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My Mother Made Me Financially Educated Before I Became A Teen

I was reading this wonderful article by MMM and it reminded me how almost everything I know today was taught to me sublimely way before I was a teen.

Like many other kids, I received a small amount of money every month from my parents. It started with 100 Rs a month and grew to 500 Rs a month over the years. I stopped receiving this amount completely when I turned 18.

My mother encouraged me every month that I don’t spend all the money that she was giving me. She further encouraged me that if I am able to save 1000 Rs, I can give the money to her and she will give me an additional 10 Rs a month or roughly 12% gains per year.

Before I became a teenager, I was able to save up to 5000 Rs from the pocket money, Eidi and other cash gifts I received from my relatives. For handing this over to my mother, she gave me an additional 50 Rs every month in pocket money.

In hindsight, if you think about it, I wouldn’t have saved more than $100-$200 through-out my childhood. In addition, I wouldn’t have generated more than $100-$200 in compounded interest. Despite making no significant amount of money, I learnt the number 1 way of getting wealthy. I learnt how the money can do the work for you. That each dollar is an employee that works non-stop 24/7 to get you more employees every day. It’s even better than a pyramid scheme.

This, I think, is the single biggest differentiator between people who are able to get wealthy and those who do not. How much wealth you’ll accumulate over your life is never determined by how much income you make. I’ve known enough broke people in my life who make over $10,000 each month and still struggle to do well financially.

They do every thing in their power to make contributions in the form of “sweat equity” but make no progress whatsoever to make contributions in the form of “financial equity”. Sweat equity can get you a lot of income, but it’s often the financial equity that buys you the financial freedom.

I was lucky to be taught this way early in my life. It breaks my heart to meet people who make it to the top percentile as far as income is concerned, yet fail to buy themselves financial freedom. I hope I’m able to pass the same learnings to the readers of this blog as well as to my child.

Currency? Store of Value? Uncorrelated? What is Crypto?

During the market meltdown that started about 10 days ago, crypto-assets crashed the most. With Bitcoin going as low as $3500 from the high of $8000 in a single day posting the largest value drop since inception, everyone wondered what is Bitcoin?

People didn’t expect this drop to happen. Here’s Brian, CEO of Coinbase, tweet about this

People wondered if Bitcoin isn’t currency (volatile), or store of value (posting massive losses in value), and it’s also not uncorrelated with stock markets or other assets, then what is it?

Personally, it made me wonder that too. If it can’t even act as an hedge against the other markets, what is it? This drop affected my confidence in this asset-class. However, only a week later, my confidence picked up, at least by a bit.

During the first 3-4 days of the meltdown, I started to see that gold is losing value too. What is often seen as the safe haven during financial turmoil, was losing value too. The oil markets crashed as well, although that likely happened for a different reason, but it did. There was pretty much nothing that didn’t lose value.

What I concluded in the end is that during a financial crisis like that, people sell everything to move to cash. It doesn’t matter what asset class. It doesn’t matter what safe haven. All assets are sold so people can sit on cash and take their time to understand what’s happening before figuring out what to do next.

In the next week, I saw crypto-assets and Bitcoin rebound by a lot. It is trading above $6500 at the time of this writing. It is still below where it dropped from, but has recovered by a lot. Meanwhile, the stock market hasn’t recovered at all. The S&P 500 index for example is still down by 30%. What I’ve concluded from that is while all assets are correlated at the time of turmoil, only 10 days later, I can see crypto-assets moving in a different direction. I feel that in the coming weeks and months this uncorrelation will be very well established.

And that would be the first real world test that this asset-class would pass.