Wednesday, January 25, 2012

My Thoughts on...Finance Education

The state of finance education in this country is pitiful, and that’s the G rated way to say it. I am absolultely disgusted that I went through 15 years of schooling, and was introduced to and learned on my own about retirement investment vehicles, types of insurance, the dangers of loans, mortgage options offered in the market place, etc. This is not to say that I expect, nor desire any education system, public or private, to tell and spoon feed pupils and indoctrinate them with how to think. In my ideal world, a basic finance class that introduced these basic concepts, and showed everyone that passed through it a chart displaying the magic of compound interest, would be shown and introduced to everyone by the time they reached the age of 18. With just a baseline knowledge, I would have looked into and researched these concepts further, and came to the realizations that I have made in the last few years when I was in high school or in grade school. Imagine the effects of having herds of people, aware of sound financial practices, entering higher education and eventually the work force, armed with this knowledge. I have the distinct feeling that payday lenders, our friends at Sallie Mae, high fee investment advisors, credit card companies and financial institutions that generate substantial income from their lending business, would all be forced to see a substantial decrease in their quality of life. *But honestly, do any of you feel bad for them??*
I’ll proceed from here with a bit of caution to not come across like a paranoid android, but leaving a financial institution to educate and/or make investment and lending decisions for you, is the equivalent of jumping into shark infested waters with a wetsuit made out of chum. It is NOT A GOOD IDEA to let this happen. And if you leave it to the KGB US Government to educate you on this, then you will be forever doomed to financial stagnation. Self education through independent sources, and making the decision for yourself is without question the best place to start. Now while I don’t believe that every person/entity that makes commission off me is out to get me, I understand and recognize that banks and lenders are not non-profit entities. It is in their interest and bottom line to have me pay fees and interest to them. They do not offer ARMs, HEL(L)s, payday loans, or any form of a line of credit, because they genuinely care about my ability or desire to go on vacation or start a business, they offer these products because these are their best resources of generating revenue.
Let’s look at the credit card, my favorite enemy. It’s my favorite enemy because I loathe everything about it and what it stands for, and because it makes more money for the lender than it does for me. With a balance, it would not be outrageous to see the lender charge a rate on a revolving line of credit in the ballpark of 18%. But I was the smart one making 3% back on my purchases, right? Look at the facts from the other side of it. Say for instance I am American Excess. I lend $100 out to my customer with the credit card. The customer, charges $100 and pays the bill in full one day after due date. I, the entire time, expected to be paid back the principal I lent out ($100) and now, with this “investment” made 18% in returns, in one month! Which leads me to my underlying thoughiwouldneveradmitinperson reason on why I detest credit cards: They return greater average annualized returns for the lender than my best mutual funds return for me.
Lenders do not offer their products because they want to help me, they do it because they want a chunk of my income every single month. And I firmly believe that I would have saved myself a ton of stupid tax, if, at 8 years old, I could have explained why earning 12% on mutual funds invested is greater than 3% in reward point “earned” by spending.

No comments:

Post a Comment