Aug. 15, 2006 - Financial Skills vs. Character |
Welcome to the Question of the Day marathon created by JLP of AllFinancialMatters. I'm the host today so here goes.
In reading through the comments in the QotD marathon, I've noticed most people attribute their financial successes or failures to some combination of what I call their "financial skills" and "character." This was especially true in many of the responses to Savvy Saver's question last week.
So let's assume that financial success is completely determined by these two variables as defined below:
Financial Skills = general knowledge of how to handle money in terms of earning, saving, spending, and investing it.
Character = being self-discliplined, thrifty, frugal, diligent, having self-control, etc. with respect to money.
That being the case...
What percentage of financial success comes from "financial skills" and what percentage comes from "character?" Share some examples to support your theory.
From my perspective as a financial planner, I'd say character is the foundation for financial success. Without character it is unlikely that anyone can succeed in the long run. Having financial skills is important but it's icing on the cake. I'd assign 80% of financial success to character and 20% to financial skills. Lender's Slave is a great example of how no amount of financial skill can compensate for a person that lacks the character to control his or her spending.
What do you think?
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Aug. 15, 2006 - The 80/20 Rule |
| Posted by Anonymous |
I'd agree with the 80/20 split you mentioned. 20% is financial knowledge. There are a few basic skills that will send you on your way in style. Yes, there is always more you can learn, but the basics are really quite... basic!
But character is the hard part. You can have all the knowledge in the world (including a knowledge of how others benefited their lives or wrecked their lives through character issues), but if you are still an impulse spender, an overspender, someone who wants lifestyle today over financial comfort tomorrow or a procrastinator, you are going to wreck yourself financially.
I guess we see this in many areas of our lives. People know what they need to do, they agree with you about the need for change, but they never make a real committment that shows in their everyday lives.
I also remember reading somewhere that success in life has been linked to the ability of children to learn to deny themselves immediate gratification. If a child learns to wait, to save, to ask instead of taking, that child will have success in life. The older a child is before he/she learns these lessons, the less chance that child will achieve any sort of success in life. |
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Aug. 15, 2006 - 80/20 Rule |
| Posted by Anonymous |
And I should have signed my name to the posting above.
Shawn Abigail |
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Aug. 15, 2006 - Untitled Comment |
| Posted by Anonymous |
I'd have to say the ratio of character:financial skills is closer to 90:10, or perhaps even greater. Certainly character can get you very far in life in many areas, not just financial. The best example that supports this is how Benjamin Graham, the father of value investing and mentor to Warren Buffett, emphasized character and discipline over brains over and over again. Here's a quote from the intro to The Intelligent Investor:
"[While] enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster
.We have seen much more money made and kept by ordinary people who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting, and stock market lore."
Couldn't have said it better myself! |
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Aug. 15, 2006 - The 80/20 Rule |
| Posted by John M (Adult ADD and Money) |
Based on your premise, I will agree with that 80% of financial success has to do with character. Where I disagree with you is that character is the foundation of financial success. The foundation of financial success is getting the general knowledge to earn and manage your finances. I think that many of us in the United States take for granted our basic financial knowledge and job skills. Without these skill people do not have the ability to achieve their goals.
Desire (Character) will determine if you have the strength to achieve finanical success. Character can be built up or it can be broken down. It is never constant, therefore it can not be the foundation on which to build financial success. |
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Aug. 15, 2006 - Character is part of the skill set |
| Posted by Spencer Hill |
All the good attributes of character listed are skills- frugality- self-disciplne-respect of money. All of these are learned skills. Most either learn them through their parents or mentors or through the school of hard knocks.
I have been a financial consultant for almost 20 years and I have developed the TV test from watching clients and other people. The multi-millionaires have 19" TV's from Wal-Mart and the people who are struggling have 40+" from the Renta-Center.
The most important ingredient is having respect for money and knowing how it can make you or break you.
http://hillspersonalfinance.typepad.com/ |
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Aug. 15, 2006 - Defining financial success |
| Posted by Luis |
Hi Steve,
I just happened to discover your blog and though it might be of interest to me being also a Christian husband and father and as well as homeschooling our (my wife and I) children.
With respect to your post, I think the question cannot be answered until you define what is financial success on an individual basis. As a Christian, I believe that one way of measuring financial success is by how well you live within your means and in what things/people you invest your money.
I was a man who did not know the Lord Jesus and often lived well beyond my means. I was a slave to money. However, as I came to understand my condition which meant that I was doomed to a holy wrath, I came to see and believe in my need for a savior to rescue me from myself, specifically from my selfish spending habits where I did not exercise any self control or discernment in what I bought. I had accumulated a lot of debt and once I trusted in Jesus as my lord and Savior, my eyes were opened to how I was a slave to myself. I finally understood that I cannot serve money and God.
Once I repented of my sins, I began to grow in ways in which I could worship God with my money. I saw that my money is not really my mine and that I'm really a manager of the amount of money God has blessed me with. I saw that the income I earned was to be used to invest in such ways that would provide eternal rewards. Slowly my character was turning from one of selfish greed to unselfish generosity. Of course I am still growing in such godly qualities as self control, saving for the future and the like but with God's grace, I continue to grow.
So in my estimation, I can attest that when you live within our means, then the character of a person will not only determine that person's financial success but also reveal the true character of that individual. Of course we need to keep in mind that although we are all sinful people whose tendency is to rebel against the Creator and instead serve material things, it is only by God's grace in our lives that we are able to change and repent of our many sinful spending habits and instead invest in things which are eternal. So as you can see, my definition of financial success is inherently tied to who I am and who I worship my money with. Being a Christian, that means looking at the money I earn in terms of a gift from God and that I am to manage His money wisely, to benefit my family and others through tithing and such forms of giving. What I've learned is that the more I give, the more money I seem to receive.
I try to remember that "where your treasure is, there will your heart be" is a profoundly true statement in that if I use my money to buy gifts for myself, then I know who I am worshipping. So I guess the question that needs to be asked is, "What do you treasure?" since most often, there is where you will spend your money. And once you've answered that question, you can evaluate if what you spend your money on is something which you might one day look back with joy because of the way you defined financial success. |
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Aug. 15, 2006 - Follow Up |
| Posted by stevebraun |
To John M:
We may well take those skills for granted. Good point. But just as character can be built up or torn down, so too can financial skills. They are both transient. That doesn't mean either one can't be the foundation for financial success. It just means a person must continue to grow and develop throughout life so as not to "lose" their financial skills or character.
To Spencer Hill:
I like your TV test. Very good. I wouldn't lump character in as a financial skill, even though both are learned. To me the mechanics of handling money (head knowledge) is much different than our character (heart-led behavior). You can KNOW what to do but BEHAVE very differently.
Steve |
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Aug. 15, 2006 - Thought on Money |
| Posted by Anonymous |
I think part of character is knowing the proper place for money. It can be a useful tool (even for the person who doesn't have much of it), but a cruel master (even for the person who has lots of it). Part of character is knowing how to spend money wisely, and how to use it intelligently to help others.
As for the actual financial knowledge needed to start on the right path, I think it would take about 5 minutes to explain.
Minute 1: How compound interest is your friend when saving and your enemy when borrowing.
Minute 2: How much you will need to save to retire.
Minute 3: How inflation will affect your retirement.
Minute 4: The value of paying off debt as fast as possible.
Minute 5: The importance of having a financial advisor to help with all the rest.
Five minutes and a person is on the right track, if he has character (and particularly self-control). But all the education in the world won't help the person without character. You can talk, he will agree, and nothing will change.
Regards,
Shawn
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Aug. 15, 2006 - Follow Up |
| Posted by John M |
| Perhaps I downplayed character as a foundation In my arguement. Both are equally important as a foundation to financial success. One key point that goes with character is the ability to be happy with what we have earned (Self-Respect). Buying a big TV, or a fancy car or home is often a replacement for the respect that is missing from many people's lives. |
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Aug. 15, 2006 - Question of the Day |
| Posted by Anonymous |
Steve,
That's a tough question. I think both are equally important. A person cannot experience true financial success if they do not possess the necessary skills. And, those skills cannot be properly applied if character is not there.
I'd like to go into more detail but I'm stumped. You would make an excellent college professor! LOL!
JLP at AllFinancialMatters.com |
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Aug. 15, 2006 - Not sure if it's a percentage... |
| Posted by Anonymous |
| But definitely certain if the character isn't there, the money won't be. Financial skills - and ongoing learning - are important and shouldn't be discounted; I've known a surprisingly large number of people who pay great attention to "extreme saving" but who park their cash in garbage bank accounts paying 1% or less. Mathematically, this is as much a money loss as having a better-yielding saving device but blowing the cash on ongoing Starbucks trips. |
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Aug. 15, 2006 - An almost equal mix |
| Posted by American Dollar |
I would say its almost equal amounts of character and skill. Both go hand in hand and without one the other would deteriorate in the financial world. However, I would give a little more towards character because it plays such a huge role in an individual's maturity at handling finances. This of course stating there are no other variables in the equation, which as we know, can alter one view from another greatly. Great discussion.
AD at AmDollar.com |
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Aug. 16, 2006 - Untitled Comment |
| Posted by Anonymous |
Interesting question. I don't think you can succeed without some amount of character (unless you started out very well off to begin with), but struggling financially doesn't necessarily indicate you have "bad character." And there's obviously more to the equation than character and skills, especially considering where the person starts from and what resources they have available to help themselves.
For example, there are some people who are very frugal and self-disciplined on low incomes, but because they lack knowledge and experience (and access to better options) they do things like using payday lenders at exorbitant rates. So your "skills" category would help them do better once they understood the implications of payday lending. But even if they had both the skills and the character, they might still be struggling.
It also depends on how you define "financial success"!
--Penny Nickel at moneyandvalues.blogspot.com |
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Aug. 16, 2006 - Character v. Knowledge |
| Posted by Anonymous |
I don't know that character--which is suitably vague and means everything and nothing--is necessarily the determining factor when it comes to financial success. As we know, lots of shady people have done quite well for themselves financially. And we know lots of good people have struggled mightily to keep afloat.
My own observations--which amount to nothing more than anecdotes--is that people who are financially successful have had at least one good "money teacher" in their past (whether it came in the form of a parent or mentor or that they served in that role for themselves).
Of course, the student must have the desire to practice the teachings. But this may or may not be attributed "character" as it's implied in the question. |
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Aug. 17, 2006 - equal |
| Posted by Anonymous |
speaking from personal experience, I would say it is an equal mix. I think it is something in your character that drives you to work and excel, which can lead to learning how to handle your money wisely.
Good question! |
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Aug. 17, 2006 - More Follow Up from Steve |
| Posted by |
This has been a great discussion and I thank all of you who participated. A number of great points were brought up. This is one of those topics that could be discussed forever and there are many nuances that could be explored.
I wholeheartedly agree with Shawn Abigail's several comments (he's my long lost Canadian twin -- we think very much the same) and the person who quoted Benjamin Graham.
Luis brought up a great point about defining financial success. It can mean many things and Luis hits the nail on the head. Ultimately financial success is defined by God, not by our earthly standards. I did not say so in my question, but as a Christian I assume that financial success incorporates God's will. That is, our financial skills and character align with His priorities for each one of us.
John M came back with a great point in his second comment about contentment. That's a huge issue. You can be filthy rich and unhappy or very poor and content. Being content is a great godly virtue to possess.
JLP thought my question was tough but I really think he was suffering the effects of celebrating his 13th wedding anniversary the day before! :-)
AD from AMDollar.com and Penny Nickel made a good point that there may be other variables besides the 2 I selected. There are but for discussion purposes I limited the question to those 2 variables only.
Penny Nickel also went on to point out that lack of financial success does not necessarily mean a person has bad character. I'd add that it also doesn't mean such a person lacks financial skills. This comes back to how you define success. In my book, it's a relative standard in the physical sense. That is, Bill Gates and I can be equally successful from a financial perspective even though the scale is considerably different. But, in the eternal sense it is one standard and that standard belongs to God. We can have worldly financial success in this life but fail on the eternal scale, and vice versa.
Finally, the anonymous person who commented under "Character v. Knowledge" brings up another angle. I was sticking to a definition of character that involved the handling of money only. But there are other dimensions such as honesty. There are dishonest people who appear to be financially successful. In that case I'd refer back to Luis's points about God's eternal perspective. A thief will not be successful in the VERY long run.
All in all it has been a great discussion. Keep adding your comments!
Thanks.
Steve
Edited by stevebraun on Aug. 17, 2006 at 4:13 PM |
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Aug. 21, 2006 - Split evenly... |
| Posted by Financial Freedumb |
| I'd have to say that it's split 50/50. The question you posed is similar to the question of what's more important, saving or making money. Where character=saving, making=financial skills. You have to be able to do both to be able to be successful. Then again, I'm not there yet so who am I to say. Hah. |
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Feb. 23, 2007 - Financial success comes from drive |
| Posted by http://taxstunts.com |
| I read your article and would agree that most people need some sort of obstacle or challenge that drives them to financial success. |
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