Tag: financing decisions

Property Rights

What Are Property Rights?

Property rights define the theoretical and legal ownership of resources and how they can be used. These resources can be both tangible or intangible and can be owned by individuals, businesses, and governments. In many countries, including the United States, individuals generally exercise private property rights or the rights of private persons to accumulate, hold, delegate, rent, or sell their property. In economics property rights form the basis for all market exchange, and the allocation of property rights in a society affects the efficiency of resource use.

Understanding Property Rights

Property is secured by laws that are clearly defined and enforced by the state. These laws define ownership and any associated benefits that come with holding the property. The term property is very expansive, though the legal protection for certain kinds of property varies between jurisdictions.Property is generally owned by individuals or a small group of people. The rights of property ownership can be extended by using patents and copyrights to protect:

  • Scarce physical resources such as houses, cars, books, and cellphones
  • Non-human creatures like dogs, cats, horses or birds
  • Intellectual property such as inventions, ideas, or words

Other types of property, such as communal or government property, are legally owned by well-defined groups. These are typically deemed public property. Ownership is enforced by individuals in positions of political or cultural power. Property rights give the owner or right holder the ability to do with the property what they choose. That includes holding on to it, selling or renting it out for profit, or transferring it to another party.

Acquiring Rights to a Property

Individuals in a private property rights regime acquire and transfer in mutually agreed-upon transfers, or else through homesteading. Mutual transfers include rents, sales, voluntary sharing, inheritances, gambling, and charity. Homesteading is the unique case; an individual may acquire a previously unowned resource by mixing his labor with the resource over a period of time. Examples of homesteading acts include plowing a field, carving stone, and domesticating a wild animal. In areas where property rights don’t exist, the ownership and use of resources are allocated by force, normally by the government. That means these resources are allocated by political ends rather than economic ones. Such governments determine who may interact with, can be excluded from, or may benefit from the use of the property.

Private Property Rights

Private property rights are one of the pillars of capitalist economies, as well as many legal systems, and moral philosophies. Within a private property rights regime, individuals need the ability to exclude others from the uses and benefits of their property. All privately owned resources are rivalrous, meaning only a single user may possess the title and legal claim to the property. Private property owners also have the exclusive right to use and benefit from the services or products. Private property owners may exchange the resource on a voluntary basis.

Private Property Rights and Market Prices

Every market price in a voluntary, capitalist society originates through transfers of private property. Each transaction takes place between one property owner and someone interested in acquiring the property. The value at which the property exchanges depends on how valuable it is to each party. Suppose an investor purchases $1,000 in shares of stock in Apple. In this case, Apple values owning the $1,000 more than the stock. The investor has the opposite preference, and values ownership of Apple stock more than $1,000.

Financial Literacy

What Is Financial Literacy?

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. Financial literacy is the foundation of your relationship with money, and it is a lifelong journey of learning. The earlier you start, the better off you will be, because education is the key to success when it comes to money.

Read on to discover how you can become financially literate and able to navigate the challenging but critical waters of personal finance. And when you have educated yourself, try to pass your knowledge on to your family and friends. Many people find money matters intimidating, but they don’t have to be, so spread the news by example.

Understanding Financial Literacy

In recent decades financial products and services have become increasingly widespread throughout society. Whereas earlier generations of Americans may have purchased goods primarily in cash, today various credit products are popular, such as credit and debit cards and electronic transfers. Indeed, a 2019 survey from the Federal Reserve Bank of San Francisco showed that consumers preferred cash payments in only 22% of transactions, favoring debit cards for 42% and credit cards for 29%.

Other products, such as mortgages, student loans, health insurance, and self-directed accounts, have also grown in importance. This has made it even more imperative for individuals to understand how to use them responsibly. Although there are many skills that might fall under the umbrella of financial literacy, popular examples include household budgeting, learning how to manage and pay off debts, and evaluating the tradeoffs between different credit and investment products. These skills often require at least a working knowledge of key financial concepts, such as compound interest and the time value of money. Given the importance of finance in modern society, lacking financial literacy can be very damaging to an individual’s long-term financial success.

Being financially illiterate can lead to a number of pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This in turn can lead to poor credit, bankruptcy, housing foreclosure, and other negative consequences. Thankfully, there are now more resources than ever for those wishing to educate themselves about the world of finance. One such example is the government-sponsored Financial Literacy and Education Commission, which offers a range of free learning resources.

Strategies to Improve Your Financial Literacy Skills

Developing financial literacy to improve your personal finances involves learning and practicing a variety of skills related to budgeting, managing and paying off debts, and understanding credit and investment products. Here are several practical strategies to consider.

Create a Budget—Track how much money you receive each month against how much you spend in an Excel sheet, on paper, or with a budgeting app. Your budget should include income (paychecks, investments, alimony), fixed expenses (rent/mortgage payments, utilities, loan payments), discretionary spending (nonessentials such as eating out, shopping, and travel), and savings.

Pay Yourself First—To build savings, this reverse budgeting strategy involves choosing a savings goal (say, a down payment for a home), deciding how much you want to contribute toward it each month, and setting that amount aside before you divvy up the rest of your expenses.

Pay Bills Promptly—Stay on top of monthly bills, making sure that payments consistently arrive on time. Consider taking advantage of automatic debits from a checking account or bill-pay apps and sign up for payment reminders (by email, phone, or text).

Greed vs Generosity: Which Gives a Better Competitive Advantage?

Many people think that in the professional world, selfishness and greed are the characteristics that pay dividends. But the truth is, excepting win-lose situations, that the most successful people in the medium and long term are those who are the most generous in their business and personal lives.

Ambition is a desire to take on more than you can realistically accomplish, to constantly strive for improvement, to grow both personally and professionally, and, of course, the desire to generate more income. However there comes a time when ambition crosses a line, and when that happens it becomes greed. Greed is the desire to chew more than you can eat, a desire that distracts you from realistically possible goals. Greed is wanting to get more than what you have actually earned, obtaining maximum profit at minimum cost, or as an old adage has it: “Grasp all, lose all.”

Today there is an abundance of courses and books on finance, limitless knowledge on hand with a simple click. But to know what is right, to subdue the pirates of greed and to follow your trading plan- this is another story. People who look for easy money invariably find that there is no such thing, paying a heavy price for this lesson. Ego, vanity, and revenge play a part, causing people to fail on their trading accounts. This is one of the factors that explains why people might not fall into the exclusive 10% that ‘win’, and find themselves one of the 90% that lose.

Literature and film are full of greedy and stingy characters, and the moral of films like ‘A Christmas Carol’ or ‘The Wolf of Wall Street’ is always the same: the fate of the greedy is heartbreaking. Their addiction to work means that they live a lonely life, and their search for wealth means that at the end of their lives, they have only the sober memory of their friends from the Stock Exchange.

GIVE AND TAKE

People do not realize that giving without expecting something in return could be a competitive advantage, as well as making ones outlook more positive. Studies have shown that the most successful people are generous. At least this is the affirmation of Adam Grant, a psychologist and professor at Wharton and author of “Give and Take”.

A generous person builds bigger and stronger networks, improves communication with their existing contacts, and also finds it easier to interact with people outside of their core network- this gives them access to new contacts and valuable sources of information. Generous people inspire in others a predisposition, or positive receptivity, to reconnect with them, as well as a greater willingness to collaborate.

Moreover, being a giver encourages persistence because givers are able to enthusiastically motivate people, inspiring confidence, because they are liberal with praise. They create a generally positive environment. Talent is important, but the most important factor in success is persistence. And what’s even more interesting is that being a giver has an energizing effect that increases levels of happiness.

According to Bill Williams, famous trader and writer of “Trading Chaos”, people with a ‘giving’ mindset enjoy more happiness and success. For example, later in his career Bill always traded two accounts, one for himself and one for his charities. The charity account always made more money, even though he traded using the same method with both accounts. In the charity account he never veered from his strategy, while in his own account he would sometimes take a trade based on a “feel”, or get in a trade before the actual signal. This shows us the importance of sticking to a plan, but also the importance of being a ‘giver’.

Giving distracts us from our problems, adds meaning to our lives and helps us feel valued by others. This explains why avidity and egoism are the trader’s worst enemy. Having a benevolent mindset while trading helps the trader to increase performance. Happy people earn more money on average, score higher yields, make better decisions and contribute more to their organizations. Furthermore, traders who are givers are at the top of the most successful trading operations.

THE GREED EFFECT

Focusing only on money results in the ‘greedy effect’, something that all professional traders know. In fact, one of the most common pieces of (rarely followed) advice that newbies receive is to shift their focus from trade results to the trading process, analyzing and following the rules of their trading system. Another suggestion is to start reasoning in pips and ticks instead of dollars. This reduces the greedy mindset and develops a more reliable attitude.

However we can make a further effort to improve our performance by shifting our focus to be more generous. One example is trading for charitable purposes like the aforementioned Bill Williams, another could be simply committing a small part of your monthly or annual profit to microcredits, which promote a world of stability and self-sufficiency, key to overcoming poverty.

Material things can be recovered, but feelings of guilt, helplessness and loneliness cannot be solved with money. If humans would be more understanding of and generous to others, the world would be a very different place. And that is why those who practice generosity, making it part of their daily lives, experience an uplifting of their mental and emotional state, and are generally filled with more satisfaction in their professional and personal lives.

In conclusion, we see that generous people are the most successful in their daily trading performance for the reasons described above. Having a giving mindset helps professionals become part of that exclusive group, the 10% of winners.