Last night, as I created the 3Speak video about The Power of Financial Literacy, I thought of rewriting the article and giving it a different title. And the title that comes to mind is Protecting Yourself from Financial Disaster. I think this title is appropriate for the 3rd chapter of Robert Kiyosaki’s book Rich Dad, Poor Dad opened with such a story.
The story is about the common tragic end of the nine richest businessmen and great leaders that met at the Edgewater Beach Hotel in Chicago in 1923. I am tempted to do deeper research about this to check the accuracy of the information I got from Kiyosaki’s book. However, after a few moments of consideration, I don’t think that it will add any value to what I am writing and so I dismissed such an idea. I might get distracted from my main goal today, which is to introduce the power of financial literacy to protect you from potential financial disasters.
Personal and Global Financial Disasters
A personal financial disaster can take many forms. Among the most popular are personal bankruptcy and investment loss. Though financial literacy distinguishes the difference between a good debt and a bad debt, putting it into practice is not as easy as it appears. Once the investment that you expect to give you a higher yield to pay for the interest that you borrowed from the bank for instance turned bad, then your good debt will suddenly turn into bad debt. And if you accumulate an excessive amount of debt and are unable to repay your creditors, this can result in the loss of the assets that you used as collateral. It can also damage your credit standing. Such personal bankruptcy can have long-term consequences that you might not anticipate.
Investment loss is another form of personal financial disaster. Investing a huge amount in what you expect will soon go to the moon can lead to significant financial loss. It happened to me when I just entered the stock market in 2015 ending the year with a 49% loss in my capital. Moreover, crypto projects are also not immune to this kind of loss. The space has many stories of people who lost a large part of their savings by investing in fraudulent schemes or in a project that suddenly crashes without warning.
As for global financial disasters, the most memorable are The Great Depression in the 1930s and the Housing Meltdown in 2008. Even the most recent examples of global financial disasters due to COVID-19 and the lockdown had a destructive impact both in the life of individuals and organizations. Hundreds of schools shut down in the province of Cavite, Philippines during those frightening years. I am not sure how many have already resumed their operation. Anyhow, the pandemic and the lockdown policy destroyed a huge amount of capital and impoverished many due to widespread business closures and job losses.
The Need for Financial Literacy
Hearing the story of Robert Kiyosaki about the lamentable ending of the lives of those nine men directs our mind to the importance of financial education. He suspected that the reason why these men shared a common fate such as dying broke, becoming insane, suffering imprisonment, and committing suicide was that they were not mentally, emotionally, and psychologically prepared to confront the financial loss associated with what happened during The Great Depression.
The Power of Financial Literacy
Among the eight insights I shared last night, this time I just want to focus on three of them: the legend about three powers, the danger of conforming with the crowd, and understanding what wealth is.
The Three Powers
Robert Kiyosaki shared a legend concerning the belief of the Japanese in three powers. These are the power of the sword, the power of gold, and the power of the mirror.
The first power refers to weaponry or military superiority. The second points to the power of money. The third symbolizes the power of self-knowledge. Among these three, the power of the mirror is the most influential for it can give you control over the other two powers.
The Danger of Conforming with the Crowd
Conformity with the crowd results in financial struggle, says Kiyosaki. Based on his observation, people are afraid to think and act differently from the crowd. Instead of questioning the practice of the crowd concerning money, we tend to conform due to our fear to suffer being ostracized. The problem is, the crowd thinks like a herd. They simply follow what they are being told. A person who dreams to attain financial freedom must think and act differently from the crowd.
Wealth
Wealth is subjective and interpretations of it vary. Some societies emphasize the economic and financial aspects; others would consider themselves wealthy if they are rich in love, health, relationships, and personal development.
Nevertheless, our reference in our definition of wealth is derived from Buckminster Fuller. For him, wealth is measured in terms of financial survivability. What he meant by this phrase is the ability of the person to survive for how long once he stopped working. I think not many will survive even in just one month once they are out of a job. If this is the case, then not so many people are wealthy.
I think that’s all I can share about the way financial literacy can protect you from unexpected financial disasters.
Grace and peace!
Note: I used a portion of this article in the 3Speak video where I talked about The Power of Financial Literacy.