I have a web application that I am currently working on that uses a MySQL database for the back-end, and I need to know what is better for my situation before I continue any fur
Keep your data normalized. If you index properly, you will not encounter performance issues for a very long time.
Regarding security: The flat approach will require you to write lots of create/drop table, alter table etc statements, ie a lot more code and a lot more points of failure.
The only reason to have flat files would be when your users can connect to the DB directly (you could still go for row level security). But in that case, you are really reimplementing a variant of phpmyadmin