My Financially-Clueless Friend

homer

“Huh? What is compound interest?”

I stared at my friend in disbelief.  My jaw hung open.

“What do you mean what’s compound interest?”  I asked him.

“What’s that la? Simi sai interest is that?” he asked again.

At first I thought he was joking.  But then I realised he wasn’t.

I then proceeded to spend the whole dinner explaining to him what’s compound interest and how he could make use of it to generate money.  I summarised that it’s basically using money to make more money.  I also emphasised that the key to make full use of compound interest is to start investing as early as possible.

At the start, the cash may be small and insignificant but over time it could snowball into an unstoppable force.

His eyes widened as he suddenly understood the Math.  He nodded his head intently.  He was probably calculating how many years of his life he has left till retirement. He was already in his mid-thirties yet he had never invested in anything in his entire life.

All he had been doing is letting his money sit in his bank, letting it get eroded by inflation…

Wait…. does he even know what’s inflation?!!?
Anyway, we proceeded to talk about stocks and shares and I explained to him how it works.  I also had to explain what are dividends and how he can make use of them to generate passive income for himself.

His eyes got even wider.

Suddenly, he realised a world of possibilities.
He realised that he could simply improve his finances with simple, smart decisions.
His hedonistic, spend 90%, save a paltry 10%, bachelor lifestyle is being put to question.

That night he went home with a determination to improve his finances and learn how to invest.  Of course I directed him to the proper mentors so that he could further his learning.

We may laugh at my friend for being financially-clueless….
But then I look around and wonder…

How many others are just like him?

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3 Comments

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  2. Alyssa

    I am probably not as clueless as your friend, but am definitely clueless about investments. For someone without any finance background and investment knowledge, are you able to guide me where to begin? I believe everyone of us yearn to be financially-able with passive income outgrowing our 9-5 jobs. Thank you and I hope to hear from you soon 🙂

    Reply
    1. Jerry (Post author)

      Hi Alyssa,

      You can start by reading Peter Lynch’s One Up Wall Street or The Little Book that Beats the Market. Both are very good books to start with and help you to understand investing better.

      Reply

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