Why is it, to normal people (or to me at least) that financial terms seem to be so obscure and intimidating? Acronyms are everywhere. Just off the top of my head, and while my memory of excruciating corporate Board meetings hasn’t yet faded, may I list in no particular order, EBITDA, ROI, ROCE, POR, SKU, NSV, NNSV ….. and so on. Then there’s Cash Flow versus Free Cash Flow, I’ll talk gross margins but you’ll talk net (nett?), or net net (nett nett?) and how are you defining “profit” anyway? Even relatively simple terms, like does a “creditor” owe you money or is it the “debtor” that does, can make me question the fundamentals. I could go on, but already I’m losing the will to live.
The Depreciated Macbook Heading to ebay
The one concept that I liked, and used in my own finances, was depreciation. The way I used it was like this: I bought an Apple Macbook for £1,000 cash. I decided it would last me five years, so each month I “depreciated” it by direct debiting £20 a month into a savings account and forgetting about it. Five years later, I had accumulated the cash pile to buy a brand new Macbook (and I flogged the old one on ebay as a bonus).
It almost goes without saying that the trick to using positive depreciation is to have the cash to make the capital investment first. So saving money is the priority.
I could well have done with being educated this way instead of how I actually was – borrow the money and pay it off with a “Hire Purchase” agreement. As I write the term “Hire Purchase”, I’m struck by the sneaky wording. It actually sounds like quite a positive thing. Much better than “Stinking Debt Repayment” or something similar.
It took me the best part of thirty years to learn about the real difference between credit and debt. I think this is because that my first experience of Hire Purchase was a positive one. Without it, I would never have been able to buy my first racing bike, a Raleigh Shadow, purchased from Halfords when I was fifteen years old. It cost seventy five quid, a figure well beyond me and my folks at the time. It was with a sense of awe that I discovered Halfords would let me buy the bike “today” and pay it off later at the sum of £1.25 a week, which I earned delivering papers. It’s hard to describe how this option suddenly transformed my view of how people could afford things. “Debt” wasn’t one of the words that occurred to me. All I was focused on was the fact that I could have the bike now, right now, the object of my heart’s desire that had seemed an impossibility before.
In fact, thinking about it, there was a positive aspect to the debt – I took it without question that I must pay it off. This underlined to me that I would need to work and keep my job in order to pay back Halfords who I actually felt quite grateful to for giving me this option. I’d put the cart before the horse, of course, and had been encouraged to do it, but that’s not how I viewed it at the time.
I was also lucky in that I didn’t have much else to spend the money on at that age. I do remember that the weekly payments took the majority of my earnings and that I actually had to visit the Halfords shop every Saturday to make them. I had a little card that was filled in and signed by the shop assistant each week when I made a payment. (Ye Gods, even to me that sounds like Victorian Times compared to our computerised era. It was only the Seventies!)
Anyway, at least in those simpler days I had only that one financial acronym to deal with, “HP”, and I understood the deal. If only I could say the same with confidence today.
sex health money death 
How timely Jim, I’ve actually been thinking about acronyms and scary/unintelligible terminology since last night. I had a thought of putting together a mini glossary, what do you think?
As regards your HP experience, I’m so glad it was a positive one! Oh the days of having to get something stamped by an actual, live, human being! Reminds me of going to the post office and them stamping those circles into my savings ‘passbook’. Interestingly, I opened an account for my nephew at a high St bank somewhere in the last decade and they were STILL USING those little passbooks and real people! Where are the robots I ask you?!
Cheers
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Hi M I think John Lanchester wrote a book on this subject! I know he wrote a cracker on the financial crisis called Whoops, so maybe I will have to seek it out (just checked Amazon, it’s called How to Speak Money. One for my library list).
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Thanks for the heads up. I’ll add him to my library list too.
Cheers
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Funnily enough, I added Lanchester’s “How To Speak Money” to my To Read list last year, when I was trying to come to grips with investing and I didn’t understand some of the terms/acronyms that people were using.
I need to move it up my list – thanks for the reminder!
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I work in finance and people LOVE over complicating things. Why use one words when 15 can be used. Why used words when we can use acronyms. Even better, lets have multiple words and acronyms for the same thing and change half way though a report or sentence.
Does. My Nut. In. Even more so when I ask what someone is talking about and everyone’s ears perk up, why does no one else ask if it’s all so confusing.
Tiring stuff!
MrZ
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Reminds me of the first episode of Drop the Dead Donkey:
Gus (rambling on about how the imminent changes are nothing to worry about, etc):
… “access into your operational landscape” … “feel of your ballpark” … “learning curve” …
George: “he seems okay, saying all the right sort of things, not saying them in English” …
Alex: (clearly not fooled by any of this :-))
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You’re so right. I would blithely talk about EBITDA and Free Cash Flow with only the scantiest idea of what the terms actually meant. Anyone could have blown my cover by asking, “Could you take me through what you mean by that, Jim?”….but nobody ever did! Mostly they would all nod sagely in agreement.
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I worked in a science-orientated corporation for over a decade & think I may have a couple of possible answers out of the several that probably exist …..to the question of why the pointless & irritating jargon.
People in almost all professions use it to gatekeep their industry to protect their jobs, even if just at a subconscious level – if for example you could figure out that a basic will was easy to do without further enriching a lawyer, a lot more people would have a go. Then even those who are not pretentious have to use the buzz-words at work to communicate with the other people conditioned to only speak in that profession-specific ‘dialect’.
A lot of unconfident people used it to make themselves feel better/clever when dealing with people outside the profession, like customers, ”Look, I now know all this hard stuff that other people don’t, so I must really know my stuff”. Sometimes it’s about our cognitive biases, in that if it sounds complicated, people think it must be smart, so they’re getting a better deal – this is the basis for most financial instruments that can still get you a lower return than even a high street bank’s ISA. [*after all the various ‘performance’ fees & other creative charges]
Then you had the stuffed shirts who knew jack-sh*t about their jobs, so had to hide it by speaking guff – they reasoned that if their audience didn’t recognise something, then they wouldn’t question it too hard …..because nobody wants to look stupid in public. [ The emperor’s clothes factor ]
You could see it in the ubiquitous & often needless power-point presentations, there was such a direct correlation between the amount of horsesh*t you heard & the less the speaker knew about the topic they were meant to be conveying to their audience of nodding dogs.
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Agree with many of your points. We have over-complicated so much in the workplace when the vast majority of jobs are basically pretty simple.
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