Being bad with money management doesn't make you dumb

As someone who?s made his share of financial mistakes over the years and had close family and friends who I?ve watched slide into financial catastrophe, I can attest that financial trouble is often accompanied by feelings of guilt, self-doubt and helplessness.

For those in the worst kind of financial trouble, bankruptcy, the pressure and financial distress can be devastating, says Tim Tarvin, an associate professor of law at the University of Arkansas School of Law.

So why is financial trouble such an emotional issue for people? Much of it has to do with how we think about and treat those who are struggling, Tarvin says.

?There is a good bit of shunning and shaming within our society, and it?s not merely by creditors. It?s by family members, it?s by church members, maybe pastors and others,? Tarvin says. ?And there?s just a general feeling of condescension towards those who file bankruptcy, as though they purposely caused their own financial misfortune.?

That stigma comes even though factors people have little control over often figure into their financial troubles.

?Of all bankruptcies by families with children, nearly 90 percent are caused by three things: job loss, medical expenses and divorce,? he says. ?You?re looking at folks that, when they come in (to bankruptcy), are already generally people who have been through some sort of trauma.?

Some people would argue a little bit of shaming will give people an incentive to mend their ways. But the danger I see is that people who?ve made mistakes in the past will end up concluding that past money mistakes means they are don?t have what it takes to successfully manage their money.

That?s why it?s important to remember that being bad with money or investing or any financial skills doesn?t make you dumb, any more than being bad at car repair or cooking makes you dumb.

In fact, in a 2011 study by the Institute for Financial Literacy, among people who reached out to them for help in financial literacy or credit counseling because of money problems, more than 20 percent had a bachelor?s degree or graduate degree.

Like anything else, money management is a skill that can be learned, and although it takes some discipline to apply that skill consistently, it?s possible to develop that as well. In the first place, a lot of financial mistakes result from simple ignorance of the way financial products work.

?Just as there?s functional illiteracy in terms of the English language in this country, there are certainly pockets of math illiteracy, of financial illiteracy,? Tarvin says.

Even those who have good theoretical knowledge of finance can make practical mistakes in how to apply it to their own lives, Tarvin says.

?Accountants, financial managers, people who are very savvy about money, also can find themselves in bankruptcy,? Tarvin says.

So for those trying to dig themselves out of past financial errors or looking to make a fresh start, don?t let past troubles lead you to believe you don?t have what it takes to do better next time. Just learn from your mistakes, ignore the haters and seek the knowledge you need to get where you want to go.

What do you think? Have you ever felt stupid because of financial mistakes? Have you known smart people who made financial mistakes?

(Photo: Flickr user Lord Jim)

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