Graduation, Financial Literacy & Avoiding or Eliminating Debt

I had the opportunity to attend the graduation ceremony at my son’s and daughter’s high school last night. My son, who is a junior and an Eagle Scout, had the opportunity to participate in the flag ceremony at the beginning of the event along with three of his friends so I wanted to be there to see this. As I listened to the addresses that were given by some of the students and administration, the thought came to me again, like it has many times before, that high school (and college for that matter) doesn’t prepare us well for life in terms of financial literacy. Let’s be honest, do you recall learning how to balance a checkbook or reconcile your bank account in school? I didn’t think so. Granted, I realize that the younger generation doesn’t even use checks anymore but they do have bank accounts that need to be managed, even if all transactions are electronic these days for them. Over and above these basic financial skills, there is a greater need to understand finances and how money works. I would guess that an overwhelming majority of adults today don’t fully understand how interest works and what it can do for you and to you. Debt can be a devastating factor in the financial success or lack thereof for many people. If you can find yourself on the receiving end of interest, you are usually winning the game while those who incessantly pay interest will never get ahead or achieve their financial goals.

I have the opportunity to be an endorsed local provider (ELP) for tax and accounting services for the Dave Ramsey program. Many of you will have heard his radio program and some of you may have seen his television program. His philosophy is straight and simple – get out of debt and the earlier the better. True freedom is only available after removing consumer debt (and eventually home mortgage debt) from your equation. He often says “you either tell your money what to do, or the lack of it will always manage you”. He constantly pitches that you must “live like no one else, so you can (someday) live like no one else”. His point is that sacrifice will be necessary for some time to free yourself from the shackles of debt and you may have to live like no one else eating beans and rice for a while to save money to pay down debt. However, this sacrifice will eventually enable you to be debt free and enable you to live, and give, like no one else.

The Dave Ramsey program offers 7 baby steps for success which are listed below.

  1. $1,000 in an emergency fund
  2. Pay off all debt other than your home using the debt snowball
  3. 3 to 6 months expenses in savings
  4. Invest 15% of income into Roth IRAs and pre-tax retirement plans
  5. College funding
  6. Pay off your home early
  7. Build wealth and give

Society, marketers and credit card companies would have you believe that you must have the latest and greatest of everything and that it is perfectly fine to go into debt to obtain these items or services. What they don’t want you to realize is that the interest you will pay as a result of financing these purchases will handcuff you down to monthly payments for the foreseeable future, take away your freedom to choose and definitely limit your ability to reach out to help others. Without the burden of debt, it has been shown that stress levels are reduced, enjoyment of life is more likely to be achieved and better life decisions are made.

I would encourage everyone, adult or child, to learn more about the benefits of eliminating debt. It is not until people realize what they are missing out on due to their debt load that they have the impetus to make changes in their lives and find this financial freedom. If you are interested in learning more about this, please contact us to schedule an appointment.

Mark J Weech, CPA