I recently read a report about an entrepreneur who was being sued for non-compliance to a business contract. Apparently the deal contained specific delivery terms for the product that was being sold, and the business owner failed to provide the goods within the agreed time.

This time delay resulted in the customer losing a lucrative partnership, and the negligent business owner was taken to court to obtain damages. The defendant admitted that he was not aware of the time stipulation, and declared that he would not have signed the contract if had he known about it.

What the business owner didn’t know ended up costing him a significant sum, as he was deemed liable to pay for his customer’s losses. This case made me think that there are many occasions in which we can suffer financially because of what we don’t know.

Don’t worry, be happy?

The old saying “What you don’t know won’t hurt you” opines that if you have no knowledge about a potentially hurtful situation, then it can’t harm you. Author Thomas Gray’s poetic words, “Where ignorance is bliss, ’tis folly to be wise,” may indicate that unawareness can bring a sense of peace.

While there are some cases in which you might be emotionally better off with limited knowledge of the facts, when it comes to your money, ignorance can actually be detrimental. It’s better to adopt the cautious philosophy “Forewarned is forearmed” in all your financial affairs.

The exuberance of youth

Here’s a story of how ignorance proved costly for me. Nearly 20 years ago, my husband (then fiancé) and I decided that we would not get married until we bought a home. Though we lacked the financial wherewithal, we proceeded on our home search with youthful optimism.

After finding an ideal apartment, I eagerly attended a mortgage interview, only to be told that my salary would not allow me to receive a loan. Knowing the importance of this home purchase, I told the mortgage officer that I would be faithful in making payments, and then I burst into tears.

Financial inexperience revealed

Whether she saw my hidden potential or just felt sorry for me, the mortgage officer returned triumphantly after several minutes to advise that she had found a way for me to qualify. Happily, I signed the documents without further query, and we received the financing to buy our first home.

At that time, I was clueless about money matters; I had never saved, lived beyond my means by borrowing and had no money goals. In fact, I was financially illiterate, and details in the fine print of my mortgage document would have been like words written in an unknown foreign language.

A shocking discovery

Fast-forward about six years, and much had changed for me. After switching to a new career in the financial industry, I had started learning about how money worked. I became knowledgeable about loans and decided to take a look at my mortgage schedule to ascertain my progress.

To my surprise and distress, I noted that the current amount owed to the financial institution was more than what I had originally borrowed. Looking at the projected figures, it seemed that I had been amassing more debt each month instead of reducing my obligations.

Financial folly exposed

Convinced that some grave error in calculation had been made, I called the mortgage department for clarification. The officer explained that because the income qualification had not been met, we had received a type of mortgage that allowed us to make smaller-than-required monthly payments.

Each month, the extra amount that should normally have been paid was being added to the loan principal. The mortgage officer asked why we didn’t convert the mortgage once we started to earn more income. I don’t know if I had ever been advised, but I had no clue that this was taking place.

A costly lesson

We eventually got the mortgage regularised, but with a significant amount of extra interest costs. I learned my lesson about the importance of asking the right questions when doing financial transactions, and vowed to never again sign a document without being clear about its terms.

I still shudder to think what could have happened if I had not become financially literate and sought to inform myself of my true financial situation. For me, knowledge about money brought power; and this awareness about money matters continues to benefit me today.

Financial illiteracy is dangerous

Unfortunately, there are too many people today who are clueless about their finances as I was many years ago. I hear many unfortunate stories about the financial challenges that people face, which could have been avoided if they had understood some basic money realities.

We live in an age where information is available at the click of a mouse or the flick of a remote, so there’s no reason to be uninformed. Next week, I will look at ways in which ignorance of money can be harmful, and discuss strategies to gain the knowledge you need to acquire about money.

Copyright © 2014 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, February 6, 2014

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl