Get my 5-day email funnel that generated $400,000 from a single launch

Want an email sales funnel that's already proven to work? Get the entire word-for-word email funnel that generated $400,000 from a single launch and apply it to your own business.

Yes! Send me the funnel now
Start Here: “The Ultimate Guide to Personal Finance”

The 5 groups to blame for our financial illiteracy

53 Comments- Get free updates of new posts here

0

Blaming everyone for being dumb is one of my most enjoyable activities. Today, a delightful foray into the world of why we’re financially illiterate — and whose fault it is.

Let’s start with a Freakonomics article by Stephen J. Dubner:

“1. Do you consider yourself financially literate?

2. If so, how did you get that way?

And now, a third question:

3. How important is widespread financial literacy to the health of a modern society?

Before you answer the first question, take this little quiz, borrowed from the website of Annamaria Lusardi, a professor of economics at Dartmouth who knows and cares more about financial literacy than anyone else you’re likely to encounter:

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

a. More than today
b. Exactly the same as today
c. Less than today
d. Do not know

3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

a. True
b. False
c. Do not know

The correct answers are …

a., c., and b. I am guessing that the vast majority of this blog’s readers got all three answers correct. But there’s probably money to be made in betting the opposite way.

Those three questions are the ones that Lusardi, along with Olivia Mitchell of Penn, have been inserting in a variety of major U.S. surveys. In a new working paper titled “Financial Literacy: An Essential Tool for Informed Consumer Choice?” (abstract here, download here), Lusardi writes that among respondents age 50 and older, only half of them got the first two answers right and only one-third of them got all three answers right.”

* * *

So what’s going on here?

It’s easy to point at others and say, “Duh, those are so easy. EVERYONE knows about interest rates! Haaha ha ah ahahaaha!!!”

But if we’re honest, we can all acknowledge that our finances are not as optimized as they should be. We over spend. We don’t save and invest enough. When it comes to spending, we claim certain things are important (“investing for the long term!”) but our behavior doesn’t reflect it.

And it’s incredibly hard to change our behavior.

Whose fault is it?

Lots of people, especially anonymous online nerds, love to claim that our entire financial situation is our responsibility. In “Ugh, why don’t fat people just eat less?” I showed why this is patently false.

Others like to debate minutiae and blame the economy, Wall Street, and everyone but themselves. You’ll notice this especially among commenters on newspaper sites.

Book excerpt: 5 groups to blame for our financial illiteracy

In my personal finance book, I put together a targeted list of people to blame. Here’s an excerpt:

“Why does just about everything written about personal finance make me want to paint myself with honey and jump into a nest of fire ants? Personal-finance advice has been geared toward old white men and taught by old white men for far too long. I don’t understand why newspaper columnists continue to write about tax-optimization strategies and spending less on lattes, hoping that young people will listen. We don’t care about that. We care about knowing where our money’s going and redirecting it to go where we want it to go. We want our money to grow automatically, in accounts that don’t nickel-and-dime us with fees. And we don’t want to have to become financial experts to get rich.

Now, I fully recognize that I’m a big fancy author (that’s right, ladies) and am therefore part of the “media.” Perhaps it’s uncouth to mock my brethren. Still, I can’t help myself. Pick up any major magazine and chances are you’ll see an article called “10 No-Hassle Tips for Getting Ahead with Your Finances.” Amusingly, the same writers who breathlessly encouraged us to buy real estate in 2007 are now advising us on “what to do in the downturn.” I’m sick and tired of the same old boring, tired, and frankly horrible financial opinions that are paraded around as “advice.”

More on this in Chapter 6.

Other People We Can Blame for Our Money Problems

There are other common excuses for why we don’t manage our money. Most of them are complete B.S.:

  • “Our education system doesn’t teach this,” people whine. It’s easy for people in their twenties to wish that their colleges had offered some personal-finance training. Guess what? Most colleges do offer those classes. You just didn’t attend!
  • I also often hear the cry that “credit-card companies and banks are out to profit off us.” Yes, they are. So stop complaining and learn how to game the companies instead of letting them game you.
  • “I’m afraid of losing money,” some of my friends say. That’s fair, especially after market losses during the global financial crisis, but you need to take a long-term view. Also, you can choose among many different investment options—some aggressive, some conservative—
    it depends on how much risk you’re willing to take. (Because of inflation, you’re actually losing money every day your money is sitting in a bank account.) Fear is no excuse to do nothing with your money. When others are scared, there are bargains to be found.
  • “What if I don’t know where to get an extra $100 per month?” It doesn’t have to be $100. And you don’t need to earn another penny. I’ll show you how to streamline your existing spending to generate that money to invest. Remember, $1 saved per day is $30 saved per month.

Too many of us are paralyzed by the thought that we have to get every single part of our personal finances in order before truly getting started managing our money. Should I use my 401(k) from work or open an IRA? Should I go for mutual funds or individual stocks? Do I need a variable annuity?

Here’s my answer: Do you need to be the Iron Chef to cook a grilled-cheese sandwich? No, and once you make your first meal, it’ll be easier to cook the next most complicated thing. The single most important factor to getting rich is getting started, not being the smartest person in the room.”

Want the full 6-week program? Get my book here for about $10.

Who did I miss? Is there anyone else we should blame? And how come we spend so much time blaming other people, but not doing anything about it?

0

Related Articles

401k

401(k): The single best way to grow your money

How would you like free money? That's not a trick question. For millions of people, free money is up for ...

Read More
How to cold email VIPs and get a response

How to cold email a VIP (and actually get a response)

I used to be terrible at getting busy VIPs to respond to my emails. Years ago, I kept emailing Seth ...

Read More

53 Comments

0
 

Leave a Reply

53 Comments on "The 5 groups to blame for our financial illiteracy"

Notify of
avatar

Sort by:   newest | oldest
Elizabeth Gage
Elizabeth Gage
6 years 3 months ago

Well, we could try to blame consumer products companies, and their insidious, infuriating advertising which aims to make us feel inferior if we don’t have the car, deodorant, dog treats, flat screen tv, smartphone…

However, as intelligent people we know better than to believe them and can resist their seductive appeals, so blaming them probably won’t work.

Kelly
6 years 3 months ago
Personally I think the majority of Americans don’t want to think about money – ever. There is so much psychological baggaged wrapped up in it. Getting rich takes a proactive approach to your lifestyle, spending habbits, earning money, etc. If you view money as a topic to be avoided and those who do talk about money as greedy you’re never going to get there. This is unfortunately more true for women… fewer women read financial news. At least if you’re reading financial news (as sensational as it might be) you have a chance of running into some meaningful bit of… Read more »
Paul
Paul
6 years 3 months ago

Ramit, may want to run the grammar check on the lead sentence about people being dumb. Think the word you want is “pastimes.”

A-ron
6 years 3 months ago

Blame Jesus, because he started the whole “it’s cool to be poor” culture. And blame your parents. They suck at teaching you about money, and sex. Now every time I want “some” I have to spend $200 and risk arrest in alley. Thanks Dad!

Paul
Paul
6 years 3 months ago

Nice correction. 😉

cx100
6 years 3 months ago

Hi Paul

Great article. My brother has is money in a 401k and when I asked him which funds they were investing in, and how long before he could move money around in the fund ? I just got a blank stare and a why would I move my money around.

Crazy that he would take way more time buying a care and kicking the tires then he would figuring out how to manage several hundread thousand dollars.

James
James
6 years 3 months ago

From the 3 question survey portion, don’t you think that by adding “I don’t know” as an answer choice the data became worthless? People taking these “surveys” probably had hundreds of questions to answrer and a portion didn’t feel like answering when the easy-out, no-think answer of “I don’t know” was available. How about if you gave people compensation for the survey based on how many questions were answered correctly. That being said, most people are indeed dumb.

Jackie
Jackie
6 years 3 months ago

James — on the contrary, adding “I don’t know” makes the data more worthwhile. If people truly don’t know, then they’ll just randomly guess one of the two remaining options, thus skewing the results of the survey.

Tyler WebCPA
6 years 3 months ago

This is Tyler of the Old White Men Anti-Defamation League and you are on our potty list.
In my second country, Guatemala, there are tons of people who have elementary school education and make less then US minimum wage but they are way better at saving their money than Americans. Why, they have too, there is no one else there to pick up the slack if they run out.

Chris
6 years 3 months ago

Hi Ramit,
Long time reader. Love the blog. Dan Solin calls the typical financial advice we see “financial-pornography”. I think he’s right. We’re inundated with terrible, short-term focused advice. You’ve written a great book to help people out. Thanks for writing.

Anoel
Anoel
6 years 3 months ago
While I’m not blaming anybody, I will say our educational system needs a lot more financial literacy classes that should be as mandatory as health. You mention college but the real educational system is the public system and it should start early. I’m talking elementary school, middle school and especially high school when habits really start to form. I’d LOVE to see your techniques especially automation taught but anything (that’s not false) works as well. It goes back to your opt in for IRAs, when you put it right in front of people to learn it’s much easier for them… Read more »
Maria Brilaki
6 years 3 months ago

I think the education we need (generally, not just about finances) is that, a lot of times, it is not just about willpower! This s were automation, or else, creating a system comes in!

Still, it feels as if the monk/holy person who has so much willpower to deprive themselves of almost everything is too strong of an image. And the message is one: not everybody can do it.

Angela
Angela
6 years 3 months ago
@anoel- I am an elementary school teacher, and I am sick and tired of people adding on topics I am supposed to teach. Every year, people demand another subject be taught, in addition to raising test scores. Give me a break. There are only so many hours in a day; and there are only a few dollars left in the budget. Yes, it is soooo important for students to eat healthfully, protect themselves from uv rays, say no to drugs, be safe around guns and strangers, not catch a std, be honest, have healthy self-esteem, not smoke AND be financially… Read more »
Tony
6 years 3 months ago
From my experience, I really wish that I had learned more about personal finance from my parents when I was an impressionable teenager. While I’ll have to admit, I was quite aloof to what money was all about, and rather smarmy in my own right to listen to any advice given, it was never discussed to a level that I would appreciate today. My introductory lessons to money management included the obligatory allowance that so many of us kids from the ‘burbs thought we were entitled to. I got $10 a week from the time I was 10 until I… Read more »
Lisa
6 years 3 months ago

At some point you can’t blame your parents for your mistakes anymore. If you are making your own decisions — then you get to own the mistakes that often come with those.

Ester
Ester
6 years 3 months ago

The media. They are a bunch of idiots. Period.

benbleikamp
benbleikamp
6 years 3 months ago

I don’t think you can only blame the media—it is not their job to educate people on finances, it is their job to make money for their parent companies.

Nate Klatt
6 years 3 months ago
A couple of thoughts: 1. We may be stuck in a culture of repetition. Children tend to do what their parents did. If your parents were debt spenders who did not build a nest egg and had little concept of money management, you will follow the same path unless someone turns you in a different direction. 2. I think there is something of a generational language barrier here. Read Money magazine. It is probably the most boring periodical published today. Ramit’s comment about old white men writing for old white men rings true. It could be that people only buy… Read more »
Kelly
6 years 3 months ago

I didn’t learn much financial information from my parents, but I did pick up their attitude towards finances. The attitude that money is a tool, which requires planning to use well. Attitudes are extremely difficult to “teach” and financial education in schools would not address this part of the problem.

Chris
Chris
6 years 3 months ago

So who are the five groups?

Ken Siew
6 years 3 months ago

Blaming is easy, taking action is hard. Most people just choose to work more instead of thinking of ways to manage their own money, it’s just so much easier. IMHO, there’s always somebody else we can blame when something doesn’t go the way we want it to be. But whether you want to let the situation control you, or be in control, that’s a conscious decision you have to make.

Richard | RichardShelmerdine.com

Nice article. I got the questions right but the first one was so easy that I kept thinking that there would be a catch, We learn a lot from our parents good or bad money-wise I’ll give you that one.

Gerard
6 years 3 months ago
Someone much smarter than me (Maya Angelou) said something along the lines of: “If you don’t like something, change it. If you can’t change it, change your attitude. Don’t complain” While there is always someone to blame (and there always is!), part of the problem is and always will be that at an individual level we need to take responsibility. I agree that there are companies out there to get you and they spend hundreds of millions of dollars finding better ways to make you spend more. It’s not a simple matter of saying I will not spend x amount.… Read more »
trackback

[…] Ramit Sethi on the 5 groups responsible for our financial illiteracy. His answer: Do you need to be the Iron Chef to cook a grilled-cheese sandwich? No, and once you […]

Michelle Brown
6 years 3 months ago

You need to add “our parents”; they told us how to save and manage money and then we go and do the opposite they tell us – definitely their fault 😉

Love the quiz – I’m going to present it to my kids.

Wattsy
Wattsy
6 years 3 months ago
Gerard, I think ‘put up or shut up’ means the same as your quote but it’s a bit snappier 🙂 Ramit I just wanted to take the chance to say a big thank you. I’ve been reading your blog for over a year and the whole time thinking, yes, I must automate my finances. One day. Last Christmas I even opened up a bunch of ING accounts but I couldn’t be arsed figuring out how to get an initial deposit in them so they lapsed. Anyway about four months ago I finally pulled the finger out and got the online… Read more »
Mike P
Mike P
6 years 3 months ago

Regarding the comments about teaching this in elementary school. I think it would be ineffective. There are all sorts of stuff taught that don’t get followed later in life. I mean, its beaten into our heads that smoking is bad for you but I still see tons of people doing it… why would financial literacy be any different.

bettylion
bettylion
6 years 3 months ago
I think personal finance needs to be taught in high school…. BEFORE kids are set loose and have turned 18 and can get credit cards. Offering a personal finance class in college is too little too late. That’s like offering to explain the dangers of drinking after you’ve bought a round of drinks. A lot of college kids have already taken on a sizeable debt load just to be there, need money for personal expenses (beer, pizza, etc.), and have just been offered their first plastic (ooooh, shiny!) Maybe things are different today, but when I was in school, the… Read more »
trackback

[…] to Be Rich — Ramit being Ramit. Once again he’s indulging in the blame game, targeting who is to blame for our financial illiteracy. Hey, the guy just won the Plutus for Most Controversial Blog, so he’s got a rep to keep up […]

Heather
Heather
6 years 3 months ago
I was actually taught about finance and budgeting in Middle and Senior High School (not much mind you, but still they did do it). In Middle School it was part of Home Economics and in High School it was part of Career and Lifestyle class, which was mandatory. I do not believe it made much of an impact on anyone since in both cases it was only one or two classes. I just completed an accounting degree, so I do feel financially literate. However, I don’t have much experience dealing with my personal finances, most of what I made at… Read more »
Dale
Dale
6 years 3 months ago

There is no blame to be had. Blame is a game of small people with no solutions. It is easy to say it’s not my fault. It is much more difficult to be grown up about it and say “Yes, I did it. Now I’ll solve my problem.” or even better and takes great self esteem ” Can you help me find a solution?”
As far as the financial realm it is time that people ask questions and search for answers. Those who don’t are doomed to the life of mediocrity and debt.

Economia Excel
6 years 3 months ago

I think the lack of concern people have over 50 years, for two reasons: a) Because of his age and life cycle savings should manage more than in other age groups. b) Only experience and common sense should know the right answer.
In this situation the authorities should implement some rules to assess their knowledge similar to that used in Europe with MiFID.

Jonny | thelifething.com
6 years 3 months ago

A well rounded piece. At first I thought you were going to give everyone a scapegoat on why it is everyones but their own fault or responsibility for their personal finances but this was a refreshing read.

Josiah Garber
6 years 3 months ago

I recommend: ‘Whatever Happened to Penny Candy’

Rituraj
6 years 3 months ago

Hi Mr. Shethi,

You have nicely pointed out the issue about failure in Education system.
I think not only these five group are responsible in making us financial illiterate, while i also consider media in this.
What do you say about media in this ?

Rafael
Rafael
6 years 3 months ago

To all of you: Leave this guys posts. You’ll all be screwed! All currencies will collapse in the near fututre!

Credit Card Chaser
6 years 3 months ago

“Personal-finance advice has been geared toward old white men and taught by old white men for far too long.”

I am curious as to why you think that standard personal-finance advice has anything to do with race – or why you brought race into that sentence at all in the first place…

Jennifer Moore
6 years 2 months ago

It’s not so much race as class. At various income levels, certain assumptions are made by our society, whether we like it or not.

True, it was a sweeping generalization, but I think Ramit made his point quite well: Financial information needs to be written and disseminated in a way that is accessible to all people at all socioeconomic levels, and typically, it is not.

Ramit, correct me if I’m wrong in my assessment.

north9nj
north9nj
6 years 3 months ago

there’s no one to blame, not even yourself. saving and investing is a individual thing. you just have to except the outcome and learn from it and make corrections. keep lots of cash on hand (savings,CD’s,bonds) and get a government job that still has sane pensions (if employers don’t offer it fight for it) annuities should be part of your portfolio. as far as education well i found this blog and can cross check information in minutes, ah the twenty first century ain’t it grand! so take a tip from a old white man, don’t be a weak sister, bitch!

Ryan Martin
6 years 3 months ago

You’re right (and clear) about money management not being rocket surgery. The only obstacle (I see) is the desire for people to make that change. Wanting to change poor money habits is the real hurdle, there’s plenty of recipes once you’re head is in the right place.

The people playing the blame game need to listen to MJ’s “Man In The Mirror”. If that don’t help the blamers, I don’t know what will… Cheers. Great site, great advice!

Carrie
Carrie
6 years 3 months ago
Agree with the observation on the same old discussions around money. If you look at the number of people who buy a finance book, then the percentage of those who actually read it, versus the percentage who leave it on their night table…you get the idea. But an even bigger miss is all the people who just don’t buy finance books to begin with. Its not how they work or how they think. We are using old mediums in old ways to help people. Add that to a nation of optimistis who live by instant gratification, and here we are.… Read more »
Rachael M
Rachael M
6 years 3 months ago

Ramit, great article. I tried the clicking on the (abstract here, download here) and I wasn’t able to download anything. I think the link got disconnected.

Eric
6 years 3 months ago

Personally from my point of view it’s us. We don’t care enough to learn more about money and then use what we’ve learn to make better choices for ourselves. If we know NOT to spend that 10 extra dollars because we had planned on putting it in savings, then why DO we spend it?

We already know not to so just don’t do it. Temptation? Yeah, there’s plenty of that but we have to take control and just quit spending.

Having a budget is critical but following the budget is just the right thing to do.

Squirrelers
6 years 3 months ago
So much of our worldview is shaped by how we were raised by our parents. In many households, money was a taboo subject, and talking about money was being seen as greedy, selfish, etc. To each their own. I think that it is imperative for parents to teach their children about money. As a parent of a 6 year old, I of course want her to focus on being a kid and developing friendships, doing well in school, learning good habits, etc. Childhood is a special, fun time. That said, its also where perspectives are formed. Sure, they can change… Read more »
Lorne Canada
6 years 3 months ago
I can say the situation is slightly improving. Maybe ordinary people do not know much more about finance and economics as they did know 10-15 years ago, but at least they are asking more question as they used to. But still, they are in the hands of their adviser. @Squirrelers: good point about kids. +- 6 years is the right age to start ‘budgeting’ your kid. Give them some coins at the beginning of week and let them buy something (and pay) as you do groceries. Kids are pretty clever and soon begin to understand how they coins get lost,… Read more »
Terry
Terry
6 years 3 months ago

3. How important is widespread financial literacy to the health of a modern society?

Financial literacy is of little use to a society if it is poor.

Cassie
Cassie
6 years 3 months ago
This debate on financial education taught at earlier ages is really interesting to me – I received my first credit card when I was 16 – SIXTEEN – and then received two more during a “fundraiser” put on by Citi at my college campus. Luckily I cut up two of those cards… but not so luckily, as I still have the other, which came with a beautiful ball & chain. Now, I think there’s a lot to be said for personal responsibility in spending, but it would have been nice to get some educational training in finance beyond “this is… Read more »
danny
danny
6 years 2 months ago
Well I believe a big problem here, has to do with the lack of education of money in schools. We learn everything about being good citizens in society, but know nothing about money, grads from college get a degree nab a job and only know what their parents taught them about money. Making the same decisions they made. The different classes of society are basically perpetualting themselves because people are only becoming what their parents were before them, except now they have more toys. So I think this has allot to do why some people get rich and most people… Read more »
Jennifer Moore
6 years 2 months ago
This is a really good article, but some of this ties back into the whole idea of not judging how other people spend. In most problems or crises, there are generally several people/parties at fault, and sometimes that includes the person/party in trouble. Is it true that, overall, we could all be doing better? Yes. Is it true that EVERYONE can put $10/month into savings? No, it is not. There are people who live paycheck to paycheck, and there are many reasons for this. Some, people have control over, others, they don’t. The key is not finding whom to blame,… Read more »
Marcin
6 years 2 months ago

I think that many people doesn’t seriously talk about money as Squirrelers said. This is a big problem. I read a lot about becoming rich, motivation, finances, but I still got that problem in my family. When I start a conversation about money with my wife it often ends with a fight. I think that many people have simmilar situation.

Harrken
Harrken
6 years 2 months ago

As one of my favorite finance authors, Larry Winget, says, “It’s Your Own Damn Fault” and I agree. There are all kinds of traps out there trying to get your money but ultimately you are the one making the decisions.

wpDiscuz