I don’t believe I’ve ever received as much bad financial advice as I did from men and women who claimed to be wealthy expats living in Lima, Peru. There is a general rule that you shouldn’t ever accept unsolicited advice on how to navigate financial difficulties. That advice goes double when you’re residing abroad, and it quadruples when the source is a guy who claims to be wealthy but always gets skittish when the bill arrives.
Sooner or later we’re all going to have financial difficulties of some sort. That’s nothing to be ashamed of as the universe has a habit of giving you a nudge whenever you get overextended. Setbacks develop character as well as a personal sense of humility, and are often grudgingly referred to as a necessary “kick in the pants.” There are many people who have achieved great success after suffering through massive financial difficulties. The problem lies in a refusal to acknowledge an irretrievably deteriorating situation, and to cut your losses before they drag you down with them.
Common Perception
There’s something about business that makes it an attractive topic of conversation trailing only the weather, politics and professional sports. In social gatherings, people often loudly brag about the successful investments they’ve made in the past, or the investments that they believe are going to be massive hits in the future. Rarely do people discuss their misses; investments that didn’t pan out, or which tanked after a brief surge.
As a result, the majority of people who have not received formal education on finance, have an extremely skewed perception on what the world of finance actually entails. They’ve heard a few phrases like bankruptcy, or default; but just because you’ve heard the word ‘helicopter’ doesn’t mean you can fly one. Even people who have gone through bankruptcy themselves might not fully understand the process, as there are some situations where a bank tends to step in and take over.
Most individuals don’t have a clue that there are federal bankruptcy exemptions that may allow you to retain a significant portion of your wealth even through bankruptcy proceedings. This and other financial information would be of great benefit to virtually all members of society. The fact that such things are excluded from the basic curriculum of our educational system is quite telling.
Intentionally Misleading
To take things a step further, it might even be the case that our society cultivates people who have an exploitable lack of understanding on financial matters. The whole Millennial generation is waking up to the fact that they were sold a grand deceit on the inflated value of their college education. Many of them are saddled with terrible student loans that they cannot escape and which prevent them from ever accruing any real wealth.
Or, take something as basic as a cell phone. When you can buy a personal computer for $400, it makes no sense that a checkbook sized device costs around $1000. Yet, cell phone manufacturers hide this price by dividing it up into 24 quotas, and people focus on the $40 monthly price tag rather than the long term con. The number of individuals navigating terrible financial difficulties that still tout the latest cell phone available is an indication of the effectiveness of this scheme.
Bad Advice in Peru
The comical attitude that was prevalent when I lived in Lima from the vaunted expat crowd was the constant declarations that the real estate market was a bubble on the verge of an explosion. If you suggested that the Lima market was sustainable for another decade or so, you would have been laughed out of the room. However, although the increase in prices has slowed, the predicted burst by so many self-proclaimed genius businessmen has failed to materialize in a dozen years.
The Solution
This article started off with a declaration that nobody should accept unsolicited financial advice, so it can’t conclude by delivering a convenient, prepackaged, bite sized nugget of information. The best financial advice that I’ve ever received, was an emphasis that each individual is ultimately responsible for whatever financial choices they make. We are all subject to the influence of dominant personalities. Celebrities can come on TV and tell you about a great investment. However, if that investment fails and you get into financial difficulties as a result, the celebrity is not going to be there to bail you out.
It is often said that when you want to discover the truth, you need only follow the money. On a daily basis, we are all subjected to millions of dollars worth of advertising designed to separate us from our hard earned funds. On top of that, there are long term schemes that locks young people into predatory student loans, or 30 year mortgages. Many of these schemes are perpetuated by people we respect and admire.
The simple fact is, when it comes to money, you can’t trust anyone: not friends, not family, not anybody. Financial difficulties are as inevitable as death and taxes, but chances are, if somebody has financial problems, they won’t have any hesitation dumping them off on you. In fact, most of the schemes that you hear about in public places have been hatched to get somebody off skid row, not put anyone on easy street.
You can trust your teachers and parents to teach you math and reading, but you can’t trust anyone to teach you finance. You can’t even trust any one or two books that you read. The answer is out there, but it’s nebulous, and you have to find it yourself. There are no shortcuts, and there’s really nobody you can trust. But if you want to work your way out of financial difficulties, you have to sit down and do the research yourself.
