Why You Want Financial Competency, Not Just Literacy

“Legacy, what is a legacy? It’s planting seeds in a garden you never get to see.” 

The World Was Wide Enough, Hamilton: The Musical

In our Perpetual Wealth book, legacy is the 7th of 7 phases of wealth. Legacy is what lives beyond us, and as Hamilton suggests, it’s about planting seeds for the future (although in our experience, sometimes you do get to see those seeds sprout for yourself). After all, building wealth for yourself is one thing, yet preparing your family to keep and steward that wealth for generations to come is a whole other feat. It takes time, patience, and lifelong preparations. 

Legacy is such a powerful topic because of the hard work it takes to build something from the ground up—they want to ensure that it survives. Additionally, people love their families, and want them to thrive well beyond their lifetime. The question we so often get, though, is: “How do you actually implement legacy in your family?” (Stay tuned, because we are building a course and community around this quest very soon.)

In that pursuit, is financial literacy enough, or do you need something more… say financial competency?

financial competency, financial literacy

The Fallacy of Financial Literacy

In the meantime, here are some of our certified “Prosperity Thinkers,” takes on the oft touted “financial literacy” movement so prevalent today. We find this rather funny, because as Scott Donnell said in our podcast conversation, “You can’t ‘homework’ money”. That is to say, understanding money and being successful with money are two entirely different ballgames. Many people who understand money are not successful with it…and there are even people who are successful that don’t understand it, if you can believe it.

Rather than financial literacy, what you want is financial competency. According to Google, competency means “the ability to do something successfully and efficiently.” So while learning is always good and useful, how you put your learnings into practice is what brings you success. 

Financial Education is an even funnier term because there are many many adults who have plenty of financial education, yet still find themselves living without a foundation of savings. And as I’ve said for so long: savings saves families. Some of these families are in the top 10% of income earners, yet they are also in the top 10% of income spenders! And it’s an uncomfortable awakening when you need savings and do not have savings. 

To Build Financial Competence, You’ve Got to Build Positive Money Habits

So what do you do? Start at Phase 1 of the 7 phases in Perpetual Wealth—Build Successful Habits! Good financial habits are the cornerstone of wealth building and wealth KEEPING, because you’re creating positive behaviors that you can fall back on. Positive behaviors—ACTIONS—are what will take you from literacy to competency. You have to put your knowledge into practice!

Here are some positive habits you can work on improving your family’s financial competency.

1. Pay Yourself First…and Teach Your Kids and Grandkids the Same

Paying yourself first is exactly what it sounds like—when money hits your account, put away your savings first, so that it’s taken care of. By treating your savings like a bill, it doesn’t get neglected. Otherwise, what so often happens is that people intend to save whatever is leftover at the end of the month, then end up spending it on other things. When you save first, you stick to your intentions AND remove the added temptation. 

Currence—which is an app plus an account—drives savings behavior, it auto-generates a “pay yourself first” structure, which creates the most important foundation in a person’s financial life, an emergency fund. From there, one can build an opportunity fund. The distinction is critical, you do not want to keep being focused on emergencies.

For kids and grandkids, there’s Gravystack, which is also an app and account designed for kids under 18. What’s extra special about GravyStack is that in addition to the app and account, there are ways for kids to learn through fun games, which help them put knowledge into practice. 

If you are interested in being invited to either Currence or Gravystack, reach out to me personally at ki*@pr****************.com.

2. Emphasize the Value of Value

The economy works by creating value in the marketplace. When you create value, you receive value in the form of cash flow. Help your kids learn from a young age the importance of creating value by framing life in that context. For example, ask your kids at the dinner table each night how they created value that day. It doesn’t have to be monetary value, either. Material value, emotional value, or spiritual value are just as important. Just emphasizing the importance of creating value in the world reinforces this awesome principle!

3. Build a Home Economy

Rather than paying an allowance, start implementing a home economy. An allowance teaches your kids an “I deserve it” mentality (which won’t be fun for you or others) that reduces motivation and an aversion to work. Yet creating a home economy motivates kids to be active participants in the home, while also getting a sense of accomplishment from earning their dues. 

Even better, Gravystack will help your kids take their earnings and put them into various buckets that you can help them create, such as savings, spending cash, and investments or donations. 

The creators of Gravystack also have a fabulous book with many of these ideas and principles, called Value Creation Kid

What’s the Problem with Debt?

Just like financial literacy doesn’t guarantee success in savings, it also doesn’t guarantee success in matters of debt. Especially when the typical commentary suggests that the best course of action is just “get out of debt” or “live debt free.” While there are certainly people in the world that can benefit from that mindset, there is a major difference between being “in debt” and “having debt.” 

In our view, being in debt is having debt that doesn’t help you create opportunities, like consumer debt. Usually, consumer debt is a direct drain on your resources, because you’re racking up an interest balance. However, there is some debt that can help you to leverage new opportunities without hindering your wealth-building opportunities, and oftentimes can even support your wealth-building. 

Our favorite example of this is the life insurance policy loan. With a policy loan, you allow your cash value to keep accruing interest uninterrupted. Simultaneously, you can use that loan money to invest in opportunities that will bring you cash flow, allowing you to pay down your loan AND save more. This is a win-win-win that ultimately helps you build cash flow in the long run. 

And, you have the added bonus of a built-in legacy sum for your family, thanks to the Death Benefit of life insurance. This can be used as the seed money for future life insurance policies for your children, creating a robust generational system. 

As you can see, there’s a distinct difference between financial literacy—what you’re taught—and financial competency—what you do. If you want to start putting your knowledge and skills into practice, we’re the team to help! Contact us at we*****@pr****************.com with your questions.

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