Testing Financial Literacy

If you had to have a single hallmark that demonstrated that someone was financially literate, what would it be?

I will give you some hints.

It will not be about their knowledge of credit cards, mortgages, retirement plans, group insurance, fire insurance deductibles, or life insurance.

The ability to do a budget and a long term financial plan won’t cut it either.

Understanding tax brackets, and the difference between regular income and a capital gain is of no use.  Neither will knowledge of powers of attorney, will and trusts.

The essence will be if they can answer this question.

“What is the difference between making money and getting money?”

It is a value thing.  Making money is tantamount to making a contribution to society at large.  An exchange that is fair to both sides.

Getting money has little or no positive value to society.

Does buying and dismantling a business “make” money or get money for the owner?  Does packaging mortgages make them more valuable?  Do arcane financial structures add value?  Does a 4,000 page tax act help or hurt?  Do government incentives work?

If society as a whole does not benefit, then the money has merely changed pockets.  Someone has more; someone else has less.

When someone makes money, they go away with money and someone else goes away with a benefit that they value.  Learning the difference allows people to be wise shoppers and disciplined planners.

It’s subtle but important.

Contact: don@moneyfyi.com  

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

One Comment on “Testing Financial Literacy

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