Do You Have a Third Grade Financial Education?

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If you’re a regular reader of Frugal Rules you know that before my blogging days I worked as a stockbroker in the financial industry. On a regular basis, I saw many otherwise highly educated people make ridiculously foolish decisions with their money. They might have had PhDs in other fields but when it came to financial education and investing, they never made it out of grade school.

The most dreaded conversations I had in my former day job were the ones where a simple mistake ending up costing someone tens of thousands of dollars – if not more. Those conversations always began the same way … “But, I thought I could trust that person.” The person they were speaking of was their financial “advisor” who they had hired to manage their investments for retirement.

Notice I used quotes as the person they had used was usually a charlatan looking out solely for their own self-interest and not someone who had the concerns of the client at heart. This is not meant to disparage financial advisors by any means, because I believe the good ones are well worth it and can be incredibly helpful to have.

However, each time the person in question referenced their mistake it always went back to the same thing – education. They weren’t educating themselves as to how investing worked and did not research the advisor they were handing the management of their hard earned money over to. This lack of due diligence cost them dearly and will likely impact what they might be able to do and afford in retirement.

Blood in the Water


I was reading an article at Bloomberg recently that discussed the boom in 401k rollovers. According to Bloomberg, former employees rolled over approximately $312 billion dollars in 2012 from old 401(k) accounts to IRAs. That is a massive chunk of money.

The article highlighted the rise in individuals who have filed suit against former financial advisors for putting them in investments they should not have been in. After reading the article, not to mention my experience seeing this practice done for years, it doesn’t surprise me one bit that this is happening.

Why the blood in the water analogy? As anyone who is familiar with investing knows, advisors make money from managing our investments for us. Right or wrong, that is how it works out. Unfortunately this practice exposes many to relationships with people who are going to sell them products they should not be in. Examples of such products are:

  • Variable annuities
  • Non-traded REITs
  • bonds laden with fees
  • Other crazy life insurance-type products (personal addition here)

Many of these products are sold to individuals because it makes advisors a good amount of money. This is not to say that all of these products are bad, per se, but that they’re sold to people because they make money for someone when it makes no sense for you to have them as a part of your retirement or investment strategy.

Having Money Requires Educating Ourselves


As I’ve shared before in various posts on financial literacy, I believe that we have a responsibility to manage our finances wisely. This is a personal finance site, so I know that expectation is a bit on the obvious side. 😉 Unless you know everything, which I know isn’t true unless you’re Warren Buffet, then having money means that we need to educate ourselves about how it works. That runs the gambit of knowing how to budget if you’re in debt to beginning saving for retirement if you’re in that place.

This also means that we should not give in to the excuse that we can’t learn about something or don’t have the skills required to complete a certain task. Those can be easy excuses to give into; heck, I’ve done it myself. However, you’re only going to harm yourself in the long run by giving in to those excuses. In the case of investing, there are plenty of resources available online, and many of it is free. If that isn’t an option for you, check into your 401(k) as many plans offer free educational resources to help you make investing decisions.

What if you hire an advisor to manage your investments for you – are you still responsible to educate yourself? I believe in those cases then you’re called to educate yourself even more, not less. Not only do you want to guide your advisor as to what you want and/or what your goals are, you also want to make sure they’re doing what’s truly in your best interest. All of that requires educating yourself as to investing in the stock market and how it should work.

You also want to educate yourself about the background of the advisor himself or herself, by checking out resources like FINRA Broker Checkor the NAPFA Guide to choosing a financial advisor. As one who has seen what a “bad” financial advisor can do please take the time to check yours out thoroughly before handing over your retirement savings.

If you’re more in the do-it-yourself camp when it comes to investing and are simply rolling over an old 401(k), you’re not off the hook either. There are hundreds, if not thousands, of online brokerages available. Educate yourself as to which one fits you best and read the fine print to make sure you know what you’re getting yourself into. You can also use the FINRA Broker Check to research them to make sure they’re on the up and up. Assuming you have big things planned for your money and want to make sure it’s there when you need it, then it benefits you to take the time to do some homework on the brokerages you’re considering investing with.


What is one area of finance that you want to grow your knowledge in? Would you ever consider hiring a financial advisor? What would you be looking for if you hired one?


Photo courtesy of: Lwp Kommunikáció

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.

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  • canadianbudgetbinder says:

    When I moved to Canada my wife was with some guy that worked for some big company. He was handling all of her finances. He took a course, wrote some tests and was sent out to find clients. Today he owns his own company and from the looks of it is doing well, “financially” although we know that means nothing. Frosting can mean people are still in debt. Moving forward we moved everything to another organization with a guy that we have put our trust in. It’s hard when you don’t know how to do it on your own. It doesn’t mean you can’t learn but for many it’s big money they can lose if they try to be the “know it all investor” when they know nothing. So, we put our faith in someone to help us to retirement. I’m still optimistic that I’ll learn how to take over bits on my own but until then, it’s all about education. You can’t be a doctor by reading a book nor can you learn another profession that way unless it’s meant to be that easy. Thanks for sharing this post mate.

    • John Schmoll says:

      I agree Mr. CBB, it can be difficult when you know little in regards to investing. Heck, it works that way in many areas of life, which is why educating yourself is so important.

  • Holly@ClubThrifty says:

    I would consider hiring a fee-only financial advisor. Other than that, no. I don’t plan to buy anything from someone whose fees depend on what he/she sells!

  • Laurie @thefrugalfarmer says:

    We have learned our lesson in this area both in investments and in physical health. Now we work hard to educate ourselves in both areas so that we can take advice from so-called “experts” but still make wise decisions based on our personal education. However, we have a lot more work to do in terms of educating ourselves in personal investing. 🙂

  • Jon @ Money Smart Guides says:

    I would consider hiring an advisor once our net worth grew to a point where I felt it took too much of my time to actually manage it. I used to do my own taxes, but then I became self-employed, my wife gets reimbursed by her company for a bunch of expenses, and we started having rental properties. I’m sure I could handle the tax return now, but from a time stand point, I’d rather just pay someone to do it for me. But with that said, I still stay on top of tax law and throw ideas to our accountant to see if they make sense for us. Plus, I review in detail our tax returns. At the end of the day, whether its an accountant or a financial advisor, it’s your money. Make sure you know and understand what they are doing with it.

    • John Schmoll says:

      I feel similarly Jon. Many people don’t realize that if you don’t have a substantial amount to work with that it generally doesn’t make a lot of sense to hire someone. I’m with you though on the taxes. We hired someone several years back and has been a huge time-saver. I still ask him questions and most definitely stay on top of things because it is our money. 🙂

  • Grayson Bell says:

    I need to dig more into investing, but also how to deal with tax ramifications of running a business and investing. I plan on hiring a tax advisor soon, but a financial advisor is not in the cards at this time.

    • John Schmoll says:

      Completely understood sir. There can be a lot of things that go into that. We’re nowhere near hiring someone ourselves, but a lot of that goes back to my comfort level with it.

  • Natalie @ Financegirl says:

    “Having money requires educating ourselves” <– YES!! This is exactly what I believe. If you have money, you owe it to yourself to learn how to manage your money effectively. I always say that "no one will care about your stuff than you will" and this includes finances. Professionals have their place, but that doesn't mean it's okay to ignore what's going on. As responsible adults, we have a duty to know what's going on with our finances.

    • John Schmoll says:

      I couldn’t agree more Natalie. We owe to ourselves to know how to manage our money. Professionals do have their place, but even that we have to educate ourselves.

  • Daisy @ Prairie Eco Thrifter says:

    I would love to grow my knowledge in investing but I wouldn’t hire a financial advisor. I like self-learning instead of people doing things – or “advising” me to do things – for me. It’s the whole give-a-man vs. teach-a-man to fish argument for me.

    • John Schmoll says:

      I totally get that Daisy. I’m much the same way, as long as it makes sense from a time and money perspective.

  • Prudence Debtfree says:

    We are still very focused on debt-reduction, but the time will come when we switch gears to invest more (as per Dave Ramsey’s formula). I know next to nothing about investments, but I do know someone who has an excellent financial planner. He only takes clients with a minimum of $500,000 to invest, so that’s a problem. (But my friend has told me that this guy likes my blog, so I’m hoping he’ll make an exception for me : ) I need to start beefing up on my knowledge of investing over the next year so that I’m prepared to act wisely once it’s not all about paying off debt.

    • John Schmoll says:

      Completely understood Prudence. One thing you will want to watch out for is that when you’re starting out with lower amounts it generally doesn’t make financial sense to hire someone to manage your investments, so do keep that in mind so you don’t hire someone that’ll eat up a proportionately high amount of what you’re working with.

  • Kassandra says:

    I am more of a learn it for yourself kind of person. But I would consider a fee-based adviser if I wanted clarification on best practices and investment rules and regulations and their opinions on what to invest in. Ultimately, it’s my money and it’s my responsibility to be an informed investor.

    • John Schmoll says:

      I am as well Kassandra. I would definitely go the fee-only approach, while still educating/informing myself as to what’s going on.

  • Tonya@Budget and the Beach says:

    Great info…I know this is an area I fall short. I do have a FA, and it’s someone my financially savvy dad worked with for a long time, but that’s still no excuse not to know where all my money is going and how it’s being managed.

    • John Schmoll says:

      Glad to hear you have someone your father has worked with, that’s a great way to go. Like you said though, we still need to stay on top of things ourselves as well.

  • Kim says:

    I learn things all the time. I wish I’d know the value of my HSA years ago. I am learning all the ends and outs of having a solo 401K. I wish I’d known before opening it that you can’t do a backdoor Roth if you have IRA holdings like the SIMPLE IRA I used to have at work without the pro-rata forms, etc. I guess you can roll your SIMPLE into the solo 401k with some brokerages but not at Vanguard. Most people do the opposite, so I guess I’m unique. We won’t have a high enough income this year to matter, but it would have been nice to know last year. The funny thing is that most advisors I’ve talked with have no idea how to do the things I want to do, so I guess I’m just as well on my own or seeking out advice from people like you or other online friends!

    • John Schmoll says:

      I didn’t know that Kim, I learned something new today. 🙂 That said, I’ve found the same thing with many of the “advisors” I’ve spoken with as well. The good ones are worth their weight in gold, but the bad ones I’d run from in a heartbeat.

  • Lauren says:

    I’ve always thought that if I had a big chunk of change, I’d seek out a financial adviser for help on how to invest it. I would be really wary though, unless the person was recommended by someone that I know and trust.

    • John Schmoll says:

      I think personal recommendation is great to have – especially if the advisor specializes in something you need help with.

  • Brad @ How to Save Money says:

    I worked as a personal financial advisor many years ago. I was shockingly uneducated to do so and there was tremendous financial pressure to sell products that were not in the best interests of the clients. I wonder if those practices still go on today?

    • John Schmoll says:

      Sadly they do in a lot of cases Brad. That’s the exact reason why I left the company I was with. Not all are that way, by any means, but many are still today.

  • Shannon @ The Heavy Purse says:

    “What if you hire an advisor to manage your investments for you – are you still responsible to educate yourself? I believe in those cases then you’re called to educate yourself even more, not less.” Very true. People come to me all the time in hopes that if they hire me that means they are no longer responsible for their money and financial decisions. That is absolutely the WORST reason to hire a financial advisor and causes lots of problems. Whether you DIY or work with a financial advisor, you still need to “own” your finances and be fully invested in their well-being.

    • John Schmoll says:

      That’s very telling Shannon, though it doesn’t surprise me one bit as I saw it all the time as well. That ownership is vital, because it’s their money. 🙂

  • Femme @ femmefrugality says:

    I heard this story the other day on the need calling for a federal requirement for people who call themselves advisors for this exact reason. They were pushing for the CFP to be mandatory. Do you think this is a good idea?

    Either way, I think you’re spot on. Consumers need to educate themselves before any purchase. Especially one as important as financial products.

    • John Schmoll says:

      That’s a great question! If I were to recommend someone hire an advisor I’d say to look at what designation they have first. I don’t know that I’d say they HAVE to have a CFP, but that is the top one on my list. I’ve seen a good number of CFAs do well in this role and serve their clients well. There is also ChFC, which has a lot of crossover with the CFP but does not have a comprehensive board exam. So, they could be good, but would depend on the individual giving the recommendation I guess.

      I could not agree more. More education, on the personal level, is better in my opinion…especially when it comes to something like handing over management of our money.

  • Alicia @ Monster Piggy Bank says:

    Financial literacy is important simply because it results in a better life for you, and in turn creates an increase in the standard of living for you and your family. By practicing financial responsibility at a young age, you’re creating habits that you’ll carry into adulthood and can pass on to your children.

  • DC @ Young Adult Money says:

    I would like to learn more about financial modeling – but then again, that’s my job 😉 I think a good analogy to this is accounting. If you’re a business owner, you can hire accountants to do all the work for you. But at the end of the day you have to understand financial statements and accounting logic to understand where you are at financially in your business.

    • John Schmoll says:

      Lol, good point. 🙂 Definitely agreed. Hiring things out can be great, but that doesn’t release you from culpability – it increases it in my opinion.

  • Brian @ Luke1428 says:

    As others have said here a fee-only advisor is the way to go…someone who doesn’t work on commissions. The thing I liked about our advisor is that he talked to us and found out what our goals and dreams were before we even talked about investments. He wanted to know us as people, what our risk tolerance was, our vision for the future, etc. It’s work to find someone like this…took us about four interviews before we settled on one.

  • Brian @ Debt Discipline says:

    As we are finishing up our debt snowball and look to increase retirement saving, increasing my knowledge on investing is a goal. With so much information available online and in the PF community I don’t think I’ll hire just yet.

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