make wise decisions until you are armed with the necessary information.
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