The European debt crisis is so confusing, it’s like Greek to me. lol 😀 As of yesterday Greece became the first developed country to default to the International Monetary Fund (IMF) to the tune of €1.6 billion. Overall Greece owes about €300 billion to all its creditors.
A referendum in Greece will be held this upcoming weekend to decide if the Greek people would like to stay in the European Union and continue using the Euro, or exit the EU and revert back to their old national currency. What happens next is the million-euro question. A Greece exit (Grexit) should not have a large direct impact on other countries. But here are some lessens we can take away from the predicament facing Greece right now.
Nobody wants to see a disastrous oil spill. But when there’s a large solar energy spill, we just call it a nice day. 😀 ☀️
Investing in green energy has been a tough sell in the past because it wasn’t economically viable. But we have reached an inflection point where the a risk vs reward for renewable energy has become an attractive option for investors looking for relatively safe, and long term returns. Renewable energy comes from a source that is not depleted when used. There are many forms of renewable energy such as solar, wind, and hydro.
People have harnessed the power of the wind for thousands of years, using sail boats propelled by wind energy for transportation. For centuries we’ve also used wind mills on farm to pump water for irrigating crops. And now it’s time for wind power to go mainstream and become a bigger part of our society.
European countries are the leaders in the space of renewables. Last year UK wind power smashed annual records generating 28 terawatt-hours of electricity, which is enough to supply the needs of more than 6.7 million UK households. Renewables also provide Germany with a lot of clean energy. According to Berlin-based think tank, Agora Energiewende, nearly 26% of Germany’s power generation comes from clean sources like wind. 😀 Electricity output from renewables has grown 700% in that country since 1990. As Europe’s largest economy, it’s a pretty big deal to see Germany’s government and its people invest so much into green technology. Then there’s Denmark, getting 40% of it’s overall electricity from renewable energy sources. The latest figures put the country well on track to meet its 2020 goal of getting 50% of its power from clean sources. Denmark has long been a pioneer in wind power, having installed its first turbines in the mid-1970s, and has even more ambitious aims in sight, including a 100% renewable country by 2050. Now that’s ambitious! But it’s totally possible. Last year, onshore wind was also declared the cheapest form of energy in Denmark.
Receiving a higher educational degree affords many opportunities for future careers and for earning a larger salary. Attending a college or university after graduating high school is a path many students choose to take. While a college degree opens many doors for success, it often comes with a hefty cost. Tuition costs are often on the rise, and many students cannot afford to pay for school upfront or during their studies.
Student loans are a reality for many, and loans can quickly accumulate. Being readily informed about student loans in advance can eliminate some of the burden after graduation.
A Different Generation
Thirty years ago, those wanting to pursue a college degree worked hard to afford it. Money was saved many years in advance, and people sacrificed wants to accrue a solid financial ground to go to college.
As generations evolved, the mentality of being deserving of a college education took over. With this way of thinking came generations of graduating high school seniors unprepared to pay for their continuing education. Therefore, student loans became popular.
College students soon learned that borrowing money from the federal government or a private lender allowed them to pay for college without having to save in advance. Money was spent easily without realizing that it would all need to be paid back, plus interest, shortly after graduation. A new problem quickly surfaced.
Reality vs. Fantasy
Many recent college graduates have the idealistic dream that the perfect job with a fantastic salary is just around the corner. An apartment with a view, a great new wardrobe, and a new car are surely just a paycheck away. Unfortunately, when that unexpected first bill for those student loans taken out four years ago arrives, reality quickly sets in.
Even if a graduate is fortunate enough to land a job in his career, money coming in will likely go out even quicker. A crippling student loan payment can hamper a person’s budget or even lead to more debt if a credit card is utilized to make ends meet.
If a student loan is necessary, however, being informed about different student loan options and choosing the best fit for your personal needs is critical. Consulting online resources, such as SimpleTuition, to research different options for student loans is extremely helpful.
Sitting down in the early years of high school to create a plan for paying for college is an excellent way to proactively combat student debt. Students and their parents are making the decision to have the entire four-year college experience paid off before even graduating high school.
This takes a lot of planning and some sacrifice on the part of the student and family, but the benefits far outweigh the drawbacks. For one, completing college with no acquired student loan debt will provide a larger amount of money to be available for other expenses.
Interest on federal student loans often does not begin until after college graduation. However, once the interest begins, a majority of the payment will first be applied to the interest. The principal is hardly touched at all, leading to a longer time necessary to fully pay off the loan.
College is an excellent opportunity to learn and grow into a more educated person. While cost is an important factor in choosing to attend college, money should not inhibit anyone from earning a higher degree. Pre-paying for college or taking out a reasonable amount of student loan debt are both feasible options for students.
Economics is the only profession where you can gain great eminence without ever being right. Remember earlier this year when just about everyone anticipated higher interest rates, but then the Bank of Canada slashed rates instead? If mainstream economic predictions were right interest rates would be a lot higher by now, our wages would have grown to keep up with the cost of living, and Vancouver real estate would become more affordable. But that is clearly not the world we live in today. Nobody has a crystal ball to see into the future. If they did, the only people winning the lottery would be fortune tellers. It’s funny how the same people who laugh at fortune tellers take economists seriously. 😛 Okay, enough bashing on economists. They are actually good and respectable professionals. And we need them to make weather forecasters look good. 😛 Sorry.
Economics is complicated, but it doesn’t have to be hard. One way to understand the current situation we’re in is to read more history, and fewer forecasts. If we’re going to buy a specific stock we can look at its historical chart and determine what events caused it to move higher or lower. Reading stories or biographies of famous investors like George Soros, Peter Lynch, or Benjamin Graham can give a sense of how the smart minds think about situations and prepare us for when history repeats itself.
Financial markets have a very safe way of predicting the future. They cause it. 😀 But don’t count on anyone to tell us when and how the next recession is going to happen. My Apple shares are up 50% over the last year, some bulls believe it still has room to rise. But bearish pundits think the stock market could correct at any moment. Some think the Canadian real estate market will remain elevated, while others below the bubble will burst so it’s better to rent than to buy right now. At the end of the day all of those are just peoples’ opinions. They’re only right until they’re wrong.
There will always be conflicting forecasts. Markets can rise and fall, but not do both at the same time. There are two sides to the same coin. When advocates of one side are right the other side loses. But there’s actually a third side to the coin that not everyone knows about; the edge! That’s where we want to be. We want to straddle the edge so we can take advantage of both sides, be it bullish or bearish, and spread out our financial risk. We can’t predict the future but we can sure prepare for it.
Many people are unaware that they are victims of the Dunning-Kruger effect, which is a cognitive bias wherein unskilled individuals suffer from illusory superiority, mistakenly assessing their ability to be much higher than is accurate. Conversely, highly skilled individuals tend to underestimate their relative competence, falsely assuming that tasks which are easy for them are also easy for others. 😉 A study by David Dunning and Justin Kruger of Cornell University concludes: “The miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others.”
Often when we’re bad at something we don’t even have the knowledge to know how bad we are. We witness this illusory superiority every day. 80% of men and women drivers surveyed in a study said they would rate themselves as above average drivers, lol. 😆 Boats become grounded when their captains overestimate their crew’s abilities. Confidence is good, but overconfidence can sink the ship.
Our financial situations can sink as well if we suffer from the Dunning-Kruger effect. Many of us lack the basic financial knowledge to even realize that we’re making mistakes. It’s this lack of understanding about things like the stock market, compound interest, and inflation that can lead us to erroneously believe we’re making the right decisions when in reality we’re only deluding ourselves and setting us up for potential failure.
Overconfidence is the most dangerous form of carelessness. And when it comes to our money we can’t afford to be careless. So learn something new everyday. An investment in knowledge pays the best interest, after all. Gain experience to combat ignorance. Become better at managing money. And in the meantime, heed the wise words of the ancient sage, Confucius: “Real knowledge is knowing the extent of what you don’t know.”