Thursday, 11 March 2010

Economics Education

I'd be the first to admit I'm an economics idiot. The only claim I can make is that I'm reasonably good at not spending money when I don't want to and in large part this is bolstered by my natural tendency to procrastinate. This tendency has likely cost me a great deal as well, just not in the way of direct expenditure. Given my opportunities, a more self-disciplined person could have been far better off than I am now.

In my defense, I was never taught anything other than frugality and saving. The world of stocks and bonds, mutual funds and equities was and is murky water to me. Sure enough the one time I got involved with an 'Independent Financial Advisor' he turned out to be a major crook -- well, let's not flatter him -- call him a small time shyster. I'd flush my cash before I'd do business with him again.

Anyhow, the other day we were driving back from a visit to Manchester and I was reading from a (free) copy of
The Independent. I read that Gordon Brown (the current Prime Minister here in the UK -- I'm not assuming anyone else's political knowledge is much more advanced than mine, either) that (and I can't quote it exactly as Bill has recycled the paper) most of the spending in this country is done by lower income people. I read it a couple of times as the first time I took it as a slightly denigrating comment, but that's what he said.

I put the paper down and did some thinking, then I tried out some ideas on Bill:

  • Let's say there is a revolution that allows everyone to start out on an equal financial basis and to have a job to produce income for themselves.
  • Some people spend everything that comes to them, improving their standard of living to the fullest they can afford. They do not save. Let's call these 'A' people.
  • Other people tend to stay out of debt, buy only what they need for a decent lifestyle and not only save, but invest for an income. They may go into business for themselves so as not to work for someone else's profit, only their own. Let's call these 'B' people.
  • 'B' people come to own the businesses that A people buy from, either buying the company or through owning stocks. All going well, their investment income may eventually allow them not to work for someone else. This is one of my definitions of wealth, not going to work on a daily basis.
  • 'A' people have debts to pay, little or no savings against bad times, they live month to month, one paycheck away from the welfare line. That said, they have new cars, the latest iPod/mobile phone/slim-line TV with cable, season tickets for their football team and they wear the latest fashions from the High Street. Their credit cards are maxed and they live on their overdraft at the bank.
  • It looks to me like 'A' people's spending is what makes the 'B' people rich.
I'm aware that this is all very polarised classification and most of us fall somewhere between A and B. It is also a fact that not everyone is smart enough or healthy enough to do work well paid enough to do much saving. Less intelligent people -- unless they are very attractive or are gifted in a well-paid sport -- don't normally manage to change their fortunes.

I think what I'm saying is that I wish my early education had included better insight into being a 'B' person. Life - and observing my Mom taught me to be cautious about being an 'A' person, like my Dad; but neither of them knew much about 'B' type activities, aside from the fact that they had experience of being self-employed. Given that our standard of living and security greatly increased when my Dad got a 'real' job, it didn't give me a particularly high opinion of self-employment.

That leaves all those other 'B' things -- but then you have to pay people to do them for you...something I'm fairly loathe to do. Oh well, I'll try to keep it simple and do 'B' things in a very small way. I'm just not certain of getting the more advanced parts right.

I drafted this a long time ago, before the house of cards came crashing down, but when people first felt the breeze of change. I see bits here and there about financial education in schools, but I sometimes wonder if the lack has been deliberate (ever seeing a conspiracy). Are we getting better at teaching kids about money and how to make it work?

1 comment:

Struggler said...

I'm not sure we're very good at teaching kids about this at all. How many of them really understand compound interest, and the startling way it can work with you (as a saver) or against you (once you start running up debt)?
Meanwhile, marketing of the latest phone/fashion/gear/car is getting ever more sophisticated. I'm always stunned at the things my husband and I do not own (yet we have savings in the bank) compared with people who literally lurch from month to month.