Michael Fischer's series on Saving and Investing ends today with a look at five popular misconceptions about money. Even if you haven't watched any of his other videos, I urge you to watch these. Here Michael explains why it is so important for each of us to understand basic financial concepts:
Five popular misconceptions, part one (5:47)
Five popular misconceptions, part two (5:40)
Michael addresses these common misconceptions:
- Saving and investing is complicated. Actually, the material is very basic. It's simple to understand. What's complicated are the products in which we can put our money. But if we understand how money works, we can use this knowledge to analyze the investment opportunities.
- Investing in the stock market is like gambling. It is true that investing in the stock market carries risk. It is not, however, the same as gambling. Gambling is based on chance, and the odds are always against the player. Investing in the stock market is not a sure thing (again, it involves risk), but it is a legitimate business transaction between providers and users of capital. In the long term, the odds favor the investor.
- It's okay to be in debt. Debt can lead to major financial problems. Because credit card debt carries high interest rates, that debt compounds at an alarming rate. (It can double in just five years!) Michael says, “Being in debt and consuming beyond our means can lead to major financial problems.”
- Saving and investing means financial sacrifice. It's true that we sometimes must give up short-term gains for long-term success. But, as Michael says, the reality is that carrying credit card debt and not saving are the things that actually lead to the need to sacrifice. Saving and investing lead to financial freedom, not sacrifice. Sacrifice comes when we have problems.
- You don't need to know about saving and investing because you can simply ask a professional. I love Michael's response to this. He basically repeats my mantra: do what works for you. “Everyone needs to develop their own plan. We're all in different positions…The reality is that we all need to think about our financial plan.” We know our own financial objectives better than any advisor. If we seek financial knowledge and set our own goals, we can create our own plans for the future.
I hope that this series has been useful and informative to you. I know that much of the material was elementary to those of you who are further along the path to financial security. But it's important for everyone to understand these concepts, and to incorporate them into their daily financial lives.