Financial Literacy by John Jakobs

Can you read? Are you computer literate? Are you financially literate? I have been asked the first two questions in my lifetime. I have never been asked the third. So let me ask you are you financially literate? I would venture to say that most Americans today are lacking in the Arena of financial literacy. I myself find that even after being employed in the financial services field for 15 years I too still have room to grow and learn.
It is the average American though that I truly wonder about. When I think about the way that Americans spend and the methods that we use to spend I have to question our financial literacy. Do we really understand the impact of compound interest? When we receive a credit card in the mail it comes the the terms and conditions brochure. Have you ever read it? Did you understand it? The GAO Office has determined that you would need to read on a 28th grade level to understand everything printed on that brochure. Is there a 28th grade level? Do you read at that level because I have a bachelor's degree and I don't think I do. The average reading comprehension grade level in America is an 8th grade reading level, that being the case how many Americans actually understand what they have agreed to?
I was speaking with client the other day who could not understand why his interest rate on his credit cards went up to 29.99% when he had not missed a payment to them? He said they went onto tell him it was all in the brochure he received with the card. His monthly minimum went from $105 to $280, this happened to all his cards! He is being forced now to refinance his home to pay off these credit cards. Not because it is something he wants to do but is being forced to do if he wants to be able to keep his home and credit standing. He is fortunate that he has enough equity in his home to do so even in this current market. He has now embraced a new way of looking at his finances. It was Albert Einstein that said,"we cannot fix a problem with the same thinking that created the problem." We must look at the problem from a different perspective.
This client has started to learn and utilize the same philosophies the banks use to manage money for his own personal finances. The banks make money with other peoples money. They take our money (which we freely give them) give us a small interest rate then take that money and move it in other accounts to either earn a larger dividend then they pay, or they lend it back to us the consumer at a higher rate then they are paying. So I ask you this why can't we do that? In short, because of our lack of financial literacy! We don't know or realize what they are doing or that we can actually do the same thing for ourselves!
As Americans our largest expenses are taxes, mortgage or consumer debt if we are not homeowners. Today I will deal with the mortgage any mortgage that is amortized. When we sign on the dotted line we are agreeing to specific terms. I am of the opinion that most Americans do not realize the impact of those terms much like my client with his credit card. If we did, we would be able to minimize the cost of these home mortgages. Let me ask you this if I said you had the option to pay me back $237,000 or $71,000 which would you choose to do? Duh... Well, here it is America 96% of Americans answer that question by paying back $237,000! Why? Financial literacy, people don't know they can actually pay $71,000 instead of the 237k! How can that be? I have my theories, but it boils down to people are not aware that they can do this (save $167,000). All you need to do is bank like a bank. I myself have been able to use the banking principles mentioned here to reduce my mortgage liability by $318,000 by using cheaper money to payoff more expensive money. That is what the bank does pays less than they receive. They give me 2% for my savings account and charge 6% for my mortgage!
Let's use a mortgage of $200,000 @ 6% fixed for 30 years. I will pay back, if I am never late, $437.677 dollars which is an effective rate of 116%! So can I find money somewhere that I can borrow for less than 116%? If so and I use that cheaper money to payoff the mortgage which is in reality costing me 116% wouldn't I be saving money? Of course I would! Now your saying but that is a lot to ask of me. To be able to figure out what is a cheaper effective rate to borrow at in order to pay off a higher rate. It sounds as if it is very complicated and I don't understand how to do that. Fair enough, what if I said you don't have to figure it out there is a mathematical software to do that for you?
What if I was to say I agree it is a complicated math formula to have to figure out. I myself don't think I could figure it out for every payment I make on all my bills. Step in technology. There is a software system that has taken this complicated math formula and made it as simple as point and click, so that even someone like me, barely computer literate can use it! There is a program that will allow me to input my income and my bills, all of them, credit cards , mortgage (if I have one) car loans, equity lines whatever I have along with whatever I make. This program then figures out the best way to mathematically utilize all these accounts! Just like the way the bank would use them if they had the same accounts. This program in a sense makes me my own bank. It works my finances like a bank would (as if I was the bank) and for me the result was a savings of over $318,000 in interest payments and paying off a 30 year mortgage in 11.8 years as well as being completely debt free!
If you would like to find out exactly what this software can do for you a free analysis is available. To learn more about this system you can checkout www.shrinkthatdebt.com you can also get your free analysis there. Think about it for a minute, money works 24 hours a day, 7 days a week, 365 days a year. No vacations, no sick days, no holidays. Money is always working! Is your money working for you or your bank? Take control today, get your money working for you! After all it is your money it should work for you not the bank.
About the Author
John Jakobs Mortgage Loan Officer and creator of Shrinkthatdebt.com writes a blog shrinkthatdebt and is striving to help Americans change the way they look at debt. Noting that problems can't be solved with the same thinking that created them (Einstein)John educates people to see their debt differently and gives them tools to utilize in order to reduce their liabilities and save tens of thousands of dollars