Knowledge does not automatically grant authority (especially with money)

Almost two years ago, I bought my first house with my wife. We didn’t buy it to live in it, but to get other 5 years of tax incentives I’m benefiting from for the time I spent abroad in the past. It’s an Italian law to encourage Italians to come back to their country.

Before buying that house, I was just counting month after month the money in my bank account. The target was reaching the €100.000, for some unknown reason. Maybe because that number looks good. However, I never reached that because of the house purchase.

A bit of time is passed since then, and (luckily) my bank account is increasing again. In the meantime, I realised how absurd the €100.000 target was. How much money I was losing by chasing an insignificant goal, just for the sake of it.

Lately I spent a lot of time studying personal finance. After a few months, I think I understood the basics. If until last year my knowledge was limited to “stocks = risk; bond = safety”, now I understand the why, and how time influences the volatility and the yield, what the ETFs are, and more.

Just like Riccardo Spada says in his book, I learned the 20% that helps me understand the 80% of the things (Pareto’s law). That 20% immediately rang as a bell about some small mistake I did in the past.

For example, when I’ve opened my pension scheme 5 years ago, I had to choose the scheme balance. As I had no idea at the time, I’ve asked a friend of mine - who works in finance for a multi-billion company - to explain me what and why I should’ve chosen. And he told me to choose the “balanced” option.

At 28 years old.

Note: in Italy, the most aggressive pension scheme is generally balanced 60/40 in terms of stocks and bonds. The “balanced” is usually 50/50.

And even worse, I’ve listened to him. Anyone with even a little knowledge of how the market works knows very well how stupid that idea was. And yet, that idea came from a guy who had graduated with top honours from one of the top Italian universities and today he’s a manager of the firm, a multi-billion multinational. But apart from qualifications, I personally believe he’s a smart and a good guy. We have lot of common interests and spend nights talking about anything.

Fast forward to today, I’m realising how little most people seem to know about personal finance. I’ve talked with colleagues and just few of them knew how the pension scheme works. Also, many of my friends have no idea what an ETF is, including who works in finance and economic fields. I’ve also found a wealthy family which is leaving hundreds of thousands of euros on their bank accounts for years without any goal or a particular aversion to volatility. Buy a house, open a saving account, buy bonds.. do a good damn thing!

In short, the financial education seems to be generally quite low, at least in Italy. These findings match what it’s been saying on Reddit as well as by public professional research. I know it’s not taught at school, but on the other hand when you start saving plenty of money and you have life goals (e.g. buying a house, having a baby, paying university fees) it should be natural to spend some of the free time digging into this topic. In Italy, the retirement income for anyone younger than 50 years old is going to be very low, at poverty threshold for some categories. You must be prepared, you must have a strategy. I really don’t understand how it can be ignored.

Nevertheless, I don’t care for strangers’ future, and I don’t feel responsible for my friends future plans neither. I care instead about the economic future of me and my relatives. And here’s the problem: shall I give my parents and in-laws any advice? Should I help them?

On one hand, yes, I should. My sister must have the appropriate pension scheme and should have ongoing investments according to her personal goals. And this is the easy part.

Instead, the hard part are the communication and the psychological safety. The relative must understand what they are doing when they invest, and the ripple effect of their action. If they plan to buy a new car in the next 2 or 3 years, they must prepare liquid money and maximise the yield in that time frame. If instead they will be unable to buy the car because money cannot be taken out of the market, they inevitably will blame you. Even worse, if the stock market does a -40% they will be mad at you that caused that loss and they might panic. Of course I can warn them on consequences before making any action, but how can I know how they will react when facts happen? It’s already difficult for oneself, let alone for others. This is a psychological warfare.

Moreover, communication can be problematic. I’m not an educator nor a teacher, I might be not clear enough or taking certain concepts for granted. Or they might feel as they understood but are not in reality. Lastly, things can be forgotten too.

And here comes the theme of trust. Why should they trust me? Because I’ve read a couple of books and spend time reading on a social platform they don’t know? Would you give your lifetime savings to someone not accredited nor specialised in finance? It becomes hard, and it will lead inevitably to misunderstandings. Moreover, it’s their money after all: they have the right to use earned money in the best way they believe.

_Knowledge does not automatically grant authority.

The only solution I see for my parents and sister is helping them in choosing the right financial product without defining their financial strategy. The strategy is up to them. For instance, if they want to invest on the short term with limited volatility, I’ll help them to choose between similar products with these characteristics.

For other relatives, I don’t think there is a role for me beyond sharing information, if asked.