How much financial knowledge do I need to feel financially secure?Nov 03, 2023
When we start our journey towards financial security, success, stability, or any other similar word, most people I meet begin by acquiring more knowledge than they currently have. They may turn to sources like books, Audible, podcasts, blogs, friends, family, universities, working in the field of finance… the list could go on and on.
It is very natural and helpful to start from a place of wanting to learn more about how money works. In time, though, many will start to realize that it is more than just having the knowledge of how money works–it can become a powerful journey of self-discovery.
What Running in New Orleans Taught Me About Financial Knowledge
I was recently out on a morning group run at the FinCon (financial content creators) Conference in New Orleans, Louisiana when I found myself in a wonderful conversation with Philip, who began asking me questions about myself. I briefly explained to him my background and experience in the personal finance and therapy space, including that I have my CFP® and three graduate degrees.
As we made our way towards the Mississippi River, I noticed Philip turning this information over in his head. Here he was at the FinCon Conference trying to figure out what his next steps were in learning more about personal finance. He was interested in getting his CFP®. I asked him if he planned to work in the space of personal finance, to which he replied “No.”
“Then why are you interested in the CFP®?” I asked.
“I just want to make sure I know everything I need to know for my own financial life,” he said.
This prompted a whole string of further questions for Philip–as it turns out, he has done a ton of personal study around all the major areas of personal finance, including budgeting, investing, taxes, insurance, and estate planning.
But even with all this knowledge, he still doesn’t feel financially secure. He wants to do right by his family financially. As the run came to an end, I knew there was more to his story that I would never learn. I have had the opportunity to study and work with many people like Philip. I am like Philip.
Graduate School and A Simple Test
I highly value financial knowledge–so much so that I have made it my academic and professional journey! I can never get enough. It can sometimes become more like an addiction than a healthy quest for knowledge and wisdom.
I can remember being in graduate school and learning how to research the relationship between financial knowledge and financial outcomes. There was a very simple assessment that was used to measure financial knowledge and then compare those results to people’s income and net worth. You will likely not be surprised to hear that the more questions you answered correctly, the higher your income and net worth would be.
This confused me, because I thought, “How could something so simple as a handful of questions accurately predict someone’s income and net worth?”
I had taken the exam to become a certified financial planner, which took place over a full day across many different categories of personal finance.
Here is the reality I have come to appreciate: once you know the principles of personal finance, you are–as the saying goes–80% of the way there. Of course, there is always more you can learn and more nuance to be gained in the detail of your knowledge, but there is likely a diminishing return on the effort.
So if you have acquired a working knowledge of personal finance and understand the major concepts of budgeting, investing, taxes, and insurance, then you are probably headed in the right direction.
A Big Difference Between External Knowledge vs. Internal Knowledge For Financial Security
External knowledge is all about knowing how to set up a budget, understanding the concept of compound interest, having the ability to complete the required tax forms for your family, etc. You can recognize the different words, what they mean, and how they relate to each other.
For instance, if you sell an appreciated stock, what will happen?
That’s right: you will pay capital gains tax–except when…
…it is held in a tax-deferred environment.
Internal knowledge, on the other hand, is about knowing yourself, your family, and cultural history around money; how your experiences have shaped your particular pattern of thoughts, feelings, behaviors, beliefs, and sense of self and others.
Each of these factors of being human plays a major role in the way you actually experience financial security.
Let’s look at a very simple example.
I recently saw a “money coach” on Instagram saying they were struggling financially despite all their financial knowledge.
I will call this the “I know better, so I should do better trap.”
I don’t know anything about this “influencer,” but I assume they are thinking that if they just knew more or planned better, then they would do better.
I am making this part up, but it is possible that every time they look at their increasing bank balance, they unconsciously do something to set themselves back financially. Logical? No. Psychological? Yes.
See, looking at our numbers is a lot like stepping on the scale to measure our weight: it sends off a cascade of thoughts, feelings, and behaviors that can paradoxically prove to be very unhelpful for our financial lives.
Financial Security Is More Than Knowledge About Money and Having Money
Let’s make no mistake: knowing about money and economic systems is very helpful and important. Being able to increase your income and net worth are also important factors in creating a level of financial security.
The missing link, though, is a psychological and whole-body experience of feeling financially secure. This takes working through financial trauma in your life–much like how people who struggle with sexual intimacy and functioning can spend years learning more about sex positions, sometimes become compulsively addicted to sex, and don’t actually experience sexual fulfillment and pleasure. At the root for many of them are various forms of sexual abuse and neglect.
In fact, the field of sex therapy has a lot to teach us about developing a healthy relationship with money. I have greatly appreciated many of the resources and professionals associated with the American Association of Sexuality Educators, Counselors, and Therapists. Even if you go through and replace the words “sex/sexuality” with “money,” it will help reframe your understanding of your own relationship with money.
For me as a Therapy-Informed Financial Planner, financial security is about bringing together the worlds of financial and relational security. I share my own story around this and self-help for other couples in my book, The Healthy Love and Money Way: How the Four Attachment Styles Impact Our Financial Well-Being.
If you’re wondering whether you know enough about money, my answer is that it’s okay to know what you know, acknowledge that you don’t know it all, and most importantly, think about financial knowledge as a lifelong journey that will unfold in phases and stages.
I would love to talk with you about your money life and how Therapy-Informed Financial Planning can help you! Schedule a free 30-minute conversation with me here.
Helping You On the Journey to Financial Security,
MBA, MA, MS, CFP®, LMFT, CFT-I™
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