Finance — Everyone Should Learn About it

I remember something like, “2008 financial crisis is not result of greed of elites in the wall street, it is the result of lack of knowledge of general public towards the finance. To prevent it, we need to educate everyone on finance.” I don’t know this is the true cause of the crisis, but my do agree the importance of finance, to individuals and the general public.

Now let’s talks ideas in finance.

Point one. we distinguish the present money and the future money. They are different. The present money is always better than the future, in that we all want to consume now than some time point in the future. So whenever we do calculations on a price or a profit, all money will be brought into the same time point. for example, if say, you have $x$ dollar in one year for sure, and $y$ dollar right now. you can find out $z$, how many dollars you have

$ z = x + \frac{y}{1+r} $

$r$ is the annual discount rate, or interest rate. With this idea, you can calculate life time income of a person in the United States, which is about 1 million dollars for a person with median income.

Point two. the money in itself has no use, unless we find some use in it. The result of use is beneficial to both individuals and the general public as whole. If we think in point one, we know that future money is always worth less. Holding cash results in it becoming future cash, which is worth less than what it has now. In another word, the present cash is depreciating over time. This understanding pushes we put money somewhere to use, maybe earn interests, do social good, fulfill needs and so on. Collectively, we pushes our world globalize.

The third point is more from my personal view. Because of advance of information technology, finance is much more open to the general public. for example, we have more ways to invest, raise fund, transfer fund and so on. Money is votes for us to express what is good in our view. We should debate it and exercise it.