Week 1 - November 3

UNDERSTANDING THE IMPORTANCE OF FINANCE

Introduction

Welcome to the first lesson of our SWC Finance Club. We are very excited to finally get started in
helping you learn more about the world of finance! Our first week will be a bit different because we
must have everyone understand the importance of this subject, and how fully participating and
engaging in the club will benefit both you and your future! Now, let’s not be too optimistic here. By
joining this club, you are not guaranteed to be rich or have financial freedom. We have simply created
this club to educate our members about important and necessary topics that school doesn’t normally
teach us in class, so that we are more prepared for life following school. In addition to this, we hope to
foster an environment where people feel comfortable discussing financial subjects to further expand
their knowledge.

You might be wondering, who are we and why are we qualified to lead this club?

I am Kevin Hu, president of the club and in my final year of high school. I’ve been interested in finance
since seventh grade, and have devoted much of my free time educating myself. I’ve read many finance
books, watched a lot of educational videos, and have invested in the stock market myself. I have a team
of dedicated “educators” that have personal experience and knowledge in a variety of topics, all here to
give you the best possible online environment to learn in. Our fabulous teacher sponsors Mr. Spademan
and Mr. Zavaleta are here as the backbone of the club, and both have personal experiences in
finance/investing. Together, we are working hard to construct these pdf lessons for you to read and
learn on your own time. We provide the resources, but the success of your education ultimately
depends on your willingness to learn and engage. Of course, we are still students ourselves, and won’t
be able to answer every question you may have. Maybe some of you in the club have even more
knowledge than us! Still, we are dedicated to guide you in your journey through the world of finance,
and to provide support along the way as a community.

Onto the Lesson!

Now that we’re done with that, ask yourself why you have joined our club. Is it because...

● You want to be more involved in our school?

● You need something nice for your university applications?
● Or do you have a genuine interest in learning finance?

These reasons are all completely valid and understandable, but I hope this beginning lesson will give you
much more insight into what finance can do for you.
 Week 1 - November 3

By being interested in our club in the first place, you are ahead of a large percentile of the population.
Many adults never even put in the effort to understand how money works, thus resulting in living a
mediocre life. By having just a basic understanding of finance, you can boost yourself ahead of the
majority of the adult population, and put yourself on track to become successful in the future. More
importantly, you can have your money work for you!

Does this sound too good to be true? Well, it’s not, and here are some facts to back it up:
*sources at the bottom of pdf*

- More than a third (41 per cent) of Canadians rank money as their greatest stress, according to a
new survey commissioned by the Financial Planning Standards Council
- 78% of adults live paycheck to paycheck according to a 2017 CareerBuilder survey
- 43% of student loan borrowers are not making payments - this could be you in the near future
- 33% of American adults have $0 saved for retirement
- Average rate of return in the stock market is 7%, but 45% of Americans don’t even touch stocks
in their entire lifetimes
- 90% of millionaires invest in real estate

Notice any trends? Those who participate in investing tend to be more successful, while those who are
uneducated about finance tend to struggle more in life. It’s the reality we live in today; if you don’t get
ahead of the competition, you will likely fall behind. Still, you might be asking yourself, what is the point
in showing me all this?

Well, we are ultimately trying to emphasize that by

having the self initiative to read our pdf lessons every
week (like this one!), being active in the discord
community, and exploring interesting topics in
greater depth on your own, then you can be well on
your way to become more financially fluent than 99%
of other people. Again, this does not mean you will be
guaranteed to be rich or anything of the sort, but it
sure will help!

For future reference, these lessons will be as brief as possible. It is up to you to read them on your own
to fit your agenda. Make sure to learn at your own pace! This is not a class so feel free to pick and
choose the topics you want to read about. Whenever possible, I will include additional resources
(youtube videos, books, blogs, etc) at the end of each lesson for those of you who are interested in a
particular topic, and want to explore it with greater depth.
 Week 1 - November 3

Assets vs Liabilities
We will ease into our first topic of finance to develop our fundamentals! Assets versus liabilities.

Let’s start by defining what they are:

● Assets
○ Things you own that are worth value!
○ Put money in your wallet
○ Examples: real estate, cash, stocks
● Liabilities
○ Things that you owe.
○ Take money away from your wallet
○ Examples: credit card debt, student loans,
car payments, etc.

In simple theory, you can see that it is better to have assets than liabilities. Assets will “work” for us and
make money: For example, renting out a piece of real estate property for a tenant, who will pay us on a
regular basis. On the other hand, liabilities will steal our hard earned money: This could mean paying off
years and years of student loan debt that piles up in interest. The importance is about distinguishing
what is an asset or not. For example, taking out loans to buy a new car is a liability, but people are
normally conditioned to think it’s an asset. Can you guess why?
 Week 1 - November 3

Figure 1.1 The asset composition of a person based on their net worth

The figure shown above represents the relationship between the composition of a person’s wealth
through their assets and their overall net worth. On the y-axis of the figure, it shows the typical net
worth of an individual, and on the icons labelled it shows how much each asset makes up a person’s net
worth. We could see that typically, as you get more wealthy there is a strong relationship between the
amount of liquid assets (cash) a person has and how much money they are worth -- The wealthier you
are, the less liquid money you will have lying around.

Undoubtedly, the correlation between the two is strong because wealthy people try to grow their
wealth by making their money work for them. When you have lots of cash lying around, all it will be
doing is collecting dust and losing value to inflation (natural depreciation of value in money), however
when you invest that money into wealth-generating assets such as business interests or stocks, you will
find that it will provide you the opportunity to generate even more wealth for yourself.
 Week 1 - November 3

***INVESTIGATE: If you had a lot of money saved up in your bank account, what are some wealth-
generating assets in which you could invest money? Try and research some ways that you could use to
make sure your liquid assets are not just sitting around; your money can make money!
(maybe include some resources or articles for ppl to start researching)

Interesting Fact: There is a common misconception about

assets. Many people will ask why Jeff Bezos can’t donate the
majority of his money away to fix something like world hunger,
but he physically can't because his money is tied up in Amazon
(business interests). Donating money to charities would have
to come out of pocket, which is a liquid asset. You can see in
Figure 1.1 that liquid assets comprise only a very small chunk
of a billionaire’s assets.

Extra Resources:
- The book “Rich Dad Poor Dad” by Robert Kiyosaki is centered around the concept of building
assets instead of liabilities. You can read the book in your free time or watch a summary on
YouTube: Rich Dad Poor Dad Summary (Animated)

Sources:
https://ca.rbcwealthmanagement.com/josh.opheim/blog/1419849-Chart-What-Assets-Make-Up-Wealth
https://www.financialsamurai.com/what-percent-of-americans-own-stocks/
https://www.benefitscanada.com/news/canadians-rank-money-as-greatest-stress-survey-
114093#:~:text=More%20than%20a%20third%20
 Week 1 - November 3

https://www.forbes.com/sites/danipascarella/2018/04/03/4-stats-that-reveal-how-badly-america-is-
failing-at-financial-literacy/?sh=44ba8192bb7b
https://thecollegeinvestor.com/11300/90-percent-worlds-millionaires-do-this/#:~:text=Over%20the
%20last%20two%20centuries,way%20to%20develop%20significant%20wealth.