You never know when useful principles for personal finance will turn up in life.
When I was about nine years old I entered a competition. The challenge was to create a name for a new computer game. This was years before Minecraft and Warcraft. Way before even Donkey Kong. Yes, it was a long time ago.
Back in the days of an analogue world that had never heard of the internet, competitions of this type could be found in your local newspaper. They followed a simple formula: provide a witty and clever tagline, write down your name and address in the box, cut out the form along the conveniently provided dotted lines, and then post it.
I say “hope” because in this case I was convinced I would win. You see, my nine-year-old brain told me my competition entry had to be a winner. I was asked to create the name of a new ice lolly (popsicle, if you will) based on the theme of space. My entry: “Starship Joystick”.
The rationale went as follows: I’d vaguely heard of the show Star Trek (I’d never watched it) and I’d heard they had this thing called the Starship Enterprise.
I also knew that in order to play a computer game you would need a “joystick”. Seemed obvious to me.
Had I had access to the internet back then I would have been able to Google ideas and realise what nonsense of a suggestion that was. I mean, “Starship Joystick” – what does that even mean?
Did I Win?
So imagine my surprise, shock even, when I picked up the newspaper a month later to find that my name wasn’t among the winners. It just simply didn’t make sense.
In my world of limited knowledge, narrow experience and a belief in my abilities, I was always going to win. But over the years, I’ve come to realise just how incredibly naïve I was. I was seeing the world through my very narrow filter. We all do.
Which brings me back to the world of personal finance. Most of us appreciate that we have gaps in our knowledge. We may never have watched Bloomberg TV and never had any interest in financial news. Or we may not have got to grips with the difference between simple and compound interest, for example.
But most of us also don’t know what we don’t know.
In other words, we don’t realise we have gaps in our knowledge or we are victims of cognitive biases which obscure our understanding and appreciation of a financial situation.
Overconfidence in our knowledge or ability can be a big problem when looking at our personal finances. There’s plenty of research out there to show just how badly investors perform when they get caught in believing their own hype and confuse luck with their own abilities.
Work on the Blind Spots
The more we appreciate that we all have blind spots and limitation, the more we can decide whether to get the professional help we may need, improve our understanding and knowledge, or choose a different option instead.
If only I’d known this when I was nine years old…