bluntmoney.com

You read it in the news all the time: homeowner Bob took out an adjustable rate mortgage, and now finds himself unable to pay his house payment. Or borrower Bev finds herself with a hundred and fifty thousand dollars in student loan debt, or $25,000 in credit card debt (or both!) and is having trouble making ends meet. In addition to the finger-pointing that often accompanies news stories like that, there’s usually someone urging for more education. “Personal finance should be taught in the schools”, they urge. “This wouldn’t happen if people really understood what they were signing.”

Well, I wonder. I don’t think that education is everything. You see, when my ex & I bought our first home, we took out an adjustable rate mortgage with $400 down. (No, I’m not missing any zeros on that down payment.) I think our starting rate was around 10%, which was a pretty good deal at that time. No one forced us into it. It was what we could afford, and we figured that in 3 years’ time we’d surely either be making more money or we would refinance. Not an unreasonable assumption at all when you’re 21. I knew that the interest rate would go up based on a certain schedule. I just didn’t believe it would be a problem for me. And it wasn’t. But does that have anything to do with education, or lack thereof? Only in the sense that I graduated from college and went on to earn more money. Did the mortgage lender pound into my head that hey, you know that if you don’t start earning more money and your interest rate adjusts upwards and you can’t refinance at a lower rate, that you’ll be in a world of hurt? Nope. But it could easily have turned out that way.

Same goes for credit card debt. When I got my very first credit card, I used it very responsibly. It had a $200 limit, and I only used it to buy things that I already had the money for. I paid on time. I knew that credit cards could keep you up at night if you didn’t use them responsibly. I had good examples, in the form of grandparents who used credit cards for everything to get the rewards, and then paid them in full each month. So, how did I wind up with about $15,000 in credit card debt? It wasn’t because of a lack of education in the realm of personal finance. It was because I got in over my head. I thought I could handle things, and the little things kept piling up, until bam, I had a whole lot of debt for things I could no longer even remember buying.

I think that in many cases, people get into trouble financially because they underestimate the risks and overestimate how well they will handle them. Or, sometimes they just plain refuse to see that their behavior is risk-taking in the first place. I also don’t think it’s a coincidence that many people first find themselves deeply in debt when they are young. The younger you are, the more likely you are to believe yourself infallible and to deny that bad things could happen to you. Those are things that happen to other people — you know the risks and you’ve got everything under control.

I do believe that personal finance should be taught in schools, and anywhere else people are willing to listen. But maybe we should teach caution and risk-analysis too.

If you like this article, please visit my new home at www.moneycrush.com or subscribe to the new RSS feed. Thanks for visiting!

• The Credit Ratings Credit Card Companies Prefer You Did Not Know We are all too familiar with our credit score (or FICO score) which is the number from 300 to 850 which determines our overall credit...
• Eliminate Credit Card Debt Have you recently decided to eliminate credit card debt from your personal finances? Although it may seem like a lofty idea, you should know that...
• Money Management and Budgeting are Vital for Avoiding Financial Disasters Anyone who is worried or stressed out about their finances right now has probably had concern over whether or not their budgeting and money management...