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Graylock Advisors: Why we all need to be good at managing our finances

Estimated reading time: 5 mins

Like it or not, most of the world runs on money. We need money for pretty much everything that we need to live, reproduce and even leave this mortal coil. There is no escaping it!

Therefore, every single one of us needs to be good at managing our personal finances.

Why we need money

If it isn’t obvious already, we can’t get by without money (there are only a few exceptions.) We need money for:

  • Putting a roof over our head – be it rent, mortgage or a lease on land
  • We need money to eat – that’s buying food from the supermarket. Or, it’s even buying the livestock, seeds and the tools to grow food ourselves
  • Clothing ourselves – we need cash to buy the stuff that keeps us warm. Buying sheets of material or wool to knit with is included in this too
  • Getting around – that’s gas for our cars, tyres and maintenance. It’s the cost of repairing our bicycles. Cab, train or bus fares count here too
  • Health – these are medical bills, treatments, medicine, dentistry, rehabilitation, surgery and even the simple check-ups. They all cost money
  • We need money for fun – keeping ourselves in balance and happy needs money too
  • The dreaded bills – we have to pay for energy – that’s electric, gas or the outlay for solar or a wind turbine. It all costs money
  • Education – if our government doesn’t provide this for free, then we have pay for our own education and for our kids
  • Insurances – to protect us from the unknown consequences of accidents, ill-health, natural disasters, unemployment, etc
  • Paying off debt – that’s needed when doing all the above wasn’t possible at some point, so borrowing was needed

You could choose to be self-sustainable (with very little of the items listed above), live off-grid – but even that requires the outlay of some money at some point.

Finances effects us all, one way or another, and we all have to become good at it.

Graylock Advisors: It’s a numbers game

All the things listed above require cash, and more to the point, the balancing of how we spend that cash and when. Cashflow is king, as the saying goes. It’s a complicated numbers game, fraught with risk.

Learning how to manage this safely is not an easy job – even for the best of us. Managing cash to pay for these things, at the right time, requires skill and experience – you might call this financial literacy

How do we become financially literate? That’s the big question, because the fact is that more people than not haven’t become so. This is because, for most people, financial literacy hasn’t been taught at schools or colleges, and has been left to parents to guide their children in it (but who educated their parents…?) The problem is that good AND bad advice and habits, from a financial perspective, is passed down from parent to child.

The good news is that this is changing. According to this year’s Young Persons’ Money Index, 62% of young people are now saying that they receive financial education in school. This is a big step forward. However, due to pressures elsewhere in eduction, the amount of hours spent on teaching financial literacy is, for many students, less than an hour a week. And only 14 per cent of students said their most recent financial lesson was ‘in the last term’ of a school year.  For 23 per cent, financial education hadn’t happened for a year or more since.

It’s about good mental health

The stats are worrying. In my home country (the UK) people with problem debt are significantly more likely to experience mental health problems. According to the Money & Mental Health Policy Institute

  • Nearly half of people in problem debt are also found to have some form mental health problem
  • 86% of people who responded to a Money and Mental Health survey (5,500 people) who experienced mental health problems said that their financial situation caused their mental health to deteriorate

And research conducted in the USA has found that the likelihood of experiencing mental health issues is a staggering three times higher among those who are in financial debt. This goes to show how poor management of personal finances has a drastic effect on people. An article published by Forbes goes as far to suggest we can feel symptoms similar to PTSD caused by financial stress.

The National Alliance of Mental Illness (NAMI) report that mental illness costs the US economy an estimated $193 billion in lost earnings year on year. Over a population of 372 million, that is $519 for every single person over all age groups!

Grayson Advisors: Financial Education needs to start early

What if financial education were to start early, and be of a higher quality? Like the development of ANY skill (such bowling, cooking, singing or typing), we need to put in the practice and gain experience. But unlike the skills I just mentioned, it really matters that we get financial skills right, or we end up in a bad situation, such as debt. It’s no wonder many people find themselves in some form of financial strife at some point in their lives.

According to the London Institute of Banking and Finance, 71% of young people worry about money. These skills must be acquired, somehow, and not all parents are savvy enough themselves to pass on financial literacy to their beloved offspring.

If kids were taught earlier to understand, respect and control their finances, how much lower would this number be? 

But even for adults, it’s not too late to begin learning to be good at our finances. We can all start now. Many governments provide resources online to provide education and insight, even with the absolute basics. So check out your state or central government website resources and see what is available to you. Better still, take a financial literacy class – you might find local courses where you (and your kids) can learn with other people in a similar situation. There is nothing to be afraid of – but there is with the alternative of being in a personal financial crisis!

 

About the author /


Simon is a creative and passionate business leader dedicated to having fun in the pursuit of high performance and personal development. He is co-founder of Applied Change, a Business Change consultancy based in the UK. Simon is also an Ambassador for Gloucestershire business. Simon is an Associate Member of the Chartered Institute of Professional Development.

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