FIRE Investing

Why Is The Average Person Unaware of Basic Investing Concepts?

May 13, 2018September 21, 2018 FIRE in Thailand 0 Comments

I recently watched the movie ‘In Time’ and it made me think about why many people are still unaware of basic investing concepts, even though there’s never been a better time in history to achieve financial independence and retire early.

Life expectancy has never been higher. Poverty has never been lower. People have never been healthier. Armed conflicts are at an all-time low. Education has never been more accessible.

In addition to those social metrics, the world is currently experiencing synchronized economic growth. The unemployment rate in many countries is the lowest in decades, and wages are finally starting to rise for the first time since the 2008 crash.

Given this golden era of human existence measured by almost every social and economic indicator you hear about in the media, why are most people still living paycheck to paycheck?

In Time

(Spoiler Alert) In the movie ‘In Time’, the currency is the time you have left to live. All purchases are made with time and you’re paid with time when you work. It starts out in the ghetto where people are living day to day and even dying because they don’t have enough time.

The main character gets enough time to travel to the rich areas where people have tens of thousands of hours.

He’s appalled by the inequality as any working class person would be, and like a modern day Robin Hood, he steals a time bank and brings it back to the ghetto. Many poor people get more time than they know what to do with. Then guess what happens – it turns out the 1% he stole the time from own all the businesses in the ghetto, and they raise prices so all the extra time the working-class people have doesn’t matter – they’re still poor!

The same thing has happened around the world. Just look at the last 50 years. In the middle of the 20th century, families were well off in the US with just one person working. Then prices increased and women started working, and nowadays you have to go into massive debt for university or to buy a house, even with both husband and wife working overtime.

San Francisco is a perfect modern example. Programmers often make well over 100,000 USD per year, but look at the cost of living there nowadays. A two-bedroom apartment is over 5,000 USD per month, so even if you’re making 150,000 USD per year, you’re still spending 40% of your gross salary just on rent!

The average person is struggling to just get by no matter how much money they make. They can’t even think about saving 50-75% of their salary to FIRE.

Lack of Financial Education

Ask anyone what the difference is between an asset and a liability, or what factors you need to consider to determine an appropriate asset allocation, and you’ll quickly find out how little the average person knows about finance. Investing isn’t taught in many high schools, and after graduating most people are focused on university and their careers. It’s possible to be highly educated and successful, but still be financially illiterate.

That’s why I like Robert Kiyosaki. He is controversial, but at least he is bringing basic investing knowledge to the masses.

I saw his documentary on an airplane about 10 years ago, and I was burning up inside that I hadn’t learned that stuff 20 years ago. I bought three of his books as soon the airplane landed, and read over 25 other finance and investing books over the next couple years. That’s actually how I started on my path to FIRE.

FIRE vs. 21st Century Life

In many ways, the average person is better off than they were a few decades ago and I don’t doubt this is the best time ever to be alive. Along with all of those advances though, there is a new “modern natural order of things” that nobody questions. Society is still designed to keep everyone struggling with their daily lives, but the problems we now face have been updated to newer versions. Even if most people are better off materially, there are many new and interconnected issues stopping people from investing or pursuing FIRE.

Rampant consumerism, which is obviously incompatible with FIRE, is perhaps the easiest to see. A culture of buying and consuming, where your identity comes from the clothes you wear, the car you drive, the music you listen to, the sports teams you cheer for, and the beer you drink, is not conducive to early retirement.

New products that everyone must have are advertised as being faster and more efficient. They can save you time so you can enjoy life, so why not buy them?

Two inventions that have given people a life of leisure as originally promised are stoves and microwaves. When stoves first came out, ordinary people were thrilled about not having to spend hours making fires to cook with. Decades later, that same excitement was repeated when microwave ovens were invented. In theory, if people used to spend 3-4 hours per day making fires, cooking, and reheating food, we should have 25% more free time in the 21st century based on a 16 hour day.

So, what happened to all that extra free time?

We spend it working!

By now, it should be evident real wages have decreased so people are forced to work longer hours to maintain the same purchasing power. Unexpectedly, the more efficient technological advances make our lives, the lower our wages get, and the harder it becomes to buy the newest products that shape our identity. Breaking free of this ‘working more to spend more’ cycle is the first step of pursuing FIRE. I’m not saying everyone should throw away their stoves and every other modern convenience, but if you want to invest you need to spend less than you make.

Modern Problems

Even if you reduce your consumption enough so you have money left over at the end of the month, there’s still plenty of other problems that can stop you from making investing a priority in your life.

Nowadays, it’s completely normal to cut yourself off from family and friends to follow your dreams and career. Both adults in a household are expected to work full-time jobs or more. Dating apps and the ability to remove someone from your life with one click (ghosting) have made relationships innately disposable. We derive meaning in our lives from the things we buy and how many ‘likes’ we have. Most people are permanently in debt just so they can buy more things or get an education. In many countries, there are only two political parties and you have to choose the lesser evil. Faith in institutions such as churches, government, education, and medicine is declining. It’s easy to deny the existence of homelessness or poverty. We fear dying insane and alone in a nursing home.

Besides all of that, modern families are nothing like they were a few decades ago. A family where it’s the first and only marriage for both parents, and one parent is the sole breadwinner while the other stays home to care for the children, is now down to about 5% of the total population. Almost half of all children will go through a parental divorce.

If almost everyone is struggling with relationships and family, and the majority of kids come from broken homes or barely see their parents, it’s easy to see why financial education is not a priority in modern households.

The media continually tells us which metrics we should measure our lives by, and how well society is functioning according to those metrics. If no one realizes the system is the reason why they are unhappy and broke, which are now normal, no one will fight for change. If a society gives young men enough access to women (ie. free and unlimited pornography) and the illusion of social mobility, they are less likely to rise up and challenge inequality. There’s a saying in Thailand – just give everyone a smartphone then the government can do whatever it wants. Well, that’s what has happened around the world.

If you need something to occupy your time with, the government and media are glad to give you emotional issues to fight about such as immigration, race, abortion, legislated transgender pronouns, or even more legal addictions such as marijuana or gambling. Basic financial education isn’t controversial enough for the media to promote, or important enough for the government to legislate.

This may be the best time to be alive for the average person, but given the challenges of modern life, it’s no surprise most people are not planning their finances decades into the future or thinking about retiring early.

Most people live paycheck to paycheck because it’s coherent with their view of the modern world. It’s the way life is supposed to be. Combine that with instant gratification, consumerism, lack of financial education, overwork, family problems, and a system that inherently funnels money up to the 1%, most people will never consider FIRE or learning how to invest.

FIRE requires a complete paradigm shift in your thinking, not just about money, but about the way society works, and just like with science, paradigm changes for the masses or even the well-educated don’t happen easily.

Take Advantage of this Golden Era

If you are able to recognize the problems with modern life and minimize them, you could be in one of the best positions anyone has ever been in while following the path to FIRE.

Take advantage of the lowest unemployment rate in decades by upgrading your skills or re-training for a higher paying job. Employees haven’t had this much negotiating power for higher salaries and better working conditions for a long time.

Global economic growth isn’t going to end overnight, and even if it does, inflation is starting to rise. You need to have at least 75% equities to fund a retirement longer than 30 years anyway, so there’s almost no reason why FIRE followers shouldn’t be heavily invested to take full advantage of the current economic expansion.

Succumbing to modern problems and not investing, or taking advantage of the benefits of living in the 21st century while the global economy is in a sweet spot of full employment, low inflation, and low-interest rates is a personal choice. Make the right one.