Maximilien Robespierre, before his head was separated from his body by the guillotine in the French Revolution, said: "The secret of freedom lies in educating people, whereas the secret of tyranny is in keeping them ignorant". The world is financially ignorant and the tyrants are exploiting this ignorance.
The financial industry does not want you to be free. Just like the medical establishment wants to keep you ill and coming back for treatment, the financial system wants you to consume like an imbecile. Through marketing and advertising, it sells you an almost unattainable lifestyle that if you reach, you simply become another one of greed`s whore. It is never enough. Banks want to keep you ignorant and coming back to buy their products. They say they want to educate you but nothing could be further from the truth. They want to sell you their rancid products with a new shiny wrap. They want to skrew you again and again, and you get to smile while they`re doing it.
According to a Standard & Poor's Global Financial Literacy Survey, only 33 percent of adults worldwide are financially literate. The bar on this survey was not set high. Respondents were not asked to build complex econometric models or use Markowitz to find the efficient frontier on an investment portfolio. Simple questions about inflation, compound interest and diversification were asked. The notable laggard in the survey was a rising economic power. China's citizens recorded an abysmal financial literacy score of 28 percent.
Moreover, literacy scores were not going up. The Financial Industry Regulatory Authority Inc.'s Investor Education Foundation's 2016 report found that 37 percent of individuals correctly answered four out of five financial questions. This was below the 42 percent reported in 2009. Humans are getting financially dumber, not smarter.
Low levels of literacy are alarming as governments incentivize banks to make financial services available to a wider audience. Moreover, in the last 30 years, the retirement savings landscape has shifted. Decision-making responsibilities have been transferred to financially illiterate participants who previously relied on their employers or governments for financial security and guidance after retirement.
One question that vexes me is why the formal education system has never focused on financial literacy? At school, I was rewarded for translating Livy’s report of the First Punic War from Latin to English and memorizing the difference between igneous, metamorphic and sedimentary rocks. This education system is engineered to produce uncreative and loyal employees, not free-thinking entrepreneurs. As in most systems, however, imperfections exist. A minority fringe exit the system before graduating with their entrepreneurial fire unextinguished. Some spend their lives checking in and out of rehab, while others set up multi-billion dollar companies. The latter list includes Steve Jobs of Apple, Bill Gates of Microsoft and Mark Zuckerberg of Facebook. They succeed in business not because of formal education but in spite of it. The architects of the system need these drop-outs, the one percent world, to perpetuate a system in which a handful of crusading pioneers employ the institutionally educated masses.
So what is financial literacy and what does it take to become financially educated? According to the Cambridge English Dictionary, it is the ability to understand the basic principles of business and finance. This is as useful as advising a death-row inmate to reduce his dietary intake of trans-unsaturated fatty acids. My definition is different. To be financially literate, and to use this literacy to achieve financial freedom, you need to do two things.
Thing 1: Unlearn EVERYTHING you know about Money and Finance
Robert Kiyosaki, the financial freedom pioneer, in his book “Rich Dad, Poor Dad”, says that from an early age we are taught to go to school, get a safe job, save money, live below your means, buy a house, get out of debt and invest for the long term in a well-diversified portfolio. These precepts are the biggest load of bull since Joseph Goebbels launched his massive campaign that Germans were the superior race. These lies cause financial bondage. The only way to free yourself is rebellion. When I joined the derivatives trading desk at a large European bank in 1997, I asked a colleague for advice on how to trade options. He told me to take my gut instinct, and do exactly the opposite. Financial freedom requires this same "contrarianism".
Thing 2: Dominate FIVE Key Disciplines
The pentathlon was one of the original sports in the ancient Olympic Games. Five sports were contested over one day: long jump, javelin, discus, a foot race and a wrestling match. The pentathlete was the most complete and skilled athlete at the games. Their training formed part of the military. The ability to run and hurl yourself into a pit of sand and wrestle your enemy armed with a sharp object and a disk superseded all other abilities. To attain financial freedom, the five disciplines you need to dominate are less physically demanding. They are investments, tax, accounting, business law, and selling.
Go out and buy a leather-bound journal. The first step in the journey to financial freedom is to describe the most important relationship in your life. It is your relationship with money. According to the American Psychological Association (APA), money is the top cause of stress in the United States.
I want you to answer the following:
1)What does money mean to you?
a.Is it a goal in itself or a means to something else?
b.Do you believe that it will make you happy?
c.Is it a measure of your self-worth?
2)How do you see rich people?
a.Do you aspire to be like them?
b.Are you envious of their success?
3)What is your happiest money memory?
4)How important was money in your family?
5)Are you a saver or a spender?
6)Do you feel guilty when you buy an item of luxury?