Yet, do we really understand how money works? I don't remember seeing a single class on how to manage personal finances in my 12 years of public school and my 7 years of university education. For those that didn't know, my first 4 years at university I completed a concentration in finance! School did not teach me how to manage money.
The most important skill we need to survive in this world was not part of the education curriculum. So where did we learn how to manage money? Or better question, do we know how to manage money?
When I was a kid, I loved money. I loved it because of what it could buy. But guess what, I never spent it. I remember having $20 in my room for a year and a half. Never spent it. Had no interest in spending it. Liked the illusion of what it could get me. Then one day, my mom asked me for a loan. I look back on that now and can only imagine how tough times must have been. As a kid, I had no idea. I just knew my $20 bill was gone. I got it back a few weeks later, with some penny candy. I thought that was a thank you, when in fact, as an adult, we would call that interest.
Most families don't talk about money. It's not allowed. In my family, we were talked openly about money, usually in the form lack of. In terms of money, here's what my parents taught me: go to school, work hard, don't lie, don't cheat, don't steal, treat people with respect, pay your debts (which is basically don't steal)! They taught what not to do, and they told me an honest dollar would take care of the other stuff.
Mom and dad poured the cement but they never built the house. That was a great starting point. So who teaches us the rest? We are an apprentice to money. If we never really understand how it works, we will never become an expert to it. To really understand money, and have it as a slave is better than the alternative from which most of us suffer.
Most of us are taught to be a slave to money. But it gets worse! The majority of people that will tell you that they can fix your problems are also slaves to money. Most of them are just bigger slaves to it. Sure they have more fancier stuff. Sure they go on fancier vacations. Sure, they look good. That's what your money bought them.
I recently went to see a financial advisor, having sold a business. I wanted my money to work for me and not the other way around. I was concerned that I was wasting everyone's time, but I thought this guy was different. And in many ways, he was. The one thing that stuck out in the presentation was this: The firm's ability to manage money was better than completely random results. In other words, the firm is better at managing money than a monkey using a dartboard.
I know I need more money coming in, than going out. I know I need to have money available when I don't want to work anymore. I also know that this system of mutual funds and RRSP's, and CPP is a load of crap. This information might be hard to swallow today, but anyone who is 40 or younger, hold your breath. The financial world today is not the same financial world from 20 years ago.
Clarity comes from simple observations. My dad, with his grade 8 education, asked me the best question I ever heard about financial markets. He asked, "Why is gasoline at $1.30/litre when crude oil is $80/barrel"? The last time gasoline was $1.30/litre, crude hit an all time high over $140/barrel. Dad had just witnessed the silent tax that people don't pay attention to, that no one really understands, that no one accounts for in their money management: Inflation.
To be continued...
"Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man"
- Ronald Reagan
Spot on! I'm in about the same boat, my parents taught me like yours did. I didn't learn anything about the value of money, credit or the management of them in school. I made the mistakes and learned the hard way. I'm going to make sure my daughter has more insight then I did.
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