Question: I heard you say in a seminar that money management is more about behavior than skill. What are the behaviors that I should be conscious of?—Asked by Samantha via Facebook
Answer: When dealing with money issues, one must always be aware of deadly behaviors that cause financial havoc and I call them the three dangerous money attitudes: Greed, Fear and Ignorance.
Greed has been man’s downfall since time immemorial.
When it comes to our finances, greed clouds our judgment and in many cases, it can even make us compromise our values.
In investing, greed makes one too optimistic about possible returns based on some experience or even the potential of remarkable growth.
While the principle of risk and return always dictates the performance of one’s investment, greed will make one go beyond his risk tolerance in anticipation of fantastic yields.
In business, greed makes one engage in cut-throat enterprise and often causes collateral damage like ruined business relationships and even legal issues.
After all, it is the love of money which is the root of all evil (1 Timothy 6:10).
In the movie Wall Street, Gordon Gecko uttered the famous line, “Greed is good” (‘that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit’).
Well, it is greed that caused the financial tsunami a few years back, almost putting the whole world economy into chaos.
In fact, the US has yet to recover from its financial crisis, which was really a result of greed. Greed is often the reason for our economic woes. Regardless of how we romanticize it, and despite Hollywood’s dangerous seduction, greed is not good.
Fear is not necessarily a bad behavior. In fact, fear allows one to act in prudence and makes us check if we are already becoming greedy. The issue here is too much fear, or crippling fear. Because of this kind of fear, people are unable to take any risk at all when it comes to money and they will find themselves with hardly any financial growth because of it. It is a common notion that Filipinos are ultra conservative when it comes to money. To prove this point, one only needs to look at where our money is actually invested—locked in 30-to-90-day short term deposits that give you almost negligible returns. While keeping your capital safe is important, we must also be reminded that inflation is constant and it will erode our wealth.
To illustrate, let’s assume that you placed your savings in short-term placements like time deposits earning 2 percent a year for maybe three to five years and you did not mind the low return because safety of capital was your paramount concern.
Let us also assume that during those same years, the inflation rate averaged at 5 percent a year.
You would find out at the end of five years that you actually “lost” money because the purchasing power of your placement eroded with annual inflation overtaking the annual yield.
In the end, you will experience a real loss despite having no capital loss.
In risk management, risk avoidance is not always a good choice because avoiding risk also means one can’t gain.
I really like the Parable of the Talents (Matthew 25:13-40)—it is as a very good illustration of fear.
Just like greed, ignorance is a very dangerous attitude. While people lose money because of greed or too much fear (in purchasing power), people do so knowing what they are getting into.
Losing money because of ignorance makes one well, ignorant.
It is said that you should never ever, ever, ever, ever put your money into something you don’t understand. It is ironic that despite Filipinos being risk averse (ultra conservative), we are also prone to a lot of scams.
It is a common notion than Filipinos are not as financially literate compared to our Asian neighbors. Although we are improving in the financial literacy arena, we are barely scratching the surface, so to speak.
Financial education, though immensely important, is not top of mind of our citizens.
Schools usually take the textbook approach to financial education and many families do not discuss money issues until they find themselves in dangerous financial situations.
I have counseled so many individuals in dire financial conditions and most of the time, the core of their problem is ignorance —financial ignorance.
So what is the solution to all these? Financial education and checking one’s heart. We need to live a life of purpose, which will keep our greed in check.
It is not hard to realize that our purpose goes beyond ourselves. (Matthew 6:33) Overpowering fear is an issue of faith—we need to believe that we are not given a spirit of timidity, but a spirit of power (2 Timothy 1:7). The only fear we should have is a godly fear (Psalms 111:10).
As to ignorance, we only need to open our hearts and minds and embrace learning and seek godly wisdom (Proverbs 8:12).
Catch me for Money Talks UAE in Dubai on March 20 and Money Talks Cebu on April 25. Visit www.randelltiongson.com for more details.
(Randell Tiongson, RFP is an author, columnist and speaker on personal finance. He has over 25 years of experience in the financial services industry. Learn how to grow your money at the biggest gathering of RFPs at 3rd Financial Fitness Forum 2015 on March 28 SMX Aura. To inquire, e-mail at info@rfp.ph or text <name><email><FFF> at 09173464126.)