The Cost of Financial Education

Education is expensive, but ignorance is much more expensive. We tend to look at education when a paper qualification is involved. Some folks do not feel as if they have attended a training course until a certificate is issued. The focus seems to be more on the certificate than the learning. This is the reason students cheat in exams. Their focus is not on the learning but on the certificate.

With financial education, there is hardly any certificate of attendance issued. Education is the learning you take away with you. Often, the learning is informal – you learn the lesson outside of the classroom. Each time you make a financial decision that results in an outcome you do not desire, for example losing money in the stock market, which is valuable education. The issue should be what you learned from the experience. For most folks, due to the emotions one experiences when losing money, we focus on the loss and run away from the stock market, rather than learn what went wrong, how to avoid that in the future, and try again. Most people have become anti-stock markets after the stock market crash some years back. Very few have learned a lesson; which is that they need to study to understand what they are doing before they commit their money. Not everyone lost money in the stock market. For stock prices to move there must be a transaction on that stock.

Stock prices do not move by themselves without a transaction. This means that someone is selling while another is buying. Hence some were leaving the market while others were entering. Take a moment to ponder, why did some leave the market while others were entering? Could it be that the folks leaving know something those entering don’t? For example, just before the Nigerian stock market crash of 2008, foreign investors dumped their shares at the peak and took off before the roof came tumbling down. Newcomers to the stock market, attracted to the bullish market took the hit as the market took a dive toward the bottom. Is it that foreign investors could read the handwriting on the wall?

The signs were all over the place for those who could read them. Share price/earnings ratios were going haywire, meaning the stocks were overpriced. Some companies were moribund in real life while their share prices were doing well in the market. The Bull Run took every stock along with it on the ride to the peak, fuelled by an inflow of rookies who did not know their left from their right. Someone said if you see taxi drivers handing out stock tips, you know the market is heading for a crash. When short men cast long shadows, the sun is about to set.

I used the stock market as an illustration. It could be any market or investment for that matter. The best way to learn is on the job, by actually doing. That is why it is important to take baby steps when starting out. Don’t jump into the pool head first, dip your toes and test the waters first. Every experience is a learning opportunity. When you lose money on an investment, do not lose the lesson. The folks that lost money in the stock market and vowed never again will make the same mistake again somewhere else. Some may even be tempted to return when the market goes on another wild ride, and history is bound to repeat itself because of lessons unlearned.

Regard the money lost as the fee for the lesson. Gain the lesson and give it another try. Don’t run away from the class after paying the course fee. Your money is truly gone when you lose the lesson. It is like paying for a seminar and not showing up. The true cost of financial education is more than the money you spend on books, tapes, seminars, coaches, etc. It also includes the money lost when you try to learn the ropes in investing. When you finally get it, the returns on your investment will more than makeup for the cost of learning the ropes.