A lot of times the most basic concepts to you are entirely foreign to other people, and they shouldn’t be blamed for it.
A couple of weeks ago the boyfriend walked in the door with 2 giant computer monitors. He then bought a third. He assembled the entire thing himself and chatted with a few other computer enthusiasts on Internet Relay Chat (IRC) when he had issues with a missing part. In amazement, I said, “Where on earth do you even find people into things like that?”
A few months ago he took apart his custom-built CPU and reinstalled a fan. I think every time my CPU broke, we either bought a new one or just got it repaired. It never would’ve dawned on me to dismantle it and try to fix myself. It made me wonder. Why did he know how to build a computer and assemble hardware so well, whereas I’m scared just opening the CPU will cause something to break?
He said everyone did that growing up. After thinking about why, he told me his childhood was filled with boys gaming, and that when you were a teenager without a lot of spending money, you quickly figured out how to build a gaming computer for much less than it cost — or else you wouldn’t get ahead in MMORPGs. It’s also why his English is so good, because you couldn’t level up or proceed in these games without learning from others who had done it prior who mostly spoke English. It’s true though. I’ve met a few of his friends from back home, and the ones who speak basically native English (with just barely a hint of an accent) are the ones who played MMORPGs.
There was a time he thought everyone just built their computer out of parts. Isn’t that fascinating?
Personal Finance Knowledge Is Not Common Sense
If you think interest is common sense, try to think of a time where you didn’t know what that was.
If no one had ever taught you about it, and someone asked to borrow money, would you realize that you should charge interest for it because they could default? Would you realize that riskier people should get charged more interest and safer people should get charged less? I don’t know about you, but I’ve never charged interest before, so that concept was pretty foreign to me. Even today, people don’t realize that they can get lower interest rates on student loans, and that they can even refinance them to save thousands, which means a bank will pay down your current loan and give you a loan at a much lower interest rate.
The concept of tax-advantaged accounts and social security is even less common sense. How is one supposed to know about tax-advantaged accounts if someone else doesn’t tell them?
Or even the concept of passive income.
To someone versed in basic personal finance, these things sound like common sense, but they really aren’t if you’ve never heard of them. You can have perfectly intelligent people who haven’t had the opportunity to access this knowledge. Since they don’t teach these things in school, and if your parents never taught you it, how are you supposed to learn about it?
Of course it makes sense when someone tells you about these things, but how long would it have taken you to realize those things on your own?
I mean, it took thousands of years to come up with something as “simple” as the concept of 0. Why should we expect people to just know about personal finance on their own?
The Cost of Not Understanding Interest
When I was a kid my savings account returned nothing. I think it was like .01%.
When I went to college, I got a savings account at the bank near my college since my old bank wasn’t in that part of the country and I needed to access an ATM/branch occasionally.
In freshman year, I learned all about the Fed and the Federal Funds Rate, which is the rate of interest banks lend to each other overnight. So you’d think it would’ve occurred to me that banks should at least be paying me that much in interest right? Nope. Didn’t even occur to me. I even learned about how people get lent money at different levels of interest. You’d have thought that by then I should’ve realized I could get a higher yield savings account right? That banks offered different ones? Nope.
It wasn’t until I saw a post somewhere about high-yield savings accounts that I realized different banks paid different levels of interest on savings accounts. Tell me again how personal finance is common sense.
The Cost of Buying Things That Were Free (Apple Vs Linux)
One of the tenets of personal finance and financial independence seem to be frugality. But what if you didn’t know something could be free or cheaper?
This concept that some of things that cost money are actually free is pretty weird considering we grew up learning we lived in a capitalist society. For the most part, I grew up thinking that things cost money, and that free usually wasn’t as good. That couldn’t be farther from the truth. Free is sometimes even better.
The topic of computers also came up a while ago with us when I mentioned why I loved Apple so much. Their intuitive software and UI design drew me in. The bf told me to come over to his desk and showed me a screen that was surprisingly similar to the Apple operating system.
It was Linux. One of my majors in college was CS so I should’ve known this though. Forgive my ignorance.
There were a couple of people I knew who used it but mostly they were people who started using it pre-college who hung around other people who did. I never met anyone like that in high school and I didn’t really use a computer all that much in high school either. How I wished I learned about coding prior to college.
Our internet was crazy slow. But, if you’re ever truly looking for a someone who has managed to make what is essentially a free piece of software and build some things on it to make it super expensive, it’s Apple. There are some difficulties in installing things, but if you’re a someone who is hurting for cash and can learn how to use a different OS, then give Linux a try.
Another good example? Web hosting is actually free through AWS, but almost no one uses that option. It’s mostly because we don’t want to learn how to use the system and are scared if we ever need to fix something on the backend.
The Cost of Not Investing Early
When I was getting into personal finance, I never knew why Vanguard was so awesome like I do now. I was lucky that my 401k was through Vanguard.
If a guy had wanted to sell me an overly complex financial product, I might have fallen for it if if he had promised such high returns. Would I have checked that those were the highest returns I could get? I really can’t say. I hope I would’ve. The only reason I really knew the word “benchmark” and how to compare returns via Sharpe ratios is because it was taught in a course during college. It wasn’t even a course on personal finance. Most people aren’t that lucky.
If I hadn’t, what was I supposed to Google? “Best investment returns” or “What should I invest in” don’t exactly recommend the stock market entirely. Not to mention that if you’ve never hard of investing, you might just consider saving money in your savings account (which probably isn’t high-yield since that concept is not common sense either) instead and wouldn’t even think of concepts like passive income or dividends.
The top 10 results of both of those searches in quotes above lead to things like peer to peer lending, investing in a certain sector, etc. While those are ways to potentially find returns in excess of the SP500 benchmark, they probably shouldn’t be where most beginners start.
The Cost of Not Knowing Travel Was Free
My parents had a credit card that accrued miles on it. They also got sign-up bonuses for it. They always paid it off every month, but never really understood what the miles were for, so by the time I went to college they hand hundreds of thousands of miles on it. It took me a bit to figure out what to do with them, but if they didn’t have me, they probably would’ve just let them keep accruing and sitting there. What a lost opportunity.
There was no one in their friend group redeeming flights or travel for free via miles, and this was a pretty foreign concept to them as they don’t really have these things back in their home country. Imagine the multitude of points and miles they could’ve accrued but didn’t.
As for me? I didn’t realize there were other miles and points options until junior year, where my friend Harry explained the concept more in depth. It should’ve dawned on me that if one airline was partnered with credit cards, others were too. Or that hotels did the same thing. But it didn’t, and someone had to say it in a sentence for the lightbulb to go off.
It takes a leap to get further with concepts, finding someone with more expert knowledge than you is a much easier way to learn. They can assess what you don’t know.
The Cost of Growing Up With A Certain Mindset
When you’re an immigrant and you come to this country, you talk to your other fellow immigrants because they can’t speak english that well. You make friends with people who are similar to you. If you have a really intelligent person in that group, they soon discover real estate returns are good and the 1031 rule. Yet they decide to ignore concepts like 529s, 401ks, and IRAs because those vehicles are mainly allocated in equities and bonds and they don’t trust the stock market.
Most of these immigrants work for small mom and pop businesses that don’t have 401ks, so they never quite find out about it. They also don’t really trust non-tangible things like equities. After all, the government was corrupt back in their old country and could take away companies and non-physical assets. The government also could take away land and property as well, but maybe it was more difficult. People back then blatantly traded when they had insider information (which wasn’t really prosecuted back home) and still do trade on that info apparently. It’s nice we have a SEC in America that actually prosecutes that. They wanted a more concrete form of investment, so they settled on real estate.
And so their children never heard of 401ks, 529s, Coverdell accounts, etc. until they grew up and one of their friends from an American family who did talk about retirement accounts got excited about 401k matches before graduation and explained it to you. Then you realized it was a good idea to read the tax code because you clearly had no idea how it all worked — perhaps follow a few finance blogs as well. Unfortunately, the tax code you ordered off of Amazon was several thousand pages, so you still have not gone through it. Also, every year there are yet more pages. Darn.
So your family would’ve saved thousands in taxes if they had a different mindset, believed in stock returns, and put money into tax-sheltered retirement accounts. Oops.
The Cost Of Not Having A Network
I didn’t understand the power of networking when I was a kid. It was instilled in me that the power of studying hard and being smart was the most important thing. That the world was a meritocracy all the way. It probably didn’t help I was a big fish in a small pond either. Oh, that overconfidence.
I didn’t realize until late in college that who you knew was probably much more important than what you knew, as long as you were reasonably intelligent. That the skill of being able to charm someone was much more important than being intelligent to a certain point.
It was in college that I realized how easily someone could get hired as long as they were reasonably intelligent because their family friend worked somewhere and could get them a final round interview. It makes sense though. If you’ve been around a child their entire life and they were hard-working and similar to your children, why not give them a chance over some stranger you’ve never met? Also, if you gave their kid a chance, they were likely to return the favor when your kid was looking for a job. I don’t fault them for it. That’s the way the cookie crumbles. I’m sure if it was your kid, you’d want them to get a leg up as well. I would. We didn’t have any connections when I was looking for a job in finance, but maybe we will when I have kids. It was more difficult for me to get my first internship than some others, but that’s life and you get through it. No use complaining.
My worldview was entirely wrong because all my life I’d been taught America was a meritocracy. I should’ve read Dale Carnegie’s How to Make Friends and Influence People much sooner. Whoops.
I’ll never forget something an older mentor from my alma mater said to me junior year during my internship. “You think a client hires the MD (Managing Director) with the smartest team? No. They hire the MD they play golf with and drink beers with and go on ski trips with. Because they know that guy and he can sell. EQ and relationships are more important than basic intelligence.”*
While the above was something I should’ve learned way before that moment, no one had ever concretely said that statement prior to that. Maybe it’s because I like to think we live in a meritocracy.
The Cost of Not Reading Self-Development Books
As a kid I loved to read, but I read non-fiction all the way through college. I don’t remember when exactly I learned about self-development books. They are basically advice that smarter and more experienced people than you wrote. I remember being in awe that I could read an entire book for less than $10 that would tell me all the things that worked or didn’t work in their lives, and how how they implemented growth, and how their worldview was shaped. It was amazing.
Related: Favorite Books of 2017
Keep Meeting Different People – You’ll Never Know What You’ll Learn
It’s always a good idea to spread your wings and get to know different people, because their different life experiences will teach you something you probably never even realized.
Because you just don’t know what you don’t know — and you can’t really Google something you don’t know at times.
I think most people don’t remember they had a lightbulb moment when they learn something new. That the concept at hand was super simple but they probably never would’ve come up with it.
I also think it’s incredibly easy to forget that you didn’t know something once upon a time, and not realize it until you really think about what led to that moment.
I think if you understand the basics, you’ll be able to teach yourself the rest by doing some research or analyzing a concept. But to learn the basics, sometimes you have to speak to someone.
What are some lightbulb moments you had about personal finance?
*The exception is probably if you work on a super quant team, but then selling is not really important. But we’re talking in mostly generalities here ok?