To wrap up the section on principles and by way of introducing the tools and processes, it is helpful to think about the way we engage with money and all the influences that impact our ability to build the life we want. The following framework, called the “Building Blocks of Financial Capability” was outlined by Margaret Sherraden, and provides a helpful way of thinking about your own developing sense of agency and self-efficacy.

At the beginning, we need to recognize that there are those environmental influences, the social and economic structures, the policies, that have bearing on what resources we have at our disposal when we start out life, and that may help or hinder us financially as we age. These include our demographic characteristics, the resources we can access or to which we are privy because of our family’s wealth and ties, among other influences. These are things you don’t have much, if any control over. However, moving forward, you do have control over how you wield the benefits of privilege, who you can in turn extend those benefits to, and in general, strive to “flip the script” in your own sphere of influence.

These structures then have bearing on two areas. First, the way in which you learn to handle and think about money is your “financial socialization”. This may be simply observed from how other influential people in your life handled money, or through overt guidance, such as if a parent sat you down and told you how to appropriately handle a credit card. It also can be this present moment as you read this, you’re educating yourself on how to improve your financial well-being. The fact that you’ve got time and interest to engage in this activity stems from certain influences (positive or negative) in your past, or you’re floating along passively because you’ve never been guided to do otherwise. Family, romantic partners, and critical personal experiences all have significant impact in shaping this area.

Second, what financial products are available to you are, in a way, based upon your demographics, such as where you live. At the same time, this whole area is undergoing significant transformation, with the proliferation of financial technology (fin tech) products and services. While for many, you still need to meet certain requirements (such as having a smartphone and internet access, a valid ID, or having a clean record in the ChexSystem – a type of credit bureau for banking institutions used to determine who’s a good customer), the barriers to entry are lessening. Examples of the financial products, which we’ll discuss in more detail later, are accounts in which to keep your money, loans, investment accounts, insurance products, and the various services used to conduct the regular transactions associated with your financial life.

Developing financial capability is far more than being “financially literate”. We can know stuff intellectually and yet continually fail to act upon that knowledge. And even if you want to act, are the tools at your disposal the best for the task? You can be an amazing baker, but if you’ve got spoiled ingredients, nothing you do will be able to compensate. (Just ask my wife, after I accidentally used rancid whole wheat flour for the molasses cookies.) To this end, the financial products have to meet the following criteria:

1) Accessible: Can you get to it when you need to? This can be quite relative, depending on you and your situation. It can mean easily accessing an account online to deposit money, or it can mean that – by your choice – having the bank account be in the next county over to prevent you from being tempted to always dip into the savings. Is there a branch down the street? Do they have service hours that are convenient for your schedule? Consider that they DO want you as a customer or member, so what are they doing to be accessible to you?

2) Appropriate: In most cases, less is generally better; plain vanilla is better than a Rocky Road. Know what your needs are and then ask if this product or service is appropriately meeting your need? Referring back to Olen and Pollack’s The Index Card, you can get most of your financial needs met with no- or low-fee products and services, including banking accounts, credit cards, investment accounts, credit monitoring, etc. Paying for insurance would be the exception, although even here, there are good quality, high-value, but inexpensive options that will appropriately meet your needs.

3) Affordable: This too is relative, but this is where the “death by a thousand nicks” will get you. Nine times out of ten, for me, I interpret affordable as free or darn near close to it. This goes for both cost to use and penalty fees. We do want to look at the bigger picture here, however. When a service is being provided, who pays for it and how? A credit card may have $0 monthly fee for you (as it should), but you may want to find out how much the merchant (the store you buy the good or service from) is having to pay to the credit card company to allow you to use the card. It could be anywhere between roughly 1.5% to 3.5%, depending on the card and transaction. Minding what financial product you use and how affordable it is for you and your community is then one way to both support the financial well-being of yourself and the local business owner, allowing them to keep more of their profits.

4) Financially attractive: This is where high value can really benefit you. Shopping around for the right credit card might get you 2% back on all purchases. So if you put most of your monthly purchases on the card, this can add up! For easy math sake, if you put $2,000 a month on your credit card for various items – gas, groceries, hair cuts, etc. – then $40 will come back to you, x 12 months = $480 MORE cash at the end of the year for using this particular credit card. Yes, in most cases, we want to be PAID for using their cards and accounts. (Monthly fees are for the birds.) Other attractive benefits could include airline miles, free travel and car rental insurance, and a boat-load of other stuff, like providing your credit score – for FREE – at the click of a button). High-yield online checking and savings accounts can also fall into this category. If you read the fine print, you’ll see how they’re angling to over-deliver to keep you as a customer. The other side of this issue of attractiveness is not to fall for the free tee-shirt, or perhaps even $100 they’ll give you to open the account, when the fees will eat it up in the first year.

5) Easy to use: This criterion has seen huge developments in the past several years due to the fin tech revolution, as most transactions and information gathering can be done via computer or on your smartphone, at home, in your pajamas, at whatever hour tickles your fancy. I remember being able to check my credit union accounts by telephone (in the ’90s, where an automated voice gave you the balance) and thought that was pretty nifty. Now, you can scan a check on your smartphone app and call it deposited. Even though this technology has been around for several years, for many folks, it may still be novel if you’re not fully utilizing a mainstream bank or credit union account. There’s really almost no need to bring a check into the physical branch to be cashed (unless it’s a whopper, for security reasons), or to take it to a check casher (and pay the exorbitant fees). Most of the money coming into your accounts should be set up to be direct deposited, thus bypassing even the need for a check. (If you’re skirting this due to wage garnishment, there’s bigger issues you need to be focused on at the moment.) In short, it should be both secure and safe to use with lots of protections against fraud or loss, while easy for you to wield when and how you darn well please.

Once you’ve addressed the points of socialization and having the right tools, the financial capability model continues on to explore your financial literacy (having the right knowledge to make good financial decisions), combined with financial inclusion (the justice related component of having the opportunity to act in your own best interest), both leading to financial capability, where your actions and behaviors can steadily improve your financial well-being. It’s these latter elements that we’ll cover moving forward.

This book is a work in progress and we’ll all benefit from your input and collaboration. In the “Leave a Reply” below, please post examples, comments, questions, and needed edits. By posting, you grant permission for inclusion of any content to become part of the book, now or in the future, in whatever form it may take. I’ll give attributions to the extent possible. I know sharing about our financial lives can be sensitive, so if you want to share anonymously, please use the contact form instead and I’ll honor your request.

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