Each year at this time the Financial Post has a series labelled “Junk Science Week.” As you might expect it deals with unsupported and unsupportable pseudo-science.
Someone should run a similar series for “Junk Financial Advice Week.”
We can prevent or at least minimize harm, but we must work at it. Science and Finance are both subjects that the average person has but a tiny fraction of the available information available to them. That leads to magical thinking.
Consider sci-fi author Arthur Clarke’s third law.
“Any sufficiently advanced technology is indistinguishable from magic.”
In finance and financial planning we can imagine a similar idea.
“Any complex financial product is indistinguishable from a black box.”
There are many black boxes in finance and personal financial planning today. Be aware.
There are consequences in both fields. Carl Sagan in “The Demon-Haunted World: Science as a Candle in the Dark” offers a clear idea.
“We’ve arranged a global civilization in which most crucial elements profoundly depend on science and technology. We have also arranged things so that almost no one understands science and technology. This is a prescription for disaster. We might get away with it for a while, but sooner or later this combustible mixture of ignorance and power is going to blow up in our faces.”
Is financial planning so much different? Future wealth will depend on planning because the world is becoming more complex and intrusive. Financial common sense is a depreciating asset. Well meaning governments understand little of the marketplace. Few people, understand the fundamentals. Many believe things that our grandfathers would have treated as nonsense. Sagan’s observation applies.
“.., sooner or later this combustible mixture of ignorance and power is going to blow up in our faces.”
The last idea comes from Ben Stein’s father, economist Herbert Stein.
“If something cannot go on forever, it will stop.”
Delusional beliefs and their expression in policy and law will stop at different times for each society and possibly for each individual.
The Mission Impossible instruction, “Your mission, should you choose to accept it, involves finding a way to protect yourself and to the extent possible protecting society.”
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.