The Basics

So, on today's Planet Money podcast, they ran a review of Ali Velshi's new book: Gimme My Money Back: Your Guide to Beating the Financial Markets. Now, I'd never heard of Ali Velshi before that moment, and it turns out that he's a financial reporter on CNN. Mike Pesca did the review, and he pulled no punches. The basic jist of his assessment is that the book doesn't live up to its title, and is aimed at an audience that is more or less completely financially illiterate (people who don't understand the basic concept behind inflation, for instance). What's interesting is that if you go to Amazon, and look at the reviews there, you pretty much get the same thing. The reviewers seem to sort themselves into three basic, but not mutually exclusive, categories - Fans of Velshi's reporting in CNN, who are happy to have him share some of his wisdom in print form; people who would describe themselves as financially illiterate, who are happy to have things explained to them simply and who like to think of themselves as empowered and able to make knowledgeable decisions about their financial futures; and people who see the book as a waste of time, and an insult to the intelligence of anyone who understands the basics of finance and investing.

I can understand the first group, and the third group, but the second group caught me off-guard, perhaps because, I don't see myself as being particularly financially sophisticated, and so I'm impressed (and a little concerned) when I come across people who are less well educated about the subject than I am. Like many people, I suppose, I'm more likely to be critical of others in areas where I see myself as being unexceptional. Knowing the basics of finance and investing is a very useful bit of information, and it helps to make sense of the way people and businesses act when it comes to money. But for most people, the economy is something of a black box - they don't understand how it works, and really, they don't care - they just want it to work. But since we're all a part of it, it does, I think, work better when we all know something about it.

When housing prices were still rising like they'd been shot out of a cannon, a co-worker exhorted me to hurry up and get on the bandwagon. "I'll wait," I told him. My reasoning was twofold. First, being a contract employee, I couldn't guarantee my income for more than a year or two out. It seemed unwise to commit to thirty years of mortgage payments knowing that my current income stream had a finite duration. Secondly, I understood that housing prices were rising much faster than the rate of inflation - surely they couldn't go on that way forever, I reasoned - they had to at least even out for a time. (Looking back, I realize now that I have an incredible gift for understatement.) But my co-worker was adamant in his opinion that I was cutting my own throat, and locking myself out of the housing market forever. I don't know if he's underwater now on his home, but it seems that a better understanding of what was driving housing prices on the part of people like him may have kept the bubble from overinflating quite so badly.

In that regard, Velshi's book does do us a service. It inspires people to learn the basics, and it gives them a relatively painless way to do so. It may not benefit the rest of us directly, but at this point, we'll take what we can get.