Forum 1
In order to create and maintain a healthy financial status, there are ten principles in the
text aiming at doing a better financial planning. In part one there are four principles introduced,
including “The best protection is knowledge”, “Nothing happens without a plan”, “The time
value of money”, and “Taxes affect personal finance decisions.” “The best protection is
knowledge” means that it is important to understand whether a financial advice is good for our
own financial health as there are tons of advice out there. “Nothing happens without a plan”
means that people need to realize their financial health by finding out where we stand, setting
the goal, and putting them into actions. “The time value of money” means that time has its
value so that money would be earned by more saving. “Taxes affect personal finance decisions”
means that people have to take taxes into account when planning to make a financial plan.
I think the two theories most people are unaware of, or are afraid to address are “The
best protection is knowledge” and “Nothing happens without a plan.” I believe these two
theories affect each other, as people seldom go through the personal financial planning process
because they are not taught to do so, which means there is no enough financial knowledge.
According to the survey in 2017 conducted by CFPB, many Americans live beyond their means.
It found that about one-third of people ages 30 to 49 had more credit card debt than saving.
Based on psychological theories, Doctor Shahram Heshmat indicated that there are several
reasons why people spend too much. The first reason is they neglect the knowledge of
opportunity cost. When we buy something, it means that we give up something in the future,
which would lead to a worse financial health. The second reason is people tend to overspend
on “special occasion.” On special occasion like birthday or Christmas, people won’t keep track
of how much money we have, which leads to a financial insufficiency.
The third reason is spending on credit card is much easier than spending hard cash.
According to the research conducted by Ariely, paying cash is more painful than paying with
credit card. I think it is easy to understand because when swiping credit card, the only thing
would change is the figures in the account, which might be harder to hurt the feeling than