The chairman of the board uses physics to teach kids about money

Written by Sandy Vaci Saturday, 19 November 2011 14:12
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It may sound strange, but the best lesson I ever received about money was actually about physics.

And I think it is something we should all teach our kids - of any age.
It goes like this: "You may ignore gravity, but if you trip up you'll still fall on your face."

A friend told me this when, at an early age, I extolled to him the virtue of borrowing and putting the funds into surefire investments - riding the "then current" investment bubble.
Many years later it still amazes me how many people believe their wishes about how the markets are in fact reality - and end up losing tons of money as the result. How many times have you heard: "This time it is different..."; "There is a paradigm shift..."; "This is a new economy..."?
Well, I have news for you: NO, it is not different at all.

Companies need to make money at the end - fancy "new economy business models" will not make up for lack of profits. Real estate prices cannot go sky-high forever if nobody can afford buying those apartments anymore.

Risky investments will be risky, however we package them.
As much as we'd like to believe in the tooth fairy - sorry, there is no free lunch. You may grab a free snack here and there. If you are lucky, you may even build a comfortable living by playing the game.
And, as Gandhi famously said, "If you can choose between honest work and faking it, always choose hard work. There is much less competition there!"
So let's be realistic. Let's teach our kids that fundementals are called such because they are, well, FUNDEMENTALS... No amount of wishful thinking will make up for hard nosed investment analysis. And no amount of posturing will guarantee long term success (for most people).
After all of this, you may still chose to ignore gravity.

But please remember: gravity has no emotions.

No memory.

No sentiments.

It will NOT ignore you.

Sandy Vaci is chairman of the board, Credit Bank of Moscow and senior lecturer, CEU Business School

What we fail to teach our kids about money by Andy Golding and ''The Crowd'' will be published by Searching Finance in December 2011.

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