I grew up in a small town in citrus country in the Eastern Cape. We lived comfortably in a home below the railway track. The professionals and business owners lived above the track.
My father was a civil servant in the department of agriculture and my mother a nursing sister and hospital matron. We were a happy middle-class family.
Mr Van Rensburg, owned a sawmill, drove the latest model car and sent his children to private schools. My father played golf with him, and my mother played bridge with his wife.
My mother often commented on the elegant dresses worn by Mrs Van Rensburg, shaking her head at thought of their cost.
Our families would occasionally have dinner together. On one unforgettable evening, when we kids were old enough to join the grown-ups at the table, I piped up during a lull in the conversation: “Mr Van Rensburg, does your sawmill make more money than a citrus farm?”
My parents looked at me in horror in the hushed silence that followed.
By contrast, Mr Van Rensburg smiled and said, “Peter, I’m not sure. Visit me at the sawmill sometime and let’s talk about it.”
My father apologised for my bad manners, and despite Mr Van Rensburg’s insistence that he took no offence, both my parents remained greatly embarrassed by my ‘outburst’. Back home, I was severely reprimanded and instructed to never again talk about money in public, especially not at a dinner table.
The memory of that experience flooded back when I recently picked up my copy of Robert Kiyosaki’s wonderful book Rich Dad Poor Dad and started rereading it. In it, Kiyosaki tells the story of his father castigating him for raising money matters in public, and it seems that the father of his best friend, the ‘rich dad’, was much like Mr Van Rensburg.
Apart from being nonsensical, entrenching the notion that ‘money-talk is bad talk’ in the minds of young people could have damaging after-effects on them. This is not to say that discretion can be abandoned when a discussion turns to money.
Obviously, enquiry into others’ private and personal matters should be avoided, but in matters of general principle, such as ‘is sawmilling a better business than citrus farming’, this is not the case.
Money makes the world go round. Every one of us makes decisions every single day of our lives about money: our own money, and if we are managers, the company’s money.
If we are to live productive lives and build successful careers, it is essential we overcome any reluctance to talk about money.
If this notion resides in your mind, get rid of it. It will limit the development of your ability to manage your own financial affairs and those of the organisation in which you are a manager.
Business accounting must surely be one of the most boring subjects in the world, but unless we take the trouble to develop a basic level of financial literacy, it’s impossible to learn how best to manage money.
Liabilities and assets
A good example of the confusion that often arises in the minds of financially illiterate people is the assumption that ‘assets’ are good, and ‘liabilities’ are bad. This is wrong!
A vehicle, for example, is classified as an asset and recorded as such in the accounts, but it loses 15% of its value the moment it is driven out of the showroom.
It loses value every single day thereafter, consumes fuel, needs regular maintenance and incurs costly insurance cover.
It may be an asset for accounting purposes, but it’s an asset that costs an arm and a leg, and takes money out of your pocket.
A loan from a bank to purchase a carefully selected prime property earning rent and growing in value is classified as a liability.
Yet it finances an investment which has potential to put significant amounts of money in your pocket. It’s a liability that’s likely to make lots of money for you or the company. You need to know the difference between assets that cost money, and liabilities that make you rich, but without understanding accounting language and gaining the financial intelligence to look behind those terms, you’ll get yourself into trouble.
Make a start in your journey towards financial literacy today.
Peter Hughes is a business and management consultant.