After talking to Mom and Dad about how much work Justin is doing and how much I’m going to have to do next year I am feeling quite lazy. To fend that off I figured I should do something but, being 11:15 at night, I only really have two choices: homework and blog. I think my choice is obvious.
No I come upon a second dilemma; what to write about. Should I talk about Japan, random thoughts, politics, economics, what? Maybe I will combine a couple of those on the subject of personal finance.
I have come to the conclusion that very few people have the slightest idea how to manage their own finances. As far back as I can remember I’ve had lessons about money, saving, investment, etc. floating around in my head. I suppose I have you, Dad, to thank for that and probably Papa too. When I have $500 I immediately start budgeting out what I’m going to do with it in my head, starting with how much I plan to save. From what I’ve seen and heard other people tend to start with what they can buy. This is by no means a condemnation of dreams but rather an appeal for rationality in their actuation.
Everyone here thinks I am rich, which I can’t really deny, but I think I have far less than they imagine because I spend less than they expect. I have $1250 a month. That is a set. I know how much I have. That is always a good place to start; inventory. You can’t make a decent plan to do anything if you don’t first know what you have. I also know what I want; I have priorities. Travel, fun experiences, souvenirs, and food are all floating around in my head and ranked in order of importance. Travel was listed first because it is the utmost priority for me, and many people profess it to be theirs as well but they do not show it. A bottle of milk tea for class, an extra snack for the train ride home, and a couple of cans of beer for Saturday night. Let’s take account.
Drink: 120 yen X 5 = 600 yen per week
Snack: 100 yen X 3 = 300 yen/week
Beer: 300 yen X 2 = 600 yen/week
1500 yen (almost $20) per week in stuff that is far from a necessity. There are many other cuts that can be made (drinking, smoking, and eating out in spite of paid for food at the dorm being the most obvious).
There is great power in knowing your priorities well; your greatest joys are often sacrificed for insignificant, forgettable wastes.
On a far grander scale, the idea of investment is totally foreign. I grew up hearing people discuss puts, calls, bonds, and good “investments.” That may be counted among the many blessings that my family has bestowed upon me. Stormy (sorry to rag on you) and so many others have had no idea what to do with their money. No idea what other people do with their money. No idea how it grows. No idea what value time has. No idea what interest rates mean (more than the general “high is bad.”)
Why do the rich stay rich? Because they have a very good idea about how money works and it has been drilled into them since childhood. They (I) know that saving $10 when you are 20 is as good as saving $40 (or more) when you are 60.
Let’s have another little math lesson.
Saving $50 a month for 40 years earning a modest 4% leaves you with $60,000
Buying $50 a month for 40 years would end up being $24,000 spent on stuff that would likely be worth $10,000 or less (probably less)
Someone has a year’s worth of living expenses while the other has…well…at best $10,000 worth of stuff they probably moderately enjoy.
The point is that money makes money and there is some vague conception of this idea prevalent but it is about as tangible as Alice’s Wonderland it seems.
My whole point being there is a severe lack of financial education. People see interest rates like they see world affairs; far off and far too complicated to grasp. Stocks don’t even get that far. They sit in a smoky back room with the men who control the world.
Seems to me if Buffet wanted to improve peoples’ lives he could start in the area of his expertise far more easily.
A quick google tells me there are about 20,000 high schools in the US.
So let’s say 40,000 teachers at $45,000 a year.
Seems to me Buffet could pay for a high school finance education for 10 years with that half of his fortune he has already pledged to give away.
So there is my rant. I have no doubt that being rich at birth makes life much easier but it is the knowledge that tends to come with that which is of infinite value.
(The pictures are from a walk I took today from Nihombashi back home)