Financial Literacy

Not Just Balancing a Checkbook

One of the things I have been passionate about is financial literacy. It’s so important. I started writing this blog back in 2010 because I hated and realized how bad the Dodd-Frank bill was. Dodd-Frank wasn’t about anything but more government intervention into the financial system. Dodd-Frank isn’t going to keep 2008 from happening again.

Dangerous Don Manzullo and others railed against that bill in Congress to no avail. I still maintain the Consumer Financial Protection Agency protects people like Elizabeth Warren, cronies, and bureaucrats, not people.

My friend Chris Gandy and I explored launching a business targeted to college athletes who were going to go pro. Both of us were upset about how kids would sign big contracts and wind up broke. Today, I wonder if that business idea has come of age with NIL. Most of these kids in college getting NIL money will not see a pro paycheck. That ten-million-dollar contract, which was just signed, doesn’t mean you have ten million in your bank account. Agents, accountants, and taxes have to be paid, along with a fee to a wealth manager to make sure it’s not lost. When Chris would show athletes the math, their eyes would bug out of their heads.

Leverage is an entirely foreign concept to people. Some abhor it. Some embrace it fully. I knew guys on the trading floor who levered up their entire lives. The walls came crashing down quickly when they couldn’t pay the vig.

People don’t understand the guts and glue of finance. It’s complex. You can’t blame them. However, people don’t understand a lot of things about finance and money. It’s not just balancing a checkbook.

It’s hard to learn, which dissuades people from learning about it. Social media has shortened attention spans.

For example, subsidies from tax dollars. People do not understand it. Subsidies are political. There is no return on investment from a government subsidy. In the New Deal, the subsidies doled out to the farm business weren’t about economic incentives. They were about crony capitalism and government control.

The problem with subsidies is that there is no direct line from the subsidy to your pocketbook. If there were, they wouldn’t exist.

In Nevada right now, they are debating a subsidy to the film industry. It’s not as economic as proponents want to cite numbers and dress it up as economic. It’s a giveaway, and it is political. As I wrote here, the film industry isn’t struggling because of Gavin Newsom’s economic policies and the tax scheme in California. I think we all can agree that Newsom and California are overly taxed and not business-friendly. The film industry is struggling to find a new business model as it gets disrupted by content creators on the internet.

Other states do similar things, and so do countries. If subsidies worked to prop up industries that were having trouble due to business decisions they made, the steel industry would be robust in the United States. It’s not.

You can learn a lot by following the right people and organizations on social media.

I remember when Cliff Asness got in a fight with people on X. He is a GREAT follow. Interest rates were rising, and he was getting pushback from people who said they weren’t losing money on their fixed-income investments. After all, they were still getting interest, and if they held them to expiration, they’d get what they were promised. They didn’t understand that the value of the bond they were holding was significantly less than the day they purchased it, simply because interest rates had moved higher. If they had to sell that bond in the market, they would lose money.

When the stock market had a significant move lower, I used to joke that my startup investments or private equity portfolio had not lost money that day since they aren’t marked to market every day. It was a joke, but there are a lot of people who truly believe that. The fear of losing money overwhelms logic.

Over the years, misinformed financial journalists, or economists and financiers with agendas, have twisted and spun financial history to the point that it is not understandable. This is especially true with big events like the Great Depression and the crash of 2008.

The Free to Choose network is an excellent place to learn about basic economics and events like the Great Depression. The non-profit has done a good job remaining up to date and relevant on current topics, not just the things Milton Friedman spoke about when he was alive.

Being financially literate isn’t going to turn you into some great stock picker or trader. You aren’t going to go from the outhouse to the penthouse. What is it going to do? Number one, it’s going to keep you from making stupid mistakes, so you don’t go backward. Money is so hard to make that it hurts to give it away stupidly. Number two, it will help you recognize bad government policy or bad deals when they are presented to you. You will be able to wade through the spin from the political parties and the pundits and understand what is actually at stake.

Socialists and people who follow socialism are not financially literate. If they are, they are more sinister than you think.

If you aren’t financially literate today, do not fret. There are places to learn. It takes some work, and you will have to invest time. But you will be better for it at the end.