Everything Starts With What You Don’t Know

Everything you know today was unknown at the beginning . . . from learning to walk and talk, how to read and write, arithmetic and mathematics, driving a car, and the list goes on.

Consider that financial literacy is not part of the educational curriculum. This is tragic when the success of your adult life depends on wielding it with competency. That creates a significant disadvantage when it comes to understanding banking and finances, budgets and cash flow, secured and unsecured mortgages, and leveraged versus unleveraged investing.

In 2001, I started with a task to set my financial literacy benchmark. The task was to review a Turks and Caicos Prospectus. My job was to highlight everything I did not understand, and it started with the title on the cover page. Over 97% of the 80-page document was highlighted. This revealed my knowledge gap. Then, line by line, we translated legalese into plain language.

First, the Prospectus was illegal. It had not been approved by the Canadian securities commission even though it was being promoted at an investment event in Vancouver. Second, there was a strange one sentence paragraph in the middle of the document that stated there would be no distribution of profits unless the fund was able to secure the entire capital raise. In this case, the entire document was voided by that one sentence. The fund had no intention of returning capital to its investors. The people who wrote the prospectus understand that very few investors read such documents cover to cover.

It is the job of the investor to ask questions on anything that requires clarification. Answers should not be overly complicated or vague. The explanation should be clear and simple for you to understand such that the information will assist you to make the best financial decision for your goals, and not subject to someone else’s hidden agenda. Caveat emptor.