Macro Minute: Week of April 28, 2025
I am starting a series of writings that I will eventually turn into a presentation. I have the honor of being on the 2025 Etowah County Leadership Team. Through this program, I have had the chance to see how financial literacy is a subject that is missing from both education curriculum and society in general. I would like to begin writing around this topic because I know from personal experience the importance of this subject.
To begin I think it is necessary to describe more than define financial literacy. Learning about money and finance is a part of financial literacy, but to me the real impact is the psychology of money. As a foundation, understanding basic mathematics is essential but the truly important aspects are the social science behaviors. A simple example of this is in the use of debt. Put simply, debt is borrowing money that you pay back over time, plus interest. With mathematics we can easily calculate these payments. But why do some people have no problem incurring large debts and some people absolutely refuse to have any debt? These social discrepancies are why I think society has a hard time teaching financial literacy. Different parts of society have very different beliefs on aspects of money even though fundamentally the math can be clear.
Financial literacy is a broad topic that is way too big to cover in a blog format, so I will be taking different aspects to cover. For a start I want to cover certainty and begin thinking about risk. Most fields and careers have a stable set of absolute certainties. As part of the Leadership program, we got to tour the new Advanced Manufacturing Workforce Skills Training Center at Gadsden State Community College. There, students are taught exacting measurements and requirements. For example, they are taught the strength of a type of weld, and the exact breaking point of certain materials. This gives them certainty in what they need to do to complete a task. In financial literacy we have absolutes too and they can give us the needed certainty we need to make good financial decisions.
Let me break down some of these foundational certainties.
Budgeting – You must have more income coming in than expenses going out
Savings – Unless you work until the day you die, you need to save part of your income for a time when you are no longer working
Compounding – Either your debts or your savings will grow over time
Inflation – The value of money is not stable over time
Time – Small adjustments plus time equals large change
In addition to basic mathematics, these above concepts and behavioral tendencies will provide a basis to make wise money decisions for a lifetime.
I have talked about certainty and absolutes up until now. The one part about financial literacy that makes people nervous is the unknowns. What I mean is that people don’t like how prices and values change. Economic uncertainties are everywhere in society because we live in an ever-changing world. Investing is one of the few disciplines that the shorter the time frame the higher the amount of uncertainty. But the converse is also true, the longer the time frame the higher the certainty becomes. For example, if you were to ask me what the return over the next week will be, I will have no idea. On the other hand, if you asked me what I thought the return would be over the next 30 years, I would have a much higher degree of certainty. People want to believe that life is certain, especially when it comes to one’s financial life, but that just is not reality. Life is ever changing, and finance reflects that. These uncertainties introduce risks, but there are ways to mitigate these in your finances too. The one sure method to turn risk into reality is to put off doing something. This is probably the most common mistake people make in their personal finances, that is to just ignore them and not act. As we go along, I will give tips on how to confront risks and my first tip is this: start now. That’s it. It does not matter what thing you are needing to do for your personal finances, but getting started now will help.
As we go along, I hope we demystify and bring money discussions back to prominence in our schools and society. We train and go to school to earn ever increasing wages, but rarely do we take time to think about how to use those monies. Our finances are just a tool, and like any other tool, it can be used to build something beautiful or harm us if used incorrectly.
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