8 Hard Truths About Personal Finance That You Aren't Being Told
People Always Get Caught Up In Financial Fiction!
Nicholson's Famous Line Applies To Personal Finance
Can You Handle The Truth About Personal Finance?
In the movie A Few Good Men Jack Nicholson's character, a marine Colonel named Nathan R. Jessup, tells the young lawyer (played by Tom Cruise) performing his cross-examination, "You can't handle the truth!" The now famous line, made for a great moment in the movie and it's a statement that could easily be applied to many areas of life. There is allot of lying and deceit that occurs due to scams, fraud, murder, cover-ups, and greed. These examples of deception are motivated by what I would refer to as good old fashioned evil. Pure evil is a common motivator, but lies or purposeful omission of the truth can also be linked to the inherent, challenges in telling people the hard truth about things. Often people are not receptive to hearing the truth about how things really are, especially if the message carries any negative criticism of their own behavior. The truth can be inconvenient and painful and as Nathan R. Jessup indicated, many just can't handle it! I think one area were this happens all the time is personal finance. Everyone wants to get their personal finances in order, yet so many are in financial shambles. Why is this? Many lay the blame at the foot of the financial media and other gurus in the financial industry. A common question that has been raised since the financial crisis of 2008 hit, is why did so many financial commentators and gurus fail to see it coming (though some did). It is indeed true many did not adequately aid individuals in making sound decisions in their personal finances. Much of the advice regarding personal finance was leading people in the exact opposite direction of what they should have been aiming for. I would agree that one reason for this, of course, is that the world of personal finance advice is littered with conflicts of interest, fraud, and high levels of incompetence that prevent good information from getting to the general public. However, I also want to focus on the other reason which I have already alluded to in the beginning of this introduction. The truth is hard to take for many and personal finance is no different. For this reason, the information disseminated by financial media, gurus, and even professional financial advisors is often distorted or hard truths about our personal finances are left unspoken. Unfortunately lies and half-truths are often way easier to sell to those seeking advice about personal finance decisions. Let's think about it; if the main stream financial media, popular financial gurus, and financial advisors would have all done everything in their power to warn the public about the developing problems, would anybody have even listened anyway? Sure, some might have taken it to heart, but I think the real answer would be that, many would have reacted very, negatively. Even if deep down, people knew the message was right on the money, many would have found it much easier to change the channel or ignore their financial advisor, instead of making positive changes to their personal finances. If you don't believe me, consider that there were actually a minority of financial gurus that did sound the alarm on the developing housing crisis. Not surprisingly many probably couldn't name the dissenters who warned about growing risks posed by the housing market, loose lending, and overleveraged banks. This is because they were largely ignored by those seeking personal finance information. Though many in the financial industry do deserve allot of blame for bad advice, the general public is also at fault for "shooting the messenger" when a gloomy forecast is delivered. Here are 8 hard truths about personal finance that are avoided or lied about by commentators and advisors, due in part to their audience being less than receptive to a difficult message.
1 - Homeownership may be a good decision or it may not be, but it is definitely not a risk free decision or even a good investment necessarily
Homeownership has many financial advantages, but there are also many risks. The conventional wisdom says that everyone would be better off owning a home. Many gurus, media commentators, real estate brokers, and financial advisors have painted real estate investing as a "sure thing" in regard to building wealth. As this Wall Street Journal blog post shows that is not always the case. Even when some of the longer time frames were looked at by the author, real-returns on homes were flat when inflation and other costs like property taxes are figured in. This isn't to say nobody should ever buy a house or that nobody ever makes millions in real-estate, it's just not the financial guarantee that so many believe it to be. Personal finance professionals should do a better job of informing prospective homebuyers about the possible downsides of homeownership, but one reason I believe they don't is that many wouldn't want to hear it. So many people have bought into the idea that homeownership is a right instead of a privilege. Financial media and financial advisors risk being "dream crushers" if they tell the hard truth. So if you're planning on buying a home, understand that there are risks attached and also that it's better to buy a house because you like living there instead of just trying to get rich.
2 - Jobs are not actually scarce, jobs we want are scarce
Please don't take this one the wrong way. I fully realize that the job market is extremely tough at the moment and many hard working people are giving their all to get employment anywhere they can. That said there is evidence that some are turning their backs on perfectly good jobs, even in this terrible job market! And I'm not talking about people quitting for a better job, these reports indicate they don't have anything lined up. In the survey I linked to, the responders give reasons like being "bored" or "not-liking their jobs". Granted, the survey is not scientific and I do think it overstates the issue, but I have also seen this in my own job experiences. There are a considerable amount of people who simply don't value being employed. Even worse some have a disdain for certain types of work, looking down on occupations like "janitor" or "dishwasher". I think the financial media under-reports on the availability of jobs that people often discard or even refuse to work, but let's face it, many would lash out at reporters for telling the truth. Unfortunately our society just doesn't value work like it once did. The fact is, allot of people could benefit from accepting the hard truth, that any job is better than no job. Those in the third world would love to fill jobs that too many Americans believe are beneath them.
3 - Food, water, & shelter are necessities, but not much else
Allot of people march strait into bankruptcy court without ever giving up luxuries like cable TV, internet, cell phones, regular visits to the local shopping center, eating out, and other routine, elements of the American consumer's life. Again, I will temper my statement though. Not all of those suffering bankruptcy are guilty of financial negligence. There are a good number who have fallen into insolvency due to insurmountable medical costs or are down on their luck in some other way. However, too many fit the other profile. This is another issue, were I think main stream financial media is leaving us uninformed. Also how many financial advisors would tell their clients to take the hard rode and give up their cable, internet, or cell phone. Bottom line though, if you aren't making your bills, at least try to make do with less. If you have to, start making do on much less. You may be able to save your credit and benefit yourself in the long run.
4 - Personal finance troubles usually have more to do with individual mismanagement, than the financial game being rigged
It is very true that the financial game is rigged. The whole system is riddled with conflicts of interest, fraud, and corruption. Government policies are bought by lobbyists to enrich and empower the wealthy. Financial media disseminates information through the filter of what's acceptable to their corporate advertisers (mostly Wall Street financial institutions). Then there is financial advisors, who are usually conflicted in the advice they give about personal finances, due to the fact that they are often rewarded by selling their employers products over anything else. This is all true and more people in the financial industry should admit it, but I think it's also true that those who consume personal finance advice should wake up and not be so naive. People have to realize that outsourcing their personal finance decisions to strangers may not always be in their best interest. It may be easier to blame a rigged financial system for financial woes, but personal finance is just that. It's personal, you own it. The best course of action is to take responsibility and verify all advice before applying them to your own finances.
5 - If you lost all of your money investing in penny stocks or a ponzi scheme (like Bernie Madoff's) you share guilt with the fraudsters
Fraud is out there! It's a fact of life that penny stock fraud and ponzi scheme fraudsters ensnare investors every day. Who is really to blame though? Obviously the frauds themselves are corrupt, greedy, and evil, but who else deserves fault? Some would say that the government should do a better job of protecting us or that financial advisors need to do a better job educating clients about the many investment scams. Maybe so, but I think allot of times the biggest reason for the prevalence of financial fraud is the mentality of individual investors, themselves. Many end up investing in fraudulent companies and schemes because they want to believe in the promises of fast money or financial security just around the corner. True, advisors should do a better job of warning clients and the government should use our tax dollars more effectively to stop fraud (fat chance!), but too often they actually play some part in it. Also its hard to talk investors out of their own flawed nature. Each investor has to realize that they have a responsibility to protect themselves from financial danger. This means being alert to fraud and your own susceptibility to buying into it. Also, never put all of your money behind one stock or one financial wizard. This will protect your capital if you do make a bad judgment call.
6 - Financial advisors and gurus make mistakes, but most will never admit it
Financial advisors should probably always start off by telling clients that they are human and make mistakes like anyone else. This is of course left unspoken for obvious reasons, but it's still important to grasp when turning personal finance decisions over to an advisor. The financial advising industry likes to sell the public on the idea that they are specialized, professionals that almost always set clients on the right path. This just isn't true though. Personal Finance and investing decisions are always subject to the error of future assumptions, to some degree. Nobody gets it right all the time. This is important to note because it seems that so many just simply assume that their financial advisor will make all of the right decisions. Do yourself a favor. When following a guru or making personal finance decisions through a financial advisor, hold them accountable for their performance and continue to do your own homework as well. If the results are unsatisfactory, find a new advisor or even take charge yourself.
7 - Don't just complain about poor service, high fees, and corruption at big financial institutions, take your money somewhere else
This is a point I have been thinking about allot lately. All the time I hear people grousing about the big Wall Street financial institutions. There is a whole list of complaints that people have about these institutions, including: poor service (Bank of America has an entire website devoted to complaints), sneaky fees, and of course widespread corruption and government bailouts. I completely agree with all of these grievances listed. It's true that the bigger banks are likely to be weaker on customer service and fee hungry. Then of course we all know that there is way too much special privilege bestowed upon the "Too Big To Fail" banks, by government. Yet, with all of this agreement, it still doesn't make sense to me that so many who are quick to voice their complaints, but continue to do business with these same institutions. There are still large numbers of people who belong to the middle class and lower income portions of the population, who have accounts with Citigroup, Wells Fargo, Bank of America and others. Many don't like the fees, service, or the bailouts with their tax money, yet they stay with what the know. I'm sure many of these same people are applying for mortgages with these institutions as well. Why? I just don't get it, if you don't like so much about these banks then leave. There are literally thousands of smaller community banks and credit unions around the country. It's true, financial media never speaks up about the smaller alternatives and allot of financial advisors have a vested interest in promoting products for the big financial houses. Still many could give their personal finances a lift by taking action on their own disgruntled feelings and moving their money to a smaller institution. And they should, I have always avoided the big banks in order to enjoy no fees and great service at a local credit union.
Check Out The Savings On Fees At Smaller Banks & Credit Unions
8 - It's extremely hard to get rich, most people don't and you probably won't either
This last hard truth about personal finance isn't meant to end on a cynical note that crushes everyone's dreams. I'm a firm believer in never giving up and reaching for the highest ambitions. However, this point is meant to be a wake-up call regarding the reality that the odds are not in most people's favor. Attaining the level of personal finance success that many people want is very difficult. However, realizing this hard truth can actually help people to reach their personal finance goals, though it still won't be easy. You see the financial industry is filled with simple solutions and promises of easy money and financial security. It's not quite as prevalent as it has been, since we have entered such tough economic times. I still see it out there though and when the good times start rolling again the get rich quick philosophy will become more widely accepted again. It always does! Gurus are always ready to pitch the get rich quick schemes and easy pathways to millions. For most this will never work, but like my point about fraud earlier, many want to believe it can be easy. This is actually very damaging to our personal finances though. Following the fast & easy money mentality tends to lead to financial damages and ruin, not success. Another drawback from this overconfident mentality, is that when things don't work out as planned, people tend to burnout and scrap their personal finance goals all together. The best advice is that it won't be easy, instead it will be very difficult. It can be possible to set and meet financial goals with commitment and effort. By recognizing the truth, that it won't be easy your decisions with money are likely to be more sound. Remember, slow and steady is the best chance of winning the race in the personal finance game.
The Truth About Personal Finance Is Hard, But Your Better Off Knowing
Many may see these points as depressing or that I'm trying to insult my audience for their financial flaws. That's not my intention at all. I do believe that there is a huge education gap in personal finance, between what people think they know and what they should know. People have lots of knowledge, but much of it is based on conventional wisdom that is biased towards telling people what they want to hear. That's why I tried to send a strong message, in order to point out allot of common misinformation. Personal finance decisions can only improve, by accepting the truth even if it's not always what we want to hear.