Why You Should Learn About Personal Finance

Updated: Jun 3, 2021

By Santiago Bohorquez | Canada


The average North American – let’s name him Joe – has bad habits with money. Whether it is accumulating exorbitant amounts of debt in a credit card, buying expensive designer clothes, or drinking a coffee every day of the week, Joe does not realize how these costs add up over time. He doesn’t realize either the opportunity cost of his spending. In short, he doesn’t know about personal finance. To understand how harmful this habit becomes, let’s illustrate with an example:


Joe buys a Venti Salted Caramel Mocha Frapuccino with a price of $5.25, every day for a month: the total is $160.


The S&P500, a stock market index of the 500 largest companies in the United States, has averaged an approximate yearly return of 10% over the last 40 years. If Joe, Instead of buying the Frappucino, had invested the money every month with a 10% yearly return he would have $1,020,943 in 40 years. Does the Frappuccino still look as delicious as before? On the other hand, lets assume a Lacoste or Hugo Boss polo costs $500. $500 invested one time in an index fund that tracks the S&P500 and returns 10% for 10 years will equal $1296.87, and $3363.75 after 20 years.


This is just from a one-time lump sum.


Of course, these are extreme examples. However, they show that a person with zero knowledge on personal finance will unknowingly waste money on useless items, rather than save and invest it for the future. 


If the readers wish to improve their financial education, as well as their future, I recommend they learn about the following terms:

  1. Stocks

  2. Bonds

  3. Index funds

  4. ETFs

  5. Dividends

  6. S&P500

Furthermore, the following books are recommended to anyone wishing to further inquire about personal finance:


Rich Dad, Poor Dad by Robert Kiyosaki


The Little Book of Common Sense Investing by Jack Bogle


If you want to see other book recommendations regarding financial education, click here

 

The views and opinions expressed in this entry are solely those of the author(s) and do not necessarily reflect the position of The Zeitgeist. Assumptions made in the analysis are not reflective of the position of any entity other than the author(s). The Zeitgeist does not verify the accuracy of any of the information contained in the entry. The Zeitgeist is not to be held responsible for misuse, reuse, recycled and cited and/or uncited copies of content within this entry.




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