Personal Finance Knowledge - Can You Know Too Much?

photo by Jeremy Burgin

photo by Jeremy Burgin

How does a person acquire knowledge?

Certainly we are all born with the same knowledge and skill set, zero. As a newborn we are unconscious, incompetent and unaware. We simply do not know what we do not know. Since we don’t know what we are missing we don’t bother trying to acquire skills or knowledge.

This ignorance does not last long. Within minutes or hours at most infants begin to see, hear and feel what is happening around them. Compared to our time in the womb, these experiences are all new and much different. We may not understand but we have become aware and with awareness there comes an intrinsic desire to learn. We may not understand or know how to talk or walk like the giants around us but we recognize the possibility even if we are not yet physically able to attempt walking or talking. We are conscious but incompetent.

As our bodies grow and develop of the next couple years we continue observing and learning from those around us. In time we try to talk and walk. We fail many times but we persevere until eventually we manage a few syllables or steps. Walking or talking takes a great deal of effort, we are not very good at it yet but we have demonstrated our ability to learn and apply a new skill. We are conscious of our ability and gaining competence in using the new knowledge or skill.

In time, to our parents chagrin, we become adept with our new skills. We can talk the ear off a stuffed bunny and cross a crowded store in the blink of an eye. The skills of talking and walking are no longer difficult, they are now second nature. We have become competent but we no longer have to consciously think or make effort to use these skills.

Unconsciously incompetent to conscious but incompetent to consciously competent ending in unconscious competence are the 4 stages of learning. With every new arena of knowledge or skill we must all pass through these stages.

Unless you were blessed with parents or a mentor that introduced you to money management, frugality or investing you likely spent a portion of you life making all the wrong decisions, unconsciously incompetent. At some point you became aware that others make an effort to manage their budgets, save and invest for their future. You knew that you should be doing the same but you didn’t know what to do or how to do it. You were consciously incompetent. Eventually you made an effort, read a book, watched a show or followed a blog. With your awareness and your effort you developed your knowledge and skills. You have become consciously competent. Ideally we would become unconsciously competent, able to manage our money and invest appropriately without even thinking about it.

Is unconscious competence with financial management possible? A person may go through withdrawals, becoming frugal after years of being a shopaholic. In time, a frugal life no longer requires effort, it can become second nature. Some financial advisors and bloggers promote the concepts of financial automation; bills are paid with direct withdrawals on a predetermined schedule with payroll checks that are electronically deposited into your account. Investments are handled the same way, routine deposits are made into an IRA or taxable trading account.

Is unconscious competence with financial management smart? The events of the past two years have shown how unconscious competence with financial management can result in devastation. A review of news reports over the past year have shown that many boomers who’d done “everything right” suddenly found themselves with vastly deflated retirement accounts. Millions have postponed retirement, been forced to sell off assets, lost homes or had to go back to work.

Gaining a broadening knowledge of finances and investing is necessary and beneficial. Overconfidence however can be dangerous. The economies of the world are in a perpetual state of flux, government policies are always changing, geopolitical tensions pressures and cultural pressures can all impact your financial wealth. As you gain wealth, knowledge and skill with your financial life, do not let arrogance cloud your vision. Unconscious competence, while possible, can be dangerous.



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2 comments to Personal Finance Knowledge – Can You Know Too Much?

  • Greg – This is a good question, and one that definitely is talked about in the investment community.

    I know some super smart investors who have every degree imaginable, yet sometimes they have investment paralysis b/c they OVERANALYZE a company or situation. As a result, they miss out on some basic investment ideas.

    Sometimes people are too smart for their own good, and lose sight of the bigger picture in things.



  • Mudacator


    I took the automated approach earlier in life. I lost over 60% during the bust. This is why I now take an active approach to investing, even if most funds are in “passive” investments. Some say that you should not look at your positions daily, while I now believe it is a mistake not to.

    It pays to maintain some humility when it comes to personal finance and investing. Even with “every degree imaginable” there is still more to learn!