Real-Life Money Experiences Matter More Than Books

It's not about knowing things early in life. It's about actually understanding things early in life and having that experience.

What does money mean to you?

If I were to describe it with one word, I guess I could use freedom.

Go a little bit deeper into that. How is it freedom for you and how does it kind of relate to freedom for you?

It gives you the optionality for doing various things.

So there's credit cards, loans, and then there's savings. Which one do you prefer to use and why?

Well, right now I have a credit card, so I just use that primarily. But otherwise I guess if you have money you could just use that. Yeah, I don't. I'm not really a fan of loans.

Why aren't you a fan of loans?

I don't know. Probably just has to come with, I guess like from my dad. He's not a fan of loans either. So just buy everything outright except for I guess like a house that's really expensive, especially here. But other than that. Yeah, mostly cash.

He talks about credit cards and how he's using them because he basically doesn't have any money. But yet he learned not to use loans and debt from his father because his father was against it. And money means freedom, but yet he's using someone else's money, a bank's. Is the bank creating his freedom or is he creating a bondage by doing that? So there's just a disconnect on the desire and the thought process, what he's learned and what he's doing. And I, I don't think that it's intentional, I think it's circumstantial. But once you get in the trap, you just kind of in it.

So if there's something out there that at the same time you could like save money but also borrow from it, that'd be like the ultimate kind of thing for you.

Not really a fan of loans, you know. Yeah, I'm not really a fan of loans. When you do the math part of it, there's. You don't take into account the emotional risk you want to call it, or any other risk associated with it. So if you do the numbers, obviously it works out better. Say like, you know, you invest the money, say you have $50,000 in cash and you're buying a car, you know, loan, take a loan on the car, put 50,000 like S& P or something. That's probably going to be math wise better. But in general I'm not a fan of that.

Let's say you went to go buy a car for 50,000.

Right.

How would you feel about the idea that the opportunity that we're losing on that 50k?

First of all, it doesn't actually go away because all it is, it's just equity in the car. So worse comes to worse, you can just sell it. So you might sell it at a loss, obviously not 50k, you won't get all of that back. But say you get 40k back, you'll still get cash back. That's what you're after.

So there's lots of good stuff to unwind there. So I got a really interesting perspective from this young person about how he thinks. And it's just like he's fearful of loans. And so that's coming from a place that loans are bad thing. It all goes to what is it you borrowed money for? And there's good debt and there's bad debt. So he just has a very, you know, direct kind of thought about that. And then when he started talking about the car and the fact that even though you have put that 50,000 into that car, you really have, you know, it hasn't been no cost. You can just sell the car. Anybody that's ever bought a vehicle in the moment you drive it off the lot, it's already depreciated a lot more than you expected ever to. But it's value and it keeps on going down. And that's just a reality of buying a liability because that's what cars are. So just an interesting perspective from this young person about, you know, his take on how things work and. Yeah, just lot to learn yet in life.

I thought it was unique that he started off talking about money being freedom and representing freedom. And so that obviously has some level of importance from it. It was the first statement and the idea that you're going to transfer 50,000 to Go Buy a car and it's just trans. You don't lose the money, it's just transferred into equity in the car. But then he immediately follows it up. But even, you know, you might sell the car for less, in which case you lost the money and you lost the opportunity cost on the money, which is, I think, where the question was going. And so there's not a recognition of that. But yet he's using language like equity. There's certain language that he's learned that seems like it would be really applicable to setting him up for some level of success by understanding those terms. But they seem to be, he's not inaccurate that there's equity in the car. The problem is that the equity in the car is declining, that there's a gap maybe in interpretation on there. And I thought it was interesting, Dan, I thought you would jump in and maybe mention like, I remember buying a few vehicles in my day and I don't think I ever sold one for more than I paid for it. Kind of a scenario. And I know my, my scenario would be, hey, there are some people that literally flip cars and they do a really good job at that. I'm not one of those individuals and I think that's a small segment of society. Okay. For most people, car purchasing is a losing some game. You need the vehicle to go do stuff. The vehicle is. And its ability to get you from A to B might help you create income or revenue through work or your vocation or business, but the actual item itself, the capital item, declines in value. He also mentioned something about emotional risk, and I'm not sure what the context of the emotional risk was. Was the emotional risk in having debt with a third party, Is that what he was referencing? And if so, why is he using the credit cards and being in debt with a third party if he finds it emotionally risking, but yet he wants freedom. There's just like so many like diverse thought patterns all smashed into one short conversation. So money or the conversion of equity or assets into cash liquidity, there's a time exchange there too. And so the time relevance, the quicker you need it done, often the more discount you might have to take to get that accomplished. He's talking about. Yeah, if you have assets minus liabilities, you have, you know, net worth. He said equity, but it's. Yeah, that's true. But just because that's what it looks like on paper doesn't mean that's what it translates to in reality. Because you're not factoring in market timing, market risk, market absorption. Absorption meaning, you know, if he's got a Tesla, okay, there's a great market probably in Toronto for Teslas. But if he had a 1 ton dually chev pickup truck, maybe the absorption rate in downtown Toronto is not so good for that. Like, I don't know. So, so what is the, what is the ability to transfer that item into cash? And that's something that I don't think people fundamentally really learn or know about until they go through the experience. And we've talked a lot about experience here. You have to go through that to really understand. And I think that's really important. And just, just a function of youth. He hasn't had that experience, so he's speaking from things that he thinks he's aware of, not from things he's actually gone through.

Yeah, that's a really good point. They've had some clients that I've met with that are experiencing this right now. They're enjoy their passive income years, but still very active in creating income. They have nearly a million dollars of equity in their home and not a single bank will lend to them. And so they've worked so hard. They talked to me about how they fast tracked paying their mortgage and they thought it was the best thing to do. And now here they are in need of money and they can't access a single dime of nearly a million dollars of equity in their property. You would have to actually sell it in order to access any of that. And of course that's not what they want to do. It's so important to have someplace that it can be accessed on demand.

Would you recommend to students that are coming in and things like that that there should be something available out there? Like in a university example, right, you're in physics, but one day you're going to be in the work field. Would you think it'd be beneficial if you had maybe like an elective or personal finance or something just to give you the real life skills that once you're in the real world, you know how to deal with finances.

I think the hard part is actually teaching about money effectively. If we could fix that, the other's problems would fix themselves, essentially. Because if you make those courses more entertaining. I'm a physics student. I know when I watch lectures, say like from MIT or something, and they're showing these cool experiments and I'm like, wow, this is so fascinating, right? And then I go to class and it's just like an old guy on a whiteboard. Like really that, that what it's really come down to. So similar way, if you just fix the teaching problem, I think the other problems will fix themselves.

What advice would you give to other students that are coming in and they just want to learn about finances? What advice would you give to them?

Honestly, I'm a young student, I have no advice to give and probably whatever I would give will turn out to be false later on. Like when I want to turn 30, I'll probably be like, wow, this was some BS. But I guess it just comes down to the values that my dad gave me, which are basically just if you can't just pay it with cash, except for a house obviously, but other than that, that's pretty much it. Awesome.

Yeah. Thank you.

Appreciate it. Appreciate it. Thank you. Man.

This guy's actually pretty sharp in a lot of ways, right? He said, I think the hardest thing is to actually just like to teach people about money, right? Because it's just one of those things like how do you get somebody's attention? It really challenging with as a child because I think the experience comes later, but you need it the most early type of thing, right? Like, you just have to go through those hard times. And I say, I wish I would have known then what I know now. But it's not that I wish I would have known then what I know now. It's that I wish I had the experience then that I have now. Because even if I know it, like, this guy knows what equity is, but it sounds like he hasn't actually experienced the process of like, changing equity to liquidity. So it's not about knowing things early in life. It's about actually understanding things early in life and having that experience. So that's the challenging part, I guess, about teaching. Like, I could sit down with a young person or anybody in general, it doesn't matter what age they are. But if they actually don't care about what I'm trying to tell them or teach them, or if they think that they already know, they're not going to learn it anyway, right? But if it really matters to them and then they start to, like, implement the teaching and start to experience it, that's when they're really going to see the benefits of what they learn.