Building a Financial Literacy Foundation with Basic Facts and Insights

Most people want to make good financial decisions. They realize that financial matters are important and impact all aspects of their live. Although time consuming and difficult, making good financial choices that result in the outcomes we want and expect is not impossible if a structured decision making process is used. In other words, making good financial choices should NOT be viewed as random events evolving from whims with little or no thought. Help is available in the form of basic facts and insights that will help improve the odds of reaching the desirable outcome -- that being making financial decisions that fit the decision-maker's values as well as short and long term life goals.

The following list of basic facts and insights for financial literacy should be studied and understood before life's difficult financial choices are considered and made:  

• Only people choose. Making financial choices is a human activity. Institutions from families to national governments provide the setting from which people aquire values, set goals, identify alternatives, rank alternatives and finally decide. This condition empowers all decision-makers to take action and it makes them responsible for their life's decisions as well. I can't do this or they made me do this are not acceptable statements when it comes to decision making.
   
• Decision-makers seek to add value to their lives. It's ok to say you want more things, money, well-being for you or others - if that is what you value and it is consistent with your goals. This reality puts high value on people knowing themselves and understanding what they value and how they want to live their live, now and in the future.
   
• Consequences of choice are always experienced in the future. Making choices evolve from weighing the expected benefits and expected costs of that decision. Expected should be interpreted as our best guess as to the results of our choice, with the understanding that the actual result is only known after the choice has been made.
   
• Making choices is a rational personal process where expected benefits and expected costs are identified and valued by the decision-maker at the margin. Because good choice making is made at the margin - only think about what can be manipulated and look at the additional expected benefits and additional expected costs when deciding to do most anything. Marginal decision making suggests reviewing one's choices often and being sure the expected benefits and expected costs that remain still warrant staying with that course of action. Few decisions will last forever so plan on changing your mind.
   
• Rich and poor alike must make difficult financial choices throughout their life. Everyone must understand that choosing to do something is also a decision to refuse to do the next best alternative. The value derived from the next best alternative that was not selected in favor of something else is the opportunity cost of that choice. This situation allows people to understand that to choose is to refuse.
   
• The consideration of time is an important element in good decision making. Financial facts and people change over time. Assets grow or decline over time depending on what they are, interest rates and the value of a dollar. People change their values and goals as they get older, richer, poorer, have health changes, meet new people or have a family.