How do you know if someone is actually rich or just faking it? Well, here are a few red flags to look out for in people who are financially uneducated…
Financially uneducated people and their bad habits can be contagious, so when you see these red flags, pull out. This is the list that will help you filter them out, so you might as well pay attention.
Here are 15 Red Flags of a Financially Uneducated Person!
Don’t worry if you don’t feel like reading, you can enjoy the video below or watch it on YouTube:
1
They live the ”YOLO” lifestyle
There is a big difference between living in the present and enjoying life to the fullest and making choices on the spur of the moment without thinking about the future.
The society of “YOLO” is closer to the second group.
From spending money without thinking and taking stupid risks like meme trading, which we’ll talk about, the Yolo mentality is a quick way to lose all your money.
Now, these people might get lucky every once in a while, but we’ve already shown in another article why you can’t rely on luck.
You might have fun at first, but the older you get, the harder it is to live this way and still have fun.
Also, this way of thinking will hurt you when you’re in your 30s and want to take life more seriously.
The lesson is simple: if you want a good and successful life, you have to plan and be disciplined, and if you’re not ready for that, well…
You might need to make an appointment with Dr. Peterson soon.
2
They have massive credit card debt
A serious red flag of financially uneducated people, this is a widespread issue among millennials these days. Let’s discuss it with an example:
Let’s say you’re in a candy shop for a moment.
Right now, you can take as much food as you want, but you’ll have to pay for it later.
Sounds pretty good, doesn’t it? So, basically, that’s how credit cards work.
You can buy things right away, but you have to pay off your bill afterward.
Now, let’s say you get a little crazy in the candy shop. You put things in your bag until it can’t hold anymore.
Some of your food is too much to eat right away, so you decide to save the rest for later.
After a month, the shop owner tells you that you need to pay for the candy you bought.
But, surprise, surprise…
You didn’t expect the price to be so high, and you can’t pay it all at once. The owner says, “That’s fine. You can pay some now and the rest later.”
The catch is that the owner will add a little bit more to what you owe for every day you don’t pay your bill in full.
“Interest” is the word for this extra amount.
So, when the next month comes around, you not only still owe for the candy, but you also owe more because of the interest.
More interest is added to your bill the longer it takes you to pay it off. Before you know it, you’ll have to pay a lot more than you did for the first candy.
This is how it feels to owe a lot of money on credit cards. You are not only paying for the things you bought but also a lot more because of interest.
And if you aren’t careful, it can quickly get out of hand.
If someone has a lot of credit card debt, it could be because they don’t fully understand how interest works or how quickly debt can add up.
This is why learning about money is so important. It’s like having a map of the candy shop so you can find your way around.
You can still enjoy your treats, but you know how to avoid the dangers and keep your bill in check.
So, keep in mind that credit cards can be useful, but you should be smart about how you use them.
And the best way to do that is to know how they work and have a good plan for regularly paying off your amount.
3
They live paycheck to paycheck
Let’s play another game.
Think of your financial life as a journey.
Imagine you are going on a road trip, but instead of planning where you are going, you just start driving.
You don’t know where the next gas stop is, you didn’t bring any snacks, and you don’t know where you’ll sleep at night.
Like living from paycheck to paycheck.
You’re getting by, but just barely, and you never know what’s going to happen next.
Now, sometimes we have to live from paycheck to paycheck because of things we can’t change, like low wages, high living costs, or unexpected bills.
But it can also mean that we need to learn more about money. This is why:
- First, Budgeting
If you live from paycheck to paycheck, it could mean that you’re not making a good budget. Making a budget is a lot like planning a trip.
You decide where you want to go (your financial goals), how much gas you need (your costs), and what you can do along the way (your discretionary spending).
Without a budget, it’s easy to spend more than you make and have to wait for your next paycheck with bated breath.
- Next, Emergency Savings
Imagine that your car breaks down in the middle of nowhere.
You’re in trouble if you haven’t planned for unexpected situations.
The same is true for your money.
If you don’t have an emergency fund, a medical bill, a car fix, or losing your job can throw you off track.
If you live from paycheck to paycheck, it means you haven’t been able to save up for these kinds of problems.
- And finally, Investing for the Future
Let’s say the end of your car trip is a peaceful retirement.
If you live from paycheck to paycheck, you might not be able to save money for the future. Retirement or other long-term objectives fall behind in line.
And trust us, you don’t want to count on the government to take care of you when you’re old. They barely have enough money to pay their bills.
Financial education can teach you how to start saving, even with small amounts, to make sure you have a good life in the future.
So, it may seem scary, but the good news is that financial education can give you the plan. The compass and tools you need to get out of living paycheck to paycheck are just on the other side of education.
And what’s best? It’s never too late to start learning about money and getting better at it.
4
They always ask their parents or relatives for money
Now, if you are an adult and you do this all the time, you may want to pay attention.
First of all, asking parents or other family members for money on a daily basis as an adult is a red flag for lacking financial education because it often shows a lack of core skills for managing money.
This could include important skills like budgeting and planning. And you need those to live within your means.
If a person always spends more than they make or forgets to keep track of regular costs, they may find themselves in situations where they need to ask for money often.
Second, this trend may show that the person hasn’t thought ahead or isn’t ready for unexpected costs, which are a part of life.
Financial education stresses how important it is to have a fund for unexpected or quick costs.
Without this safety net, a person might need to ask for help when these things happen instead of being able to handle them on their own.
Lastly, relying on others for money a lot could mean that the person hasn’t fully grasped the idea of financial freedom, which is a key part of being an adult.
This means knowing and taking care of one’s own financial responsibilities and making choices based on what one can afford.
If someone needs to borrow money often, it could mean that they are living beyond their means and not making choices that are good for their finances.
Don’t forget that our society is based on two main pillars: personal freedom and personal duty.
If you don’t understand this, you’ll never get older.
5
They borrow money from friends
If you often borrow money from friends, it could be a sign that you need to learn more about money.
This is because borrowing money all the time can show that you are not good at handling your money.
Maybe you need to get better at making a budget, making plans, or saving money.
Most of the red flags of financially uneducated people come from these problems, as you can see.
Everyone has to deal with unexpected financial problems. But depending on your friends for money all the time could mean that you need to learn more about how money works.
And if you need help with that, we already made a movie on how to improve your financial IQ, so make sure to watch that one after you finish this one.
Anyway, bringing money into a friendship can make things harder. It’s because you might start to feel guilty, embarrassed, or indebted, and your friend might feel anger or frustration. Especially if you don’t pay back on time.
Friendships are built on trust, understanding, and helping each other, not on exchanging money.
6
They buy things they can’t afford
This is a flashy red flag for financially uneducated people. You can avoid this kind of dangerous action by following a simple rule:
It’s called the “1% rule,” and it’s often used to figure out how much a car will cost.
But how does it work?
This rule says that the monthly cost of your car, including the loan payment, insurance, gas, and repair, shouldn’t be more than 1% of your gross monthly income.
If you make $5,000 a month, for example, you shouldn’t spend more than $50 a month on car-related costs.
This rule is meant to stop people from spending too much on an object that loses value, like a car, which could make it harder for them to save and invest for the future.
Please keep in mind that this is a very strict rule that might not always be useful or workable.
Many financial experts say that 15-20% of your income is a more reasonable amount to spend on your car, based on your overall financial situation and other costs.
So, if you can’t stand to do the math, the 48-hour rule is another way to train your mind.
If you want to buy something expensive that you might not need, you should wait 48 hours before getting it.
If you still want it, you can figure out if you can afford it by doing the math.
7
They think paying rent is a bad thing
Another red flag of uneducated people that you hear thrown around a lot. But paying rent isn’t bad in and of itself.
It gives people a place to live without the long-term commitment and financial burden of having a home.
Renting can be a great option for people who don’t have enough money to buy a home outright or who want more freedom in their daily lives.
It also has perks, like not having to worry about property taxes and maintenance costs, which are usually taken care of by the owner.
If you think that paying rent is always bad from a financial point of view, it could mean that you don’t know how real estate markets work.
The decision of whether to buy or rent depends a lot on how much it costs to live in a certain place, how the real estate market is doing there, and how much money a person has.
For example, if property prices are high in a certain place, it might be cheaper to rent than to buy.
Also, the money you save by not buying a house can be invested elsewhere, which could lead to growth in other parts of your finances.
So, no, especially if you are in your 20s, don’t rush to buy a house.
It’s possible that you won’t want to live there or anywhere else.
8
They have non-existent financial goals
Most people know they want money, but they don’t know why they want it. And that’s when it’s important to talk about good business goals.
Ask yourself basic things like:
How much do I owe, and how can I pay it off as quickly as possible?
Should I budget better? Do I spend more than I can afford?
You can then go back to your dream of becoming a millionaire.
Don’t forget that small steps lead to big goals.
9
They have no money in their emergency fund
An emergency fund is a safety net of money set aside in case you lose your job, get sick suddenly, need to fix your car right away, or run into any other kind of unexpected financial trouble.
The goal of an emergency fund is to give you financial security by giving you a buffer against things that come up out of the blue. This way, you can handle these situations without having to borrow money, go into debt, or use your long-term savings or retirement funds.
Building an emergency fund should be a top concern, and you can start by setting a goal, which is usually three to six months’ worth of living costs.
Start by figuring out how much you spend each month on things like housing, utilities, food, insurance, transportation, and anything else you need.
Once you have this number, increase it by the number of months you want to cover.
This tells you how much you should have in your backup fund.
Keep in mind that this is a long-term goal, so it’s fine to start small and build up.
There are a number of smart ways to save money for emergencies.
First, save automatically. Set up a straight transfer from your checking account to your savings account that happens once a month.
Think of this like any other important cost.
Second, if you get a bonus at work, a tax return, or a gift, you might want to put some or all of that money into your emergency fund.
Lastly, look for ways to spend less on things you don’t have to and put that money into a backup fund.
It might take a while to reach your goal, but the peace of mind you’ll get from having this extra money is well worth the work.
10
They have absolutely 0 investments
One of the most important signs that someone knows about money is that they understand the power of investments.
Now, if someone has no investments, that could mean they don’t fully understand this idea yet.
Investing is how money grows over time. Through the magic of compound interest, a small amount can turn into a big chunk of money.
It’s like putting a small seed that turns into a big tree that bears fruit every year.
If you don’t spend, you’re just keeping your seed in a box, which isn’t how seeds work.
Second, saving is one of the most important ways to plan for the future.
We all have dreams and goals that require more money than what we can save each month.
It could be buying a house, starting a company, or just being able to retire comfortably.
You can reach these goals with the help of investments.
If you don’t invest, it’s like losing out on a ride that could get you to your destination faster and more efficiently.
Lastly, not spending could mean that you don’t know much about inflation.
Imagine that you have put your money in a safe place under your bed.
After a few years, you find that your money doesn’t buy as much as it used to. That’s how inflation works to make your money worth less and less.
Investing, especially in things that give you returns that are higher than inflation, is like putting up a wall to protect your money from the bites of inflation.
So, if you want to get rich, you should probably learn how to invest.
11
They can’t answer the question: What is money?
Another red flag of financially uneducated people. At its core, money is a way to buy and sell things. We use money to buy the things and services we need or want.
But money is more than just a way to pay for things. It is also used as a unit of account and to store value.
If you don’t know how these simple things work with money, it could mean you don’t know enough about money.
Again, going back to our last point, you might not see the need to spend or save wisely if you don’t understand how inflation can make your money worth less over time.
Knowing how money works means knowing how much credit costs, how much power compound interest has, and how taxes affect your money.
If someone uses credit cards without understanding how high the interest can be if they don’t pay off their balance in full every month, they might end up with a lot of debt that’s hard to handle.
On the other hand, you don’t know how compound interest can make your investments grow faster. You could miss out on growing your wealth over time.
Lastly, you need to know how to budget, save, and spend to really understand how money works.
If these ideas seem strange to you, it’s likely because you don’t know much about money.
Don’t worry, though. You can always learn something new.
Anyone can get a handle on their finances with a little study, maybe one or two classes, and some patience.
Remember that being financially smart is less about how much money you have and more about how well you handle it.
12
They hate capitalism and rich people
People who hate capitalism and the way that wealth is made probably don’t know enough about history.
Also, capitalism has its bad sides, but people who hate it instead of taking a balanced view may do so because they don’t have the right schooling.
At its core, capitalism is an economic system that supports competition and lets businesses be owned and run by private groups.
It can lead to new ideas, economic growth, and freedom for individuals.
But it could also cause problems like wealth inequality and abuse, which are real worries.
A nuanced view of capitalism looks at both its strengths and flaws and tries to fix the problems by regulating and putting in place social policies.
Hating capitalism in general may be a red flag that you’re financially uneducated.
In the same way, some people may have a bad opinion of all rich people, thinking that they all act greedy or unethically.
Even though some rich people do take advantage of others or play the system for their own gain, it’s not fair or correct to say that this is true of all rich people.
Many wealthy people do a lot for society through their businesses or charitable giving.
Also, if you want to improve your own financial situation, you need to know how wealth is made.
If someone has an overly negative view of money, it can stop them from learning about and seeking ways to make money for themselves.
So, an important part of being financially literate is being able to understand how complicated wealth and capitalism are.
13
Unawareness of their credit score
Like it or dislike it, your credit score is like a report card for your finances. If you don’t know what it is, you’re waving a big red flag that says “financially uneducated”.
It’s a number that shows how creditworthy you are, which is how banks and credit card companies figure out how likely you are to pay back the money you borrow.
If you don’t know your credit score or don’t care about it, it could be hard for you to borrow money when you need it.
If you have a low credit score, you might have to pay higher interest rates or even be turned down for a loan. This could make it harder for you to buy a car, a house, or start a business.
So, knowing your credit score is a very important part of being financially literate.
Second, your credit score isn’t only important when you want to borrow money.
Credit scores are used by many landlords, utility companies, and even jobs to figure out how risky a person is.
For example, a landlord might look at your credit number to decide if you’re likely to pay rent on time.
If you don’t keep an eye on your credit score, you might run into problems where you didn’t expect them, like when you try to rent an apartment or get a job.
Understanding and caring about your credit score can have a big effect on your finances and other parts of your life.
Last but not least, your credit score is a good way to keep track of your financial health.
If you check your credit score often, you may be able to spot any quick changes or suspicious activity.
Also, knowing what affects your credit score can help you make better financial choices, such as paying your bills on time or getting a better handle on your debt.
In this way, caring about your credit score is a responsible way to manage your money and get to a place where you are financially secure.
Ignorance isn’t always bliss, especially when it comes to your finances, and if you don’t care, just wait until you get the bill for being ignorant.
14
They invest in ”memes”
Seriously, guys, putting money into memes in the hopes of making money is not an investment; it’s gambling.
Meme stocks or cryptocurrencies are often driven by social media hype and speculative trading, not by basic factors like a company’s earnings, cash flows, or economic indicators.
This can lead to a “digital gold rush,” where the value of an investment skyrockets one day and drops the next, making it more like a bet than a measured investment.
Second, people who invest in these memes often have a lot of FOMO, or the fear of missing out. They make choices quickly without fully understanding the risks. This is a big red flag that says they’re financially uneducated.
They might read about people getting rich quickly in the news and rushing to invest, hoping to have the same luck.
That’s just a fantasy.
It’s important to realize that even though some people do make a lot of money from investing in memes, this is more the exception than the rule.
Due to how risky these products are, many investors can lose a lot of money.
This is why it’s so important to be financially literate. If you know how to evaluate possible investments, handle risks, and make a diversified portfolio, you can avoid big losses.
15
They are never paying their bills on time
This shows that some people just didn’t grow up.
If you don’t pay your bills on time, it’s clear that you don’t know much about money. Bills are the first thing you pay when you get your paycheck.
That is, unless you want to pay late fees. Or have your interest rates go up, and have your credit score go down.
This can’t be said enough: Everything can be fixed with a well-planned budget.
If a person often forgets to pay their bills, it could be because they haven’t set up a good spending plan or can’t stick to one.
This lack of control in handling money could lead to more debt and instability in the future.
Remember that financial education isn’t just about learning how money works. It’s also about learning how to handle money in a healthy way.
One of these habits is always paying bills on time.
Remember that we are what we do. If you are always late paying small things like bills, it could be a sign of a bigger problem.
These were what we consider to be the red flags of a financially uneducated person. Make sure you steer clear of them because they can be contagious. See you next time.
