Money Management: Magical or Mathematical?

We live in an educated society, and an American education (even if one just finishes high school) includes much math. Compared to the rest of the world, our math skills—at least—should be average. Nevertheless, all over our country there are countless Americans who couldn’t tell you the true balance of their checking accounts. Moreover, few Americans seem to engage in the process of simply comparing their incomes to their expenses; that is, maintaining a simple, household budget. When it comes to managing their money, many Americans just shoot from the hip. This is one reason why the average credit card debt, per American household, was $8,329 at the end of 2008 (Source: Nilson Report, April 2009).

Clearly, a lack of math skills isn’t the primary American problem. When it comes to managing money, many Americans simply prefer to listen to the subjective voices of denial and desire rather than the objective voices of discretion and truth (mathematical truth). In their financial decision-making, they simply prefer to believe the magical over the mathematical. In time, this catches up with households, and, in the end, it impacts the stability of our national economy.

Wise people know that a true sense of mathematical reality must periodically temper their spending; otherwise, they will assume they have more money than they really do. In my experience, if a person doesn’t maintain a true balance status in his or her checking account, nor a simple budget, he or she will likely over-spend. Moreover, until they start doing these things, they usually can’t be helped by financial counsel or advice. Hopefully, the current recession will force this issue with more American households, and our nation will economically benefit from a return to simple math.