Singapore is great at churning out high-quality academic graduates but I wonder how many of us have Financially Graduated. Of course, the term ‘Financial Graduation’ doesn’t properly exists because people don’t care enough about it. (And perhaps because I just came up with it.) Financial Graduation is simply the progression from a lower tier to a higher tier of learning. Very much similar to the academic progression that we are familiar with, broken down into 3 stages, Primary, Secondary and University. It’ll just be a fun read for the weekend, but I hope this article spurs you into a thinking frenzy and begin questioning yourself where are you exactly at.
Financial Primary School
Basic Addition / Subtraction / Multiplication / Division (ASMD)
Recall the time back in our primary school when we are exposed to simple things like 1+1=2 or 5×4=20. Financial Primary School is the same, it’s basic. But many people are still stuck in Financial Primary School because it’s not determined by age nor is it determined by any exams.
This is the stage in our lives where we learn to save. To spend within our means and to put aside any excess for the rainy days or the future. This is the easiest stage of all, but it’s surprising how many people don’t get past this stage. They are just happy savers, completely unaware of what is going on in the financial world (negative interest rates) because it has not affected them directly yet. Living in a very naive world, but aren’t we all naive when we were young? But the thing is, many of us are not young anymore but we’re still living in our naive little world thinking that saving alone is enough.
Financial Secondary School
Advanced ASMD / Simplification / Differentiation / Integration
For anyone taking A Maths in Secondary School, I’m sure I don’t have to go further.. Remember dy/dx? This is when school begins getting way more challenging and definitely not for the faint-hearted. You will begin considering taking up private tuition just to get back on track with everyone else in class. But once again in Financial School terms, there’s no such thing as exams (no benchmark). So without a benchmark, how would you know if you are doing well or not.
Congratulations if you made it past the savings stage. In Secondary School, you are now exposed to more advanced stuff. In Financial Secondary School this translate into understanding the financial products available to you and you must learn how you can take advantage of it. A couple of examples would be fixed deposits, insurance, or any other form of almost risk-free products that yield you a higher return.
Statistics / Economics / Accounting / Behavioral Finance
There will be a relatively larger amount of people who don’t graduate into University than Secondary. Finishing our education in Secondary School is a shocker to most in our generation. It was common in the past, but if anyone told you their highest education was Secondary School and they are 25 years old, you probably see them in a different light. While we are appalled by a highest education level being Secondary School at 25, nobody seems to care the starling truth that many don’t make it past Financial Secondary School. They stop at fixed deposits and annuities.
If you find yourself in University, you should be proud of yourself. You have made it thus far without constant supervision or benchmark. You made it this far because you were curious and hungry for more knowledge and return. You belong to the top 41% who graduated (2 in 3 Young People Have Not Started Investing). In Financial University, you begin to understand about the different financial products around that will now require you to begin putting money at risk, but for a higher return. This is where investing and trading comes in.
Getting into Financial University is just the beginning. I’m sure you would agree that graduating with first-class honors is more important than getting into the University alone right? So don’t be complacent if you find yourself in a University. Are you on track to be an Honors graduate? Or will you graduate with a plain Bachelor’s Degree? At least in Financial University, you have some form of feedback from the returns you are making in the market to gauge how well you are doing in school.
I’m sorry, there’s no such thing as graduation from Financial University because you’ll be tested all your life. You may be a first-class honors students in the first few years and then lose it, or you may be a student on track to becoming a first-class honors student. You’re never in the same place, and the market is truly a continuously learning institution. Higher education is not a place where you graduate and stop learning. It’s where you learn to pursue knowledge indefinitely without supervision.
Bringing us back to the 3 learning institution stages, you can see how it links. If you fail at any of the lower tiers, you won’t do well in your upper tiers of education. Can you imagine trying to solve differentiation and integration problems when you already have problems multiplying 5×4? If you fail at Financial Primary School (Saving), you’ll not succeed in Financial University (Risk for Return) because you don’t have your fundamentals. If you can’t even save, what’s there to risk for any return?
On the bright side, for those of us who felt that we may have skipped a few grades, and are now regretting that we entered University too early, we can go back down as many tiers as we like, even all the way down to Financial Primary School. Again, there is no shame unlike the traditional academic path. Have you ever heard of a University student going back to Primary School? While there isn’t enough benchmarks around to determine if we are ready to graduate to a higher tier, we can always create them.
Take time to reflect if you should be in the Financial School that you are in today. Are you in Primary School when you should already be in Secondary School or University, or vice-versa? (The latter is more probable though.) If you belong in University, are you a first-class honors student or at least on track to becoming one? What are the benchmarks you can set for yourself to determine where you stand? Set them! All the best and keep snowballing your wealth!