According to Ghostbusters II, the world will end today. Video here.
I have no idea how many times people have predicted the end of the world, but I do know the percentage of those predictions that have been right. 0%. Perhaps there is value in persistence and eventually someone will be right.
If you know things that change the paradigm, you should work at finding situations that benefit you. Like the Black Swan idea. I doubt there is a bigger Black Swan than the end of the world, so perhaps we should notice the possibility.
If we know the world was ending on a specific day, our normal perception of value and risk is inadequate.
- Saving is for fools.
- Accumulation for the impaired.
- Debt is wonderful.
- Frugality is clearly not in the discussion.
- Market fluctuations are irrelevant
When you think about it, having an unused line of credit on the day the world ends is just poor planning. The smart people will have borrowed to their limit and spent the money on fun times before the big day.
Given the way governments in the US and Canada behave, particularly Ontario’s group, you have to ask yourself, do they know when the world will end and intend to have no credit available around that time? Sadly, I don’t give them credit for being that capable.
The interesting part comes for people who see two choices to believe.
- The world will end some day soon, or
- The world will continue possibly forever.
The strategic vision that the world will last forever commands substantially different immediate actions. Competent financial plans include:
- I must pay my debts off someday, so maybe I should not incur this one today.
- I may wish to have food and shelter every day, perhaps I should send some money to the future to pay for the days after I stop working. I cannot spend everything today.
- My existence might end before the end of the world and I may have things undone. I should shed that financial risk to insurance companies.
- If I start early, the investment yield on my savings will generate most of my future accumulation. If I start late, it must be capital and that is money I might have preferred to spend some other way.
Financial planning is about balancing resources across the past, the present and the future. There are two implicit assumptions.
- I will live for an unpredictable length of time, but not forever. I have a plan to distribute what is left over, or to create wealth if I die too soon or become disabled.
- Borrowing to the limit will not turn out well unless the world ends.. We have no guarantee that it will continue, but based on past experience, that is the way to bet.
Now explain governments and their fiscal management.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.