Financial Literacy Simplified

One Book You Should Read If You Haven't Already

Rich Dad Poor Dad is a book I wished I read in school.  Don't get me wrong.  Reading Shakespeare, Steinbeck, and Ellison were interesting.  The titles the authors produced are insightful and life changing for most.  I understand the need for fiction.  I always longed for non-fiction.  I love how you can learn so much from a person's stories and experiences in such a short amount of time.  Rich Dad Poor Dad is non-fiction, but to me it didn't feel like I was reading a book.  I felt a sage was reciting wisdom to me that I needed to hear. 

Financial Literacy

What is financial literacy really?  Well, let's start with literacy.  Some believe literacy is the ability to read and write.  I really like Alberta Canada's definition.  They believe:

Literacy has traditionally been thought of as reading and writing. Although these are essential components of literacy, today our understanding of literacy encompasses much more. Alberta Education defines literacy as the ability, confidence and willingness to engage with language to acquire, construct and communicate meaning in all aspects of daily living. Language is explained as a socially and culturally constructed system of communication.

Now that we established a clear definition for literacy.  Let's discuss financial literacy. I will borrow from Wikipedia. Financial literacy, "is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources."

The biggest takeaway from the book is to understand the difference betweens assets and liabilities.  There are other skills in the umbrella of financial literacy, but internalizing the contrast of the two is what this book drove home.  The advice is really simple.  Aquire assets and get rid of liabilities.  It's so simple.  You can even say it's elegant.

Assets are easy to recognize.  Liabilities can be tricky to identify.  Let's look at an example. You would like to purchase an Audi A6 for a seven year 0% APR car loan.

 

I'm going to ignore the cost of tags, title, and taxes for this example.  We will just say you will pay $49K over seven years.  Per month we are looking at a car payment of around $590.  A lot of people can afford this if you just look at their monthly income versus their expenses.  When confront with this type of decision you should ask a few more questions.  One question I would ask is this. If I by the car, how much money am I taking away from acquiring assets in the future?  That's a simple answer.  You are taking around $50K over seven years.  That's definitely a liability.  You are locking away $50K for seven years.  That money will not be doing any work for you.  However, Audi would gladly take you money and use the $50K to purchase assets for the company.

Good Reads

This is a really good book.  I'm a bit taken back by how little book activity Rich Dad Poor Dad has on the site.  The book is rated at 4.39.  I should call out the link to the site is reviewing the audiobook.  There's a few review if you're interested.  Hopefully you're convinced to take a look.