The schooling system is meant to teach us literature, arithmetic and logic. Some schools end up doing a great job at it. Even when they do a great job of it, they don't end up teaching us practical skills about personal finance that we need as responsible adults.
I have heard the rhetoric that schools should teach more personal finance. I'm still making up my mind about where I stand on that argument, primarily because I think financial literacy is one thing, but the mindset around personal finance is a whole different thing and almost the necessary condition for us to be financially savvy in our adulthood.
But that aside, here are five things that schools don't teach us about money.
1. What is money?
In the simplest form, if you ask a child what is money, they'll show you a note or some coins. If you ask an adult, they'll tell you, it's something along the lines of central banks print money or money used to be backed by gold and now it's become fair currency. So, no one really knows what money is. Some other people will tell you that money is a representation of exchange.
While all of these definitions have some truth to it, They don't really go to the core of what money is in its purest form. If you think about it, money is really a representation of value.
Say you go a thousand of years back and you are exchanging your rice for some cattle. You would do the exchange based on how much you value the rice versus how much you value the cattle. That is, in a sense what money is.
Of course, there are forces of demand and supply in the market. For example, if you consider the poultry crisis that was going on in the UK a few months back, supermarkets were out of eggs. There was a shortage of eggs in the market and there was a huge demand for eggs, which means that the value of eggs went up for the people which drove the price of the eggs up.
But, of course, we are on the internet talking about this stuff and there are a lot of scam artists out here who are genius marketers and who will make you believe that the value of a certain thing is much higher than what it is to you.
Consider the get rich quick schemes. That is not value. That is scam. I just wanted to reiterate on this point, because that is also something schools don't teach us. How do you spot scams.
2. The next thing that schools don't teach us is the production versus consumption equation.
Economists consider produced output the same as your income. So, whatever your output is, is your income. And whatever you consume out of that income is your consumption. When you consume less than how much you produce, you effectively save some, and that is what you can use to make more money. Save it for a rainy day and so on.
What we really want to be mindful of is that our wealth is the difference between how much we produce and how much we consume. When we produce a lot, but we end up consuming even more than that, we don't end up with any savings in our account. A lot of personal finance gurus focus on the consumption side of things because it's easier to cut back on your spendings is what they'll tell you.
A lot of business gurus will tell you that earn more, produce more, and therefore you will be rich.
It's not one or the other. You have to earn more, and you also have to have a control over your consumption and the more you earn and the less you consume, the bigger that pot of savings will be, that you can then save for emergencies or invest for the future and grow that money.
However, if you don't have any awareness about how you are spending money, even making a 100K, 200K, a million won't make a difference because you'll end up spending all of that money. This is why there are so many broke celebrities out there. Celebrities are actually known to make terrible personal finance choices.
So, earning more is simply not enough. Spending less is not enough. It's the balance between the two.
I think across the board, our education system is rubbish at teaching us awareness. Most of our education system is really based on developing the intellectual faculties, which are absolutely important, don't get me wrong.
But if you don't have a level of awareness around
What brings you joy?
Where is it that you are spending your money?
What are your strengths?
What are you really good at doing?
Are you spending money to just keep up with your friends and relatives?
Or are you spending money because you truly enjoy that?
These things are rarely talked about in schools and I personally think that awareness about your consumption is probably one of the best ways that you can start taking control of your money.
For example, if you realize that you bought this expensive perfume or this expensive handbag because all your friends had that handbag, you are not really operating from what brings you joy.
No judgment. Though I used to be that person. I used to buy expensive handbags because all my other friends had expensive handbags, and now that's all that I have and I don't want to spend more money on buying new handbags.
However, I realized that, that wasn't what was bringing me joy. What really brings me joy are the 10 pound incense sticks that no one else can smell, but I'll just light them on and sit in my room and I'll enjoy the smell.
That is your awareness around your consumption. You don't just buy to make other people happy or to keep up with someone else. You choose to spend your money on things that you really value. This goes back to that concept of treating money as a representation of value, if you don't value it.
If you really value it, you shouldn't be feeling guilty about spending top dollars on something that you would really want. Obviously, provided you can afford it, and affordability is a whole different topic. Awareness around your affordability, your consumption, your spending habits, what brings you joy in the moment, in the long run? What are your biggest values in life? Actually really help you figure out your consumption equation.
4. The next thing that schools don't teach us is how to produce by following your leverage.
Yes, schools do teach us a lot of technical skills that we can take to the workplace and we can earn good money on the back of it. And, I have made a lot of money selling my services for programming, for data analytics, for analysis, and so on.
However, only you can tell what your own personal leverage is. It's not math, it's not data, it's not coding, it's not marketing. It is you who does it in one very specific way, and that is something that you want to be following.
Think about the most famous YouTubers MKBHD Mr. Who's the boss, Mr. Beast or one of my personal favorites, Nisha. They have all brought their own unique personal leverage to the internet and have become producers.
YouTube is not the only way that you can follow your leverage. You can follow your leverage within your day job. You can follow your leverage by starting a side business. You can follow your leverage by tutoring kids.
What I mean to say is that when you follow your leverage, you have enormously more efficiency and productivity, which makes the production process a lot more simpler than if you were just starting from scratch if you were just learning a new skill.
Which is why, I say, the more you follow your leverage, the more output you are going to produce in a shorter amount of time, which means that you will produce a lot more output in any given time, and therefore increase your income significantly just by following your leverage.
5. The next thing that schools don't teach us is about generational wealth.
There's a lot of information out there on the internet about how you can save taxes, which country you need to move to, to save taxes, which state you need to move to, to save taxes. What sort of property do you want to buy to save taxes?
Please can I suggest that you relax?
What are you saving money for? Is it to pass it on to the next generation? And if your answer is yes, your next generation might not even need your money. When I think about this entire approach of moving your money offshore to save tax into a tax haven or saving on inheritance tax, I get really worried because,
Firstly, you are entrusting your money to people- you don't know what their intentions are. You don't know even with the best of their intentions, how long they're going to live if the company is going to survive or not.
Secondly, you don't know how the rules are going to change over the course of your life, your children's life you also don't know whether your money will end up being an asset or a liability to your children. If they want to live in the country that they are settled in, or if they want to move to their dream destination, this pot of money could end up being extremely limiting for your children, in ways that you don't even realize today.
Build your next generation so that they can build their own wealth in their own way. With an ever-evolving scene in geopolitics, the only certainty is invest in yourself, invest in your children's education, and make them competent adults who are able to look for themselves, who are able to fend for themselves , and are not dependent on the inheritance pot that they get from their parents.
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