Deadly money behaviors

When dealing with money issues, one must always be aware of deadly behaviors that will cause financial havoc. 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 on 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 enterprises that often cause collateral damage like ruined business relationships and even legal issues. After all, the love of money is the root of all evil.

In the movie Wall Street, Gordon Gecko uttered a famous line that seems to have become the mantra of many… “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 because of greed that there are financial crashes from time to time. Regardless of how we romanticize it, and despite Hollywood’s dangerous seduction, greed is not good.

Fear, on the other hand, is not necessarily a bad behavior. In fact, fear allows one to act prudently and makes us check if we are already becoming greedy. The issue here is having too much fear, or crippling fear.

Many times, people will not 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 and to prove a 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 place your savings in short-term placements like time deposits earning 1 percent a year and you don’t mind the low return because safety of capital is your paramount concern and you will probably keep the money there for maybe three to five years.

Let us assume that during those years, the inflation rate will be at an average of 3 percent, you are losing real value in your money with the erosion of its purchasing power by as much as 2 percent per year. In the end, you will actually 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.

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.

I’m actually getting tired of warning people against obvious investment scams! Financial education, though important, is not top of mind of our citizens. Schools look at financial education from a textbook approach rather than on a personal finance perspective and many homes will not discuss money issues until the family is in a severe financial situation.

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, isn’t it? 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.