We always keep lamenting that this would be a better world if everyone take charge of their money or wealth building.
Turns out that we could be very wrong.
Lately, I been reflecting on this point, and this article written by Morgan Housel resonate with what I am thinking.
It is articles like this that make me think that Morgan Housel and Jason Zweig of the WSJ are the best personal finance columnist around.
[Motley Fool | Why you’re so bad with your money]
Lauren Willis at Loyola Law School has shown that financial literacy programs can actually be harmful to people’s financial wellbeing. High school students who took part in a financial literacy course went on have more problems with their finances than students who skipped the course.
Low-income consumers who took a class on money management "were less likely to plan and set future financial goals at follow-up than they were at baselines" one year later.
As Jason Zweig of The Wall Street Journal wrote, soldiers who took a financial literacy class "ended up significantly less likely to have systematic control over their household budgets."
As Zweig bluntly put it, "there’s remarkably little evidence that financial-literacy education … works."
Quite startling. You would have thought that after the great financial crisis and housing bubbles, you would want this curriculum to be in our secondary school, poly or junior colleges.
Learning the definition of compound interest isn’t going to do you much good unless you understand the devastation you’ll bring to your wealth by panicking when the market drops.
The traits most important to mastering your finances aren’t typically taught in finance courses. You’re more likely to see them in a psychology class. They include things like patience, an even temper, being skeptical of salesmen, and avoiding over-optimism. A lot of people miss this because it’s not intuitive.
Willis wrote, "financial education appears to increase confidence without improving ability, leading to worse decisions."
I tend to think that knowing that you gotta pay yourself first and take on more risk is a good start.
But most folks upon reading the Rich Dad Poor Dad, tend to get their confidence spike up, and think that reading a few books make them above average capital allocators.
We tend to be less skeptical about things, we have less check marks to rein in overconfidence or over-pessimism.
You start to think you have a decent edge.
And reading more make you more likely to make better decisions.
While the products can be good, average or bad, our psychological deficiencies make our results even worse.
Sometimes, your edge needs to be hone like the Micheal Jordans and the Cristiano Ronaldos, through a lot of hours of practice and building very rational analysis models.
Else, it is better to stick to what you can control, simple, time tested, investing methodologies.
Let us all not be overconfident, be more skeptical, ask more questions, form better investing models.
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Friday 11th of October 2013
I have a checklist of actions to take before I buy something. Sometimes, initial analysis might make a counter look like a steal.
I only had a serious investment plan 1-2 years ago, such that I know how I should react in different market cycles, and keep out emotions in decisions.
What I don't know is, if this plan actually yield better results than say just buying index or a variety of bonds. The later 2 methods take much less time and research. Its a hobby and I enjoyed reading up on company and uncovering gem, but there isn't much gems to uncover during "normal" market conditions.
Saturday 12th of October 2013
well usually only when turbulent times when the gems start popping out. Without a good framework to uncover, you will just be likely to get into duds when the time comes.
alternatively, if you do not know whether you are skilled perhaps can split your equity portion into half where one is passive and another is active.
Thursday 10th of October 2013
John Mauldin only 40%? Hmmm....