Personal Finance Shouldn’t Be Personal
A massively underappreciated cause of money challenges is thinking we cannot talk about it.
Most Americans have been taught that talking about money in polite company is not respectable. It’s ugly. Gauche. Low brow.
Surely, not talking about money can be an effective and responsible practice given the numerous privacy risks that exist, the bad actors who we’ll invariably meet, and the feelings that could get hurt. However, when one takes this advice to such an extreme that all conversation around money — building wealth, saving and de-saving, investments, retirement, inheritances, wills, trusts, etc. — is stifled, we cannot grow as caretakers of our rightfully-earned wealth.
Put differently, not communicating with your spouse, family member, or friend about your finances will limit your ability over the long-term to make the most of your finances. You simply will not make the best financial decisions available to you. We must take the “personal” out of “personal finance” by working as teams, rather than individuals. We must throw open the books and have fruitful conversations about our personal finances.
But first, we need to learn how to talk about it fluently and with the precision that is required. Otherwise, our financial fates will not change. We will continue making the same mistakes and emphasize the wrong areas.
It’s Not Your Fault
Personal Finance can be fuzzy (and cause confusion) because the foundation of Finance, which is Accounting, is widely misunderstood. It’s widely misunderstood because until recently, no one called out Accounting for what it is — a system for organizing financial information that is rife with sloppy terminology with no clear consensus as to what seemingly basic terms like ‘equity’ and ‘income’ mean.
For example, do you know that ‘equity’ and ‘net assets’ are interchangeable? Have you ever wondered why? Are ‘net assets’ even ‘assets’? Have you ever caught yourself thinking that ‘income’ is ‘cash’? The list goes on…
If experts, teachers, professors, politicians, financial planners, bankers, husbands, and wives are not clear about accounting terminology, it’s no wonder “financial literacy” is in crisis. We need agreement so people can enjoy a sound footing from which to take their first step on their journey, their financial story, if you will.
We must get to the root cause of this confusion. The financial industry pretty much glosses over it, and though the cynic in me wants to say they do it because it serves them to keep us in the dark, I truly think that’s not the full answer. They actually don’t know what they don’t know. And, they have absolutely no clue what you don’t know and most importantly, why you don’t know it.
Bringing Clarity to a Mashup
As far as disciplines go, personal finance is not a black art. Currently, it is a mashup of pithy rules, wives tales/gospel truths, inadequate digital tools, contradictory advice from gurus, misaligned players, competing interests, and overwhelming numbers and ratios presented to us in black and white, and rows and columns, from which we are supposed to make sound value judgments. And often, quickly. On our own.
In my next piece, we will explore the darkness inherent in this mashup and bring a modicum of clarity to it by introducing a new, colorful representation of your financial story that’s neutral, unemotional, and can serve as the BaSIS for any financial conversation. And these are conversations that you must begin to have, for polite society hasn’t been serving your needs lately, has it?