Why finance is boring and money exciting!

The fundamentals of investing are confusing to most New Zealanders.  It’s why poachers and gamekeepers are proliferating because the baby boomers are heading into retirement, the accumulators are pouring money into KiwiSaver and cheap credit is fuelling property, prices and mortgage escalation.  The retail funds management industry is in clover and the ‘talking-heads’ of various authorities, government agencies, and financial media are clamouring for attention.  Twenty years ago when organisations such as FoxPlan were attempting to educate the public on the need for investment, retirement planning and cash management, the politicians and main stream financial media were back seat passengers.

Demographic change and KiwiSaver have altered the financial climate – but not the education of its major participants.  When the press or rugby union officials proffer a diatribe of drivel to a well-educated NZ rugby public they are immediately challenged or ridiculed.  When it comes to money and investment into KiwiSaver and mortgage finance the banks prevail.  They are transparent, and trustworthy – unfortunately they are also transactional but seldom challenged morally or intellectually.  When it comes to lending and mortgages the banks not only prevail, they excel.  We are living in an environment orchestrated by financiers, educated by an environment steeped in collectivism and managed by an environment of liberal democrats.  This confusion of idealism is providing the opportunity for individualism which to some extent is the foundation of a capitalist system however if the capitalists remain unchallenged due to financial illiteracy an even more unbalanced society will evolve.  Controlled by debit and asset class conservatism, in other words, by banks.

We need to educate and explain:

The difference between;             currency and money

                                                                risk and return

                                                                volatility and loss

                                                                mean reversion and standard deviation

                                                                asset concentration and asset diversification

                                                                credit and debt

                                                                information and advice

As the new era of financial transparency evolves, information will provide the borrowing and investing public with the ability to keep score. A hand held device means the capability to check emails, bank balances, KiwiSaver, mortgage levels and rates of interest at the same time as texting and reading various Facebook revelations.  Information is on hand – and people are becoming more and more transactional, reactive and unplanned.

Hopefully the evolution of robo information will mean an improved capability for borrowers and investors to compare and challenge the product providers – to better measure and monitor financial goals and aspirations in conjunction with appropriate strategic plans.  I’m positive about this development because I think it will lead to more people looking for a greater level of advice as their financial affairs become more complex.  The public accessing information online via robo methods will become more mainstream.  When I joined this industry in 1967 people came into our bank for a print out of their bank balances, we measured the interest on their overdrafts via manual calculators and provided manufacturers with pay roll cash on a weekly basis for their staff wages.  We never issued mortgages, initiated managed funds or sold insurance.  Oh, it was a frustratingly simple financial environment back then – apart from the hand gun I carried when we took the surplus and soiled bank notes to the Post Office for transport to the Reserve Bank in Wellington for burning.  Not sure what I was meant to do with the gun if my young female accomplice carrying the shoebox full of bank notes was apprehended – but I loved Westerns as a kid so I had some inkling of what the male ‘protector’ of order and justice was responsible for.

Things have changed but a smoking gun prevails in the form of financial capability – temptation is an undoubted human weakness.  The majority will continue to leverage without objectivity, borrow before budgeting, consume at the expense of savings, and invest with minimal knowledge of fundamental financial principles.  History repeats – it is a great teacher for the diligent student, those prepared to listen and take advice.

Like a five day cricket test match to the uninitiated, finance is boring.  To the international futures market day traders, residential property investment is dull and boring.  To the successful test cricketer, the successful futures trader, the successful property investor money means a comfortable lifestyle at worst and luxury at best.  Whilst they accumulate it with a concentration of skill, hard work and calculated risk they retain it only through advice and diversification.  Finance is only boring because you haven’t accumulated any money.  Your interest will increase in alignment with the growth of your net worth.