You can be on Entrepreneur’s cover!

Here's Why a Little Financial Information Is Very Dangerous Entrepreneurs seek unicorns and embrace failure, so it's unsurprising they are no smarter about money than anybody else.

By Pamela Yellen

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

shironosov | Getty Images

April is designated Financial Literacy Month. It's a time we financial educators get the spotlight to combat the lack of money know-how that's left many people living paycheck to paycheck, with inadequate savings and out of control debt.

Saddled with more than $2 trillion in consumer debt, Americans are struggling to develop basic, healthy financial habits such as saving, reducing debt and paying their bills on time, according to a recent report from the financial literacy center at Champlain College.

How important is financial literacy, really?

The Securities and Exchange Commission found that "investors have a weak grasp of elementary financial concepts, and lack critical knowledge of ways to avoid investment fraud."

Remember, the list of people who got snookered by the Bernie Madoff pyramid scheme reads like a Who's Who of the rich, famous and powerful. Just 20 percent of Americans passed a recent Retirement Literacy Quiz, according to The American College. Not one single person got an A, and only 1 percent got a B!

Most entrepreneurs pride themselves on being money-savvy and having the financial aptitude it takes to build their own businesses. Yet our can-do, bootstrap attitudes can get us into trouble. While self-education is admirable, a little financial information can go a long way -- toward completely destroying your financial future!

Related: True Financial Literacy Starts With Questioning Traditional Financial Advice

The problem with people get their financial education.

You can't build a strong foundation of financial literacy cobbling together bits and pieces of advice you see on the internet, read in articles or hear on TV. It's like that old story of the 12 blind monks and the elephant, except in this case one blind monk tells you to pay off all your credit debt ASAP, while another tells you that you need to build up a rainy day fund. One insists that you max out your 401(k), while another says to secure your future by paying off your mortgage. And the blind monk standing at the elephant's tail thinks the economy stinks -- so you need to get yourself a stash of precious metals!

Related: 4 Questions Entrepreneurs Should Ask Their 401(K) Providers

You really need to see the whole elephant!

Following "the pack" is not the answer. Since 2000, folks have lost their shirts and their hard-earned retirement savings investing in the stock market -- not once, but twice -- and we're now painfully aware that our homes aren't guaranteed to appreciate. The pack's credo of "Get a college degree and you'll get a good job" has been de-bunked by all those grads flipping burgers and drowning in college debt.

What about learning from the financial gurus who spew their advice on your TV screen? If they're on national television, they must know what they're talking about, right? Not necessarily so. Often these "experts" have their own biases. Their financial advice is based on their own personal preferences, political persuasion, lifestyle, goals and personalities. Just because someone is confident, well coiffed and a regular on CNN or Bloomberg doesn't mean they have all the answers.

Most people, including most entrepreneurs, have not been trained in personal finance. So what should they do?

Based upon thousands of hours I've spent researching financial products and strategies, I've come up with a few basic questions to ask yourself any time you are presented with financial advice. For instance:

  1. If I found this idea on a scrap of paper on the street, instead of hearing about it from so-and-so, would I be inclined to pay any attention to it?
  2. Is there any evidence to back up this advice?
  3. If I really look closely, does the evidence still make sense to me?
  4. What about this idea sounds or feels right to me?
  5. What sounds screwy?
  6. Does this advice really pertain specifically to me, my situation, my goals, and the life I want for myself and my family?

Related: Tony Robbins: Take Control of Your Finances, and Take Control of Your Life

Take this quiz to find out your financial IQ.

As part of Financial Literacy Month, we've put together a quick 20-question quiz to increase your understanding of the most critical things you need to know about managing your money, investing and planning for a secure retirement. You'll get your score immediately, along with the correct answers and clear explanations of each one. It takes only 5-10 minutes, and you'll be much more savvy about personal finance than most people when you finish it.

Pamela Yellen

Financial security expert

Pamela Yellen is a financial security expert, a two-time NY Times best-selling author and President of Bank On Yourself. Pamela's latest book is "Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans – and How to Avoid Them."

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

This Dad Started a Side Hustle to Save for His Daughter's College Fund — Then It Earned $1 Million and Caught Apple's Attention

In 2015, Greg Kerr, now owner of Alchemy Merch, was working as musician when he noticed a lucrative opportunity.

Business News

I Designed My Dream Home For Free With an AI Architect — Here's How It Works

The AI architect, Vitruvius, created three designs in minutes, complete with floor plans and pictures of the inside and outside of the house.

Business Solutions

Skip the Business Equipment, Get Faxing and Scanning for Life for Just $60

Why spend money on equipment that will take up unnecessary space, when the same things can be done with your mobile devices?


Here's How Business Leaders Can Cultivate Happiness in the Workplace

Learn some of the progressive tactics business owners use to promote a more joyful and productive work environment.

Business News

Adobe's Firefly Image Generator Was Reportedly Partially Trained on AI Images From Midjourney, Other Rivals

Adobe gave bonus payments to people who contributed to the Adobe Stock database to train its AI, even those who submitted AI-generated images.


6 Things That Will Tell You If You Are Destined for Leadership

These qualities are inherent in natural-born leaders.