For Every Debit There's A Credit; For Every Penny Borrowed There's Interest

I don't know if any of youzzz have had a chance to view the 'A Private Universe' video (I recommend it with some cranberry juice), but it made me think about something.

Namely, you can make the same video for finance. If there's one thing I learned 10 years in the bank is how financially illiterate people can be. Even those could with numbers come up with some zany concepts and preconceptions about the "laws of finance."

It's not surprising given how many stupid "how-to" books are out there. It's enough to confuse the bejesus out of just about anyone including Casper. Don't know why I mention him. Man. I hated Casper.

I've witnessed cases where a person has $500 000 in savings but is carrying a $100 000 debt never once thinking to pay it down. In fact, I've had to explain to people the number one albatross in their life (outside a shitty fantasy hockey team and an infatuated stalker) is debt and if not reigned in properly you'll wallow in abyss for the rest of your life.

For example, one client had recieved an inheritance of $250 000. He asked me to do all sorts of things without mentioning his debts. I asked him about them and told me he had Visa's and personal lines of credit totalling $40 000. He had been paying the minimum balance for years!

After showing him (with rudimentary stick persons) how that deal he got on his TV for $500 actually cost him $800 his eyes opened wide. They just don't think of it that way.

I'm not suggesting people sit and figure out how interest is calculated. What I'm advising is to learn the basic overall tenets of how interest work. Maybe then they won't think branch managers can actually manipulate interest rates. Mebbe they'd actually grasp the stock markets are complex but delicate eco-systems with anarchastic tendencies and not so easily given to controllable factors. Though sometimes...The more I delved into the world of stock markets the less I understood. Markets are like science. We can state simple principles or laws but the "clock gears" behind them actually making things work are marvelously complicated. I digress.

And we're not talking about stupid people either. The aforementioned individual was a professor. My father-in-law, God rest his soul, was in business. Yet, when I looked at his investments I noticed he did the same thing. He preferred to manage his debt as if it was "independent" from his investments. To him, his money was "tied up" and couldn't be used to pay debt. The idea of seeing his balance go down for the month (he was retired) didn't appeal to him I reckon.

It's all psychomological.

It's no different with governmet by the way.

The credit culture is another problem. It's crazy but people actually think credit is currency that doesn't need to be paid down. In fact, the concept of borrowing and (credit lines, credit cards etc.) completely eludes people. When they do manage to get one, they fill them up. At which point they fail to distinguish between paying the principal and interest amounts.

In addition, cognizance of how cash flow (debit/credit, liabilities/assets, plus/minus, ebb/flow, Mork/Mindy) functions and how it can help manage a household budget and business is dormant if not plain dead; probably murdered.

A more psychological issue, sense of entitlement poses another problem. Although hard to quantify with any empirical evidence, it is an observational leitmotif of our times. I've met people who were indignant about having to pay for a student loan oblivious to the fact someone has to pick up the tab (ie me and you). They've fooled themselves into thinking they're actually doing society a service by getting an education. Great. Not only are they delusional but dependent as well.

Someone close to us in the family operated on this faulty premise. Not surprisingly, she ruined her credit. My parents had to help pay down the debt to clear her name. To her (and many others), she was entitled to an education but didn't compute that post-secondary education is a privilege that should be viewed as a product and not a right viewed as an entitlement. In addition, credit was cash. She was ignorant that maintaining good credit is akin to maintaining a good reputation in general.

Which brings me to another point. I don't really blame the "children." After all, it's not like someone was setting them straight. So they fill their empty heads with all sorts of nonsense. I wouldn't be surprised if some of them had Bat-Man as "lender of last resort."

When confronted with the reality of life they lash out in many ways. Some vent on blogs, others blame capitalism, a bunch may sink into the the neter-world of Larouchian conspiracy theories, a few may even go Postal - and so on.

The way I see it, there are two sources to set kids straight: Education and parents. 

I'm a huge proponent of integrating basic finance classes in school. We had a Bookkeeping class in high school but it was an "elective" and not mandatory. Somehow teaching abstract economic models and Camus were deemed  "more important" than basic finance (true personal economics). There's nothing "liberal" in education anymore. It's just plain dumbed down.

Schools should be teaching the concept of "saving" money in grade school. They should, for example, discuss the basic tenets of how banks operate and what interest rates are and how it impacts money.

The home should be the centrifugal force to producing not only financially literate kids but all-round individuals. If you're not teaching your kids the basic principles of money, then where are they going to get it? On Facebook?

What service are we doing the yung'uns if they chitter-chatter profusely about nothing on social networking sites (butchering grammar along the way) while having little understanding of things that will eventually impact their lives? It's something we don't think to teach - and we should. Children today live in a time where technology is at its apex and so they live with an ability to effortlessly learn complex technologies.

We should take that advantage and transfer it back to basic, simple things they're overlooking.

Like shifting energy back and forth.

I've gone on enough. Blah, blah.

The end.