Fool me once, shame on you. Fool me twice, shame on…???

Posted by Robin Yang in Financial History

Synopsis: Financial history is full of boom and bust. To prevent the next financial crisis, we must teach our children about the basic of finance. Learn how to talk to kids about money in a fun and exciting way.

In late 2009, I was at an investment conference where Jamie Dimon, CEO of JP Morgan Chase, was the keynote speaker. He appeared to be fit and confident. Who could blame him? His company seemed the only bank that had survived the recent financial holocaust.

“My daughter in college called me the other day,” Mr. Dimon smiled into the microphone, “and she asked, ‘Dad, everyone is talking about the financial crisis on TV. What is a financial crisis?’” The entire audience gawked at him, anticipating something profound.

“I said,” Mr. Dimon continued, “‘that’s just something that happens every four or five years.’” The auditorium erupted into laughter.

I laughed but then felt a sudden chill. Financial crises happen every four or five years? Seriously? As a technology analyst on Wall Street, I lived through the dot-com bubble-bust Eight years later, as an emerging markets analyst, I witnessed firsthand the subprime crisis reverberate throughout the entire world. Crises happen every four or five years? How scary is that?

After voraciously reading volumes of books on the causes and aftermaths of financial crises, I realized that Mr. Dimon was right: History does repeat itself every four or five years. But why? Americans have a saying: Fool me once, shame on you; fool me twice, shame on me. But somehow sage sayings do not seem to apply to the financial market. Why have we been fooled repeatedly and fallen into financial peril every four or five years?

Maybe a similar Chinese saying would shed some light on why we fail to escape repeated mistakes: Bitten by a snake once, one suffers fear for ropes for the rest of his life. When we suffer trauma once in life, our natural tendency is to bury that memory to avoid further pain. Unfortunately, when human nature is applied to finance, it tends to bring us repeated disasters.

When bills pile up, many of us are inclined to sweep them underneath the rug rather than deal with them head on. When the balance in our bank accounts seems to be far lower than what we thought, we are more comfortable ignoring it than digging out all receipts, punching our calculators, and balancing our checkbooks to the penny. When we get burned by a financial crisis once, we avoid thinking about it or learning from it. Thus history repeats.

Unfortunately, time does not heal financial wounds. Rather, it aggravates them. The more aversion we have for dollars and cents, the more disorganized our finances become and the more gut-wrenching it is for us to face bills and credit card statements. The vicious cycle goes on without end, not only in our own lives, but also in our children’s lives and their children’s lives.

Those of us who are uncomfortable with our own financial state tend to avoid talking to our children about money at all cost. Then our children grow up, ignorant about money matters, and repeat the financial mistakes that we made and desperately wanted them to avoid. Our financial follies become hereditary. We pass our mistakes on to our children without realizing it. There is only one way to end the vicious circle: Face our fears head on, get financially savvy, and talk openly with our children about money matters.

The Enchanted Collar™ series can serve as an icebreaker for you to broach the dicey subject of money with your children. You may find it a lot easier to ask your children, “If you were Eli, what would you have done in a similar situation?,” than merely harping about savings and budgeting.

After all, no matter how old we grow, we all want to have fun. Deep inside, there is an ageless child at heart in all of us. So why don’t we indulge the little kid inside once in a while and enjoy the life’s journey through the eyes of a little wolf, a pig, a squirrel, and a cougar?