Financial Education 101

Let’s play a word association game.  If I say ‘education’ the chances are that your immediate thoughts will be along the lines of ‘school, university, degree, or further education’.    However, in this article I’d like to raise your awareness of the importance of your ongoing financial education – most of which can take place without much change to your daily routine.

In my work with olim, one of the very frequently asked questions is ‘why do I have such a hard time managing financially in Israel when I managed just fine in my home country?’  Without entering into discussions about Israeli salaries, cost of living etc, etc, I would suggest that the question is equally relevant to veteran olim as it addresses the difficulty and need to adapt to new environments.

You were educated to face new challenges in school, high school and higher education forums.   However, in my opinion the system has generally failed to provide sound financial education, to teach children crucial, basic tools to help them become financially independent adults.   So the reality is that now as you go through life, and experience major life events, you are probably not even thinking about adequately addressing the financial implications.  Next month I’d like to give you tips and tools regarding your children’s education, but this month let’s focus on you!

If you have a financial plan – congratulations!  However, before you become too proud of yourself for doing that major first step, contemplate the following:  How often do you update your plan?  Do you adjust it to suit your life changes?  Those life changes can be minor (like changing jobs), or very major (such as losing a spouse or getting divorced) – but all of them have financial ramifications.  If you get a new job with a lower salary, you have to adjust your spending to compensate for the salary loss.  By the same token, if you get a new job with a higher salary you need to adjust your financial plan so that the extra income is ‘put to work’ towards your long-term savings.  Putting together a plan and then not checking if you are on track, and not updating it, is simply foolish

Education is an ongoing process,  It involves constantly acquiring knowledge and learning how to apply it to your unique circumstances.  A financial education does not need to be limited to a formal course or professional training.  It should include all our daily interactions with the myriad individuals and situations that cross our paths.  Ensuring your eyes and mind are open in the following ways can make a major difference.

·         Keep up with the Jones (the financially savvy ones, of course!).  Talk to your friends and acquaintances about the best and cheapest ways to do/buy things.  Recommendations can provide a goldmine of information for you to reduce your costs for goods and services.  Use your experiences and the experiences of those around you as a source of continuous education.  I often recommend that my clients speak to other families for helpful hints into what’s working well for them financially and what small but yet significant changes can be made in their daily financial routine.

·         Follow the news and changes in major financial areas such as tax laws, the economy, interest rates, etc.  Keep abreast of what is going on because many of these events do and will affect you.  For example, the recent deregulation in the cellphone industry in Israel has brought down prices tremendously, for those following the trends.  But don’t think the reduction in prices will reach you automatically.  You need to be proactive and call, negotiate and shop around for the best deals.  A client recently reduced his phone bill by over 700 nis a month but that is only possible if you’re at least minimally following the financial news.

·         There are a multitude of financial columns and blogs, written by professionals and filled with insightful advice.  Spend an hour or two once in a while doing some research, or read a new book discussing trends that might be helpful in the long run, like the effects of aging baby boomers on the economy.  However, don’t be overwhelmed by the plethora of articles; look at long-term trends, rather than current ones.

·         If following a variety of financial websites is too scary or overwhelming for whatever reason, work with the relevant professionals who can help keep you educated and focused.  But don’t rely on the professionals entirely.  Make sure they explain the situation so you can ask informed questions and make educated decisions.  Familiarize yourself with financial terms so that you can ‘speak the language’.   Not knowing the basic terms can be a major handicap.  Your fluency will depend on your ability and desire to learn, but at least make sure you are able to understand and make yourself understood in financial conversations.

To summarize – make sure you always consider the financial perspective of your ongoing life changes, regardless of what they are.  Keeping your financial education up-to-date and making small incremental changes can make all the difference over the long run.   Next month we will review some pointers for your children’s financial education, and help them avoid the common mistakes that too many of us make.