Kiwi Farms

In my real life interaction with younger millenials and zoomers, I have noticed something in common with them I had when I was their age. I had no idea wtf money was, how debt functioned, how to save/invest, or even what a checking account was. All these things I kind of just muddled into as I got older, and I painfully wish I knew at 18 what I know now. So for all our younger kiwis, here is my basic financial literacy post. If I make any mistakes, could someone please call me a retard? I genuinely want this to be a useful (and non technical) resource for someone to learn the basic functions of their finances. Its not meant to be a micro economics 400 course.

WHAT IS MONEY

Money is a medium of exchange that represents a portion of the value of the entire economy. In the past it was based upon real life things like Gold. Now it is backed by meme magic. Won't say anything more beyond that. I have found the best way to think about money is not in gold, meme potential, or what its number is, but rather in steak (or some other food you really love for your meals). At a fundamental level money lets you buy the means for survival. So. I have 50 dollars in my wallet. I "could" buy this hot new video game, or I could buy 5 steaks at 10 dollars a pop and eat steak for most of the week. I could spend 50 dollars at the bar on two beers and a steak....or I could I could spend 50 dollars on 12 beers and 3 steaks at home. Thinking about your money in the terms of what its actually worth in real life items of immediate impact to you is a very good way of not ending up overspending. This is the bedrock foundation you need to grasp. What is the ACTUAL value of your money. Until you grasp that you cannot appropriately manage your risks and rewards with it. Both in its acquisition or spending.

WHAT IS DEBT

Debt is also money and don't let anyone ever tell you otherwise. Debt can also buy you a steak dinner. The key difference between debt money and your earned money is the debt money belongs to someone else. They are giving you their money for you to use in exchange for a fee. This fee is measured in interest charges, commonly appearing on your credit card form or loan application as APR or annual percentage rate. What this means is the person who is giving you the money will charge you based upon the average amount of debt you have incurred on the account on the year. The math can get complicated, but a simple way to think about it is if your Credit Card charges you a 27% APR, and you use that account to buy a really good steak dinner at 100 dollars, the actual price of that steak dinner is 127 dollars.

On the surface this may seem like a terrible deal. You are spending more money (ultimately) on an item then what its worth. But the the thing is you may not have enough money to buy something that you may actually need. Be it that steak dinner (with a potential romantic partner) or a new alternator for your car that you need fixed that day so you can go to work in the morning, because the damn thing broke 3 days before payday because of course it fucking did. The fee on using the debt money can be thought of the convenience charge, which itself has value. This also becomes important when it comes to buying a car, or a house. Very expensive things that are very difficult to purchase for most individuals.

In all of these things its very important to look at what the interest charges are going to be on any debt instrument. Be it a car loan, a credit card or if you are unimaginably desperate, a payday loan. One thing to lookout for is the "introductory offer". Things like "no money down" or "no interest for the first X months". These are often offers financed through retail stores very desperate to boost sales. They pay a fee to a bank to offer the loans at "no interest" in order to convince you to buy. The bank takes that fee, offers the loan and also crosses its fingers that you won't pay off the debt after X months, allowing them to charge both you and the retailer. So, you buy a 1500 dollar gaming computer using the Best Buy store card on an introductory offer of no interest for the first 12 months...So long as you pay $125 every month to the card at the end of the 12 months you will only have to spend 1500 dollars for the thing. With the bonus of not having to pony up 1500 dollars on day one. Beware though, the bank does not want this outcome, and it will offer an absurd monthly payment far, FAR less then 125 bucks. Probably closer to 25 bucks. Why? Because at the end of those 12 months they can charge you the APR, and if its say, 29.5%, well...You spent 25 dollars every month on your loan of 1500 dollars. Which comes to 300 dollars. Meaning your yearly debt balance will be 1200 dollars. Congratulations, the Bank can now charge you another 354 dollars on the value of the loan. Meaning your brand new gaming rig went from 1,500 dollars to 1,854 dollars. Big oof.

DEBT TRAPS

The above is the example of a "debt trap". Where if you spend too much using debt money and don't properly account for it, you begin to accrue ever greater interest charges per month. This is insidious because high interest payments not only make it harder to pay off the balance, they run the risk of eating your disposable income and perversely forcing you to take on even MORE debt to make ends meet. This is something known as Debt Peonage. Where the banks essentially end up owning your ass. There are methods to get out of it such as bankruptcy, but its imperfect, can lead to a garnishment being put on your wages, assets you own being seized, and also being cut off from using debt in the future. Which might see silly considering it got you into this mess, but remember, debt is money. And when your alternator breaks 3 days before payday, its unbelievably useful to have. Its very important to be mindful of the way banks and lenders structure things.

A very common debt trap is for the banks to offer "rewards" for using their card to buy immediate day to day consumables like gas or food. Getting a couple cents off the gallon of your gas may seem like a great deal until you consider those nasty interest charges. You buy 15 gallons of gas at 2.25 a gallon, down from 2.28 because you used your Exxon rewards card, powered by Visa. Had you paid in cash, those 15 gallons would have been worth $34.2. But because you used your credit card, it only $33.75. And it also added 33.75 points the rewards program! Good deal, yes? No. Because those 33.75 rewards points translates into .34 dollars in actual value. You also only saved 45 cents on the transaction. Meaning your credit card netted you a transaction benefit of .79 dollars. The bank will then charge a 24.5% interest charge on that transaction (Using APR, don't start math sperging econ majors, broad strokes here). That means the bank will charge you 8.27 dollars for the transaction. If we subtract your .79 dollars benefit from this the end price of your transaction is not 33.75. Its 41.23. In other words, even with your "benefits", you paid more then SEVEN dollars extra for your gas. Now imagine doing this for every time you gas up, over an entire year. Those interest charges get bigger...bigger....bigger....and pretty soon you are fucked and the bank owns you.

This is why every financial advisor on the planet will tell you to NEVER use debt for consumables like gas or food. The stuff you buy every day. Now you may be asking "but rich people seem to buy with debt all the time!". And yes, they do, but there is a very key difference between their credit cards and what is given to the plebes. Very often they will be using credit cards with annual fees that cover administrative costs and come in at VERY low APR. More like 7 or 8%. rather then industry standards of 24-32% for retail customers. This might still seem like a bad deal for the rich people, until you consider their money is large enough to make money. They are giving a million dollars to the bank, who in turn loans it to you, the plebe at 30% APR. The bank then pays them a fee equivalent to 10% of this. Meaning even if they use debt at 8%, they end up making MORE money by the fact their actual cash is earning faster then their debt is accruing interest. And this does not even get into things like American Express cards that don't charge interest at all and instead charge the vendor themselves for the honor of letting them swipe it.

Don't be an idiot and let these people fleece you. That said its super important you use debt money as its integral to the economy and is a powerful (but dangerous) tool. If you are just starting out, I recommend getting a credit card and then buying yourself a WOOHOO item. Like a new gaming console, computer, TV, whatever, and then paying it off in a reasonable amount of time. Responsible and frequent use of debt opens the doors to larger accounts and better interest rates. Which are critical tools to have at certain points in your life.

BANKS, CHECKING ACCOUNTS AND SAVINGS ACCOUNTS

In the modern setting a Bank exists to convert your earned money into debt money (as explained above). When you give your money to the bank, you are presented a whole bunch of forms you will not read and even if you did will probably not understand. They could condense it down into this post though. When you give your money to the bank you are LITERALLY giving it to the bank. Your bank account might say you have 10,000 dollars in it. But you don't. That 10,000 dollars was converted into debt and loaned to jamal so he can buy gold plated rims for his escalade at 28% APR. Both Checking and Savings accounts are used for these purposes with a very key difference. A Checking account is used for general funds and the bank will not give you a cut of Jamals interest charges on his rims. This is because you need to use that money all the time to buy things like gas, food, or flowers for m'lady. Since the money is no longer there (it was turned into Debt which became rims for Jamal), every time you fill up your car with gas using your debit card the bank has to take money from someone elses account to make good on your transaction. As consequence, the bank will not share the money its making off of Jamals dumb ass.

Now, if your money is in a Savings account that is something else. You cannot use your savings account money to buy gas. Its meant to stay there and depending on the bank, moving it out will incur a fee. However, if you leave the money alone in the Savings account, when the Bank gives your money to Jamal you will get a cut of the Money they get from him in interest charges. The amount of which is determined when you set up the account. This is how money makes money, and how you can ultimately develop "Fuck you Money". The average interest rate on a savings account according the FDIC is 0.05%. Which is not alot...unless you have say, 10 million dollars in it. That is 5,000 dollars a year for money just being parked in the account. And trust me, if you are willing to give a bank 10 million dollars, they will give you far better rates then the .05% average. These are the accounts where you get to sit in a mahogany room, your lawyer reads over the paperwork and the bankers offer to suck your cock in exchange for handing over the cash. Remember the above section on why Rich people use credit cards rather then their own cash.

IRA's, MUTUAL FUNDS, INVESTING, ETC

So, how do you get fuck you money? You don't. This not a get rich guide. This is a guide for how money works. If you already HAVE fuck you money, then take this advice on how to not lose it. Don't be that retard grandson of a millionaire businessman who instead of parking his trust fund somewhere safe and living off Jamals dumb financial decisions you instead pay fees to turn your trust fund into actual cash and then buy hookers and blow while racking up retarded debts at retarded APR. This also goes for people who manage to build a successful business or make good long term bets on investments and build their money up to the "fuck you" level.

For the rest of us, there is the magic of compound interest and putting money to work so that when you turn 65 you don't have to work anymore, or even better, have built up enough money to give to your kids so they can take the ball and turn it into fuck you money. A big hinderance to building your money is the fact that every year the Government takes their pound of flesh. However in the United States (and other places, depending) there has been created an exception known as the Individual Retirement Account. The IRA is a type of mutual investment fund that you pay into. Its entire premise is based around the idea that no matter what blips and bops occur in the stock market, the general trajectory of the economy is to increase in value as more goods and more people are introduced into it. You can think of this in the form of the rice and the chessboard parable. I put 2 grains of rice on the first square. Then 4. Then 8. Then 16. Then 32. By the time you reach the last square, your rice grains are 2^63, or 9,223,372,036,854,775,808 grains. So say you invest some money in your IRA every month, starting at 18 for 50 years. Where will your money be when you retire at 68? Say the amount is...200 dollars a month. There are plenty of calculators to do this. I used this one. https://www.bankrate.com/retirement/calculators/traditional-ira-plan-calculator/ . You would have over a million dollars to live your golden years off of. Or give to your children. Now say you also used debt to buy a house. And over that time you paid it off. That house was worth 300k when you bought it. Now it might be more or less, but either way that now brings your total assets to 1.3 million dollars. Enjoy golfing and having Shaniqua wiping your ass in the old folks home. The best part is IRA's are not taxed the same way regular investing is.

If however you want to go the investing route and pray to be the next warren buffet (you won't), then focus on good bets and avoid overly speculative day trading. Long positions are always a better bet, and if you can start accumulating stocks that pay dividends, you can start having your money make money. Dividends are a method by which companies pay their investors a share of their profits. This can often end up making more money on average then what you would make by parking your cash in a savings account so the Bank can help Jamal buy some rims. It does carry its own risks. Your bets could blow up in your face and you lose everything. This can be hedged by joining a mutual fund. A mutual fund functions somewhat like an IRA, but it less well regulated, and subject to more taxes. The trade off though is that it ostensibly can provide higher returns while reducing risk due to its ability to distribute the mutual pool of money across multiple companies and assets. Its important however that you pay attention to just what your fund is doing. If for some reason they decided to put all your money into a short position on Gamestop for whatever reason, you might want to start asking questions. While a mutual fund has a fiduciary responsibility to not be a retard with your investments, this does not mean they won't make retarded moves.



Hope this has been helpful to someone. Would love for other users to help add their thoughts. My hope for this post and thread is for some dumb 18 year old heading out into the world to read and realize just how woefully undertaught he or she is about these things.