Financial Illiteracy: The System

Financial Illiteracy: The System

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One should not hold the lady from the illustration in contempt. She is operating within a financial system and a society that has not taught her the true nature and opportunity of wealth building. The bank is all too happy for her to bring them $100,000 and let it sit in an account. The system is against you. What I mean by the system being against you is that no one is telling you, unless you have a financial advisor, what could be best done with that money. Worse, this isn’t someone’s intentional sinister plot. It’s just the way the system runs. It has no incentive to alert you to opportunities in the market. The system is not built for you to get better information. Unless you have a wonderful relationship with an open and transparent stock broker with a penchant for explaining financial markets and an incentive to make you more money, you’re getting the kind of the general tips to make everyone else money.

Consumerism

The economy in the US is built on consumerism. This is the idea that people buy goods and companies need to produce more goods. This should motivate them to hire more people, which in turn creates more people who demand more goods.

The flaw in this system is that we end up waiting on companies to hire. We dismiss the reality that they can hire at whatever wage they want. There are plenty of people who will work for a lower wage. Even though that consumerism model has the potential to do what it is intended to do (expand economic opportunity to all), it spells trouble because the company is beholden to its shareholders more than its customers. The solution is my point of this tangent. Become a shareholder as priority above becoming a customer.

I Digress

Contrary to conservative political views discussed in books like Atlas Shrugged, companies don’t seem particularly keen on developing the best and brightest as citizens of their world. Their only concern is funding them as the engines of their companies. Many companies espouse a janitor-to-CEO respect model in which no one is better than another. But, pay scales, even progressive scales over time, tell a different story. You can count on one hand the companies that provide stock options to their janitorial staff. No matter how the best of leadership books espouses supporting the entrepreneurial spirit of your employees, most employees remain workers and wage earners, not internal entrepreneurs.

Financial Literate Producer

Another way to look at our economy is the opportunity to create wealth through seeing the individual as a producer.  This is tangential to the central point I want to make about the financial system. I am concerned about corporate behavior. And, I would be remiss if I did not give a nod to companies that are doing a good job. But, I am more concerned about the lack of financial literacy and the system’s lack of incentive to correct the ignorance. The way to correct it is to change your mindset from consumer to producer. A simple example suggests that instead of saving for the new iPhone, invest in Apple stock. Within a year, you can buy a new iPhone from the increase in the value of the stock. This is a different way to conceptualize how money is used.

In that mindset you’re in a position of setting the agenda and making the moves. A lot of people don’t want to be responsible for that, but the freedom you gain will be appreciated when you achieve it. Being able to make choices from a complete set of options. Not just about what you want to buy when you want to buy, but being able to identify how much money you want to make. Intentionally setting the level of experience and the lifestyle you want to have. And, once you establish that, accessing the ability to enjoy and find contentment in that lifestyle. This is all antithetical to consumerism. Consumerism is getting as much as you can, canning all you get, and sitting on the can. If you can get more, get that too. You’re always overworked and underpaid.

Producer mindset identifies what is enough and what amounts in what context work. It says, “I can do everything I want to do. Here is my target. How do I maintain that? I will create or set up these systems. I will engage with multiple streams of income and engage residual opportunities. This is all I need. This is perfect.”

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