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Financial Literacy

Financial Literacy

Opportunity Cost

There’s one other thing you have to consider to do fair math. What if you had invested the $8,000 Taurus money instead of having had it tied up in the car during those 4 years? Well, one could argue that there are too many risks involved in you driving a car; that you’re a kid, and you don’t really have half a clue yet how to drive, nor of all the dangers lurking out there to harm you/for you to harm.

So maybe it’s fair to say that the risk of your driving is analogous to that of investing in a generic basket of equities in the stock market – i.e. just buying an index fund of the S&P 500. The major ones. Google, Heinz Ketchup, Coke, Ford, and so on.

The market has a nice run and makes an average of 10% a year gains for 4 years; said another way, the market is 40% higher after 4 years. For this pithy example, we’re gonna ignore commissions and taxes – you don’t pay much in taxes anyway, so it’s not a big ignore.

If you had invested your $8,000, it would have produced $3,200 in gains for you. You’d now have $11,200 in your pocket if you’d found other means of transport that was free. Like if you had mastered that levitation or teleportation thing.

Obviously “free” isn’t an option. But maybe there’s a bus. Or a bike. Or a pal with whom you split the cost of the car.

No matter what you decide, you just oughta know what you’re spending and what things really cost. Otherwise, you’re going to be in for a rude awakening. And if there’s one thing you hate, it’s when awakenings don’t exhibit good manners.

OK, enough on cars.

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