Personal Finance 

Being bad with money doesn’t make you dumb

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Being bad with money doesn't make you dumbAs someone who’s made his share of financial mistakes over the years and had close family and friends who I’ve watched slide into financial catastrophe, I can attest that financial trouble is often accompanied by feelings of guilt, self-doubt and helplessness.

For those in the worst kind of financial trouble, bankruptcy, the pressure and financial distress can be devastating, says Tim Tarvin, an associate professor of law at the University of Arkansas School of Law.

So why is financial trouble such an emotional issue for people? Much of it has to do with how we think about and treat those who are struggling, Tarvin says.

“There is a good bit of shunning and shaming within our society, and it’s not merely by creditors. It’s by family members, it’s by church members, maybe pastors and others,” Tarvin says. “And there’s just a general feeling of condescension towards those who file bankruptcy, as though they purposely caused their own financial misfortune.”

That stigma comes even though factors people have little control over often figure into their financial troubles.

“Of all bankruptcies by families with children, nearly 90 percent are caused by three things: job loss, medical expenses and divorce,” he says. “You’re looking at folks that, when they come in (to bankruptcy), are already generally people who have been through some sort of trauma.”

Smart people make money mistakes, too

Some people would argue a little bit of shaming will give people an incentive to mend their ways. But the danger I see is that people who’ve made mistakes in the past will end up concluding that past money mistakes means they are don’t have what it takes to successfully manage their money.

That’s why it’s important to remember that being bad with money or investing or any financial skills doesn’t make you dumb, any more than being bad at car repair or cooking makes you dumb.

In fact, in a 2011 study by the Institute for Financial Literacy, among people who reached out to them for help in financial literacy or credit counseling because of money problems, more than 20 percent had a bachelor’s degree or graduate degree.

Like anything else, money management is a skill that can be learned, and although it takes some discipline to apply that skill consistently, it’s possible to develop that as well. In the first place, a lot of financial mistakes result from simple ignorance of the way financial products work.

“Just as there’s functional illiteracy in terms of the English language in this country, there are certainly pockets of math illiteracy, of financial illiteracy,” Tarvin says.

Even those who have good theoretical knowledge of finance can make practical mistakes in how to apply it to their own lives, Tarvin says.

“Accountants, financial managers, people who are very savvy about money, also can find themselves in bankruptcy,” Tarvin says.

So for those trying to dig themselves out of past financial errors or looking to make a fresh start, don’t let past troubles lead you to believe you don’t have what it takes to do better next time. Just learn from your mistakes, ignore the haters and seek the knowledge you need to get where you want to go.

What do you think? Have you ever felt stupid because of financial mistakes? Have you known smart people who made financial mistakes?

(Photo: Flickr user Lord Jim)

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11 Responses to “Being bad with money doesn’t make you dumb”

  1. Karl says:

    I disagree with most of this article. Bankruptcy not ones fault? Not something to be ashamed of? Good grief!

    In my experience: virtually everyone I know spends too much, saves too little and indulges themselves. We don’t manage risk, we just ignore it and when bad things happen we are surprised and upset. If you think of all the risk that have a decent chance of impacting you and you don’t try to mitigate them it is likely that something bad will happen to you (given these risks are constant and we live to 80ish).

    So instead of educating myself, identifying risks and addressing them I buy cable TV, buy more house/ car than I should, etc and then go bankrupt; I should be ashamed and I should make corrections. It’s called learning the hard way. Tough. Deal with it. Be an adult.

    There is so much opportunity to save money: used cars, less cars, smaller home, thrift stores, Craigslist, etc.

    Instead of writing an article about how poor money management is not our fault write one about taking life seriously, being responsible, delayed gratification, etc. Enabling irresponsibility strikes me as exactly what people do not need to hear or be encouraged to do. Why not ask them to be better?: More self control, more discipline, more thinking, less playing. Protect and care for yourself, your children, your extended family and friends.

    • Jemma says:

      Karl, did you even read the article? Or did you just skim it and get out of it what you wanted to? The 4th paragraph talks about how almost 90% of bankruptcies of families with children, it’s due to divorce, job loss, and/or medical expenses. My guess is that for even people without children (or grown children), a large portion is due to those same factors.

      Instead of touting your bootstraps theory (let me guess – you totally did it, right? And your experience and the experiences of those around you are TOTALLY the same as everyone else’s, right? *eyeroll*), why don’t you pull your head out of your backside and look at things from other people’s points of view.

      And before you jump down my throat, I’ve never had to file bankruptcy before and don’t plan on having to do so in the future. However, that doesn’t mean I won’t have to in the future, and it certainly doesn’t stop me from having empathy for those that do need to do so.

  2. Jade Spence says:

    My gosh, I think this article could have been written by me! I am 58 yrs old and still struggle with financial planning, etc. Fortunately I married a man who is interested in a good financial plan and is understanding of my ambivalence. I know cognitively how important money management is, yet I seem to be ruled by some other forces! I cannot accompany my husband to Target, for instance, as I am such an impulse shopper.
    When I get on the ‘guilt and shame train’ re money, my husband says, “well that was then-this is now.” Staying ‘in the now’ is helpful and productive. When you stay in the ‘blame game’ nothing is accomplished.
    So for those readers who identify with me, and feel powerless to change, make contact with someone whom you trust and just spill your guts! You’d be surprised to learn that there are many people standing by to help you. They don’t judge – what does that accomplish?- but they empower you.

  3. Stephanie says:

    Unfortunately there are circumstances that happen to people that they can’t control, as in heavy medical expense with no insurance. They may have been good, watched their spending etc. then bang something really bad happens & they can’t recover & they declare bankruptcy merely because they can’t pay the debt. Now one could argue that they should have had insurance, well sure. However being hurt, laid off time and time again and now they just exist.
    For that I feel bad. For those that decide screw everyone, run up credit cards buying stuff & then declare, I have no patience for because all the rest of us bear the burden of ridiculous indulgence with no caring for others. You have to look at each situation in order to make a judgment. I think there are many lawyers with all their ads that make people think it’s a good way out and just don’t care. I know both kinds. I believe in saving, paying all your bills because its your responsibility, not someone else’s. I believe poor money management is your own fault & you need to be accountable at all times. You have to always try to manage your money with care.

  4. Claes says:

    Karl: Thanks for reading! The point of the post isn’t that people shouldn’t be accountable for how they manage their money, it’s that people who have made mistakes in the past have the capacity to change and make better decisions in the future. What helps people change isn’t others sitting in judgment, it’s support and education. Sure, there are some who can’t or won’t ever be responsible with their money, but their are plenty of people who just didn’t know better the first time around.

  5. Claes says:

    Stephanie: Definitely agree there are some who deliberately choose to be irresponsible and reckless with credit and other financial tools. But also agree there are lots of people pushed into bankruptcy by factors not under their control.

  6. SLCCOM says:

    Chronic or major illness WITH insurance is a big cause of bankruptcy as well.

  7. Robert Black says:

    Yes I do agree. I left school 35 years ago and I use very little of what I learned. A little math maybe and some French on the 2 occasions I have been to France! Why isn’t financial management taught in schools? Imagine if we had left school understanding the meaning of debt, of interest, investments and so on. You do have to wonder if there isn’t some ulterior motive for not teaching this at school.

  8. Claes says:

    Robert: Totally agree. I’m a big believer that financial education in schools needs to get MUCH better if we’re going to increase the savings rate over the long term and help people reach better financial outcomes.

  9. I am an accounting student and I manage all money matters for my client but when it comes to me I wasn’t able to manage my own money and ended up in a very frustrating situation. Fortunately, you can always start your life over again and forget all the bad things that happened to you previously but don’t ever forget the lessons you’ve learned from the mistakes that you made in your past. I did the same thing in my life and right now I’m trying to get a fresh start. If you are planning to invest in something like a business or shares, whatever you do make sure to do a proper research and think it over again and again so you don’t end up like I did.

  10. Claes says:

    Hunain: You’re far from the only financial services professional I’ve talked to who’s had bumps in the road with their personal financial management. Thanks for sharing your experience!

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