Mr Whippy money les­son

Central Leader - - OPINION -

Two teenagers robbed a Mr Whippy ice cream van owner at gun­point in the shadow of the Michael Joseph Sav­age Me­mo­rial in Orakei, Auck­land a few weeks back.

I feel for the owner who the two youths threat­ened to ‘‘put a hole’’ in. I’ve been sub­ject to two vi­o­lent at­tempts on my per­son, one that dam­aged me, and the other far more se­ri­ous, that didn’t leave a mark.

It takes a long time to get over a vi­o­lent attack, or threat of it.

I still can’t hear the squeal­ing of car tyres at night with­out my heart skip­ping a beat.

But I also feel pity for the two id­iots with the gun for their spec­tac­u­larly poor grasp of risk and re­ward.

When de­cid­ing where and how to in­vest your money, the key is to work out whether the re­ward you be­lieve you will get is worth the risk you are tak­ing.

In the case of Mr Whippy rob­bers one and two, the best re­ward they could hope for was a box of flakes and a bag of loose change. The risk is the sen­tence for ag­gra­vated rob­bery, which is up to 14 years in pri­son.

Life is a se­ries of risk/re­ward choices, some easy to see, and some hard to see.

It is easy to see you are mak­ing a risk/re­ward choice when you pick a growth Ki­wiSaver fund in­stead of a con­ser­va­tive one.

It’s harder to see that habit of spend­ing $20 a week on dairy pies and en­ergy drinks as hav­ing any­thing to do with risk and re­ward. But it does. That $80 spent in Jan­uary doesn’t feel like a prob­lem. Nor in Fe­bru­ary. March passes with­out a hitch. April goes OK. In May the car breaks down.

That $300 which leaked away on pies and Red Bull would come in mighty handy.

The re­ward of that full-tummy pie feel­ing, and the en­ergy drink buzz are im­me­di­ate and clear. The risk of need­ing $300 in April is not.

Triv­ial as my pie and Red Bull ex­am­ple may sound, it’s the adding up of such lit­tle things that of­ten wrecks peo­ple’s longterm prospects.

I see folk spend­ing on triv­i­al­i­ties as if their pen­sion pots are filled to brim­ming, or their mort­gages are long since paid off.

An­other way of see­ing all this is to think about risk/re­ward choices as ‘big pic­ture’’ choices and ‘‘lit­tle pic­ture’’ choices.

Big pic­ture choices are things like: I will be a saver. I will be slim. I will have a good nest egg in re­tire­ment. The lit­tle pic­ture choices fol­low. Be­cause I will be a saver, I will de­cide how much I will save each week (lit­tle choice), and trim my spend­ing to do it. Be­cause I will be slim, I am not go­ing to eat more than one pie a week.

Be­cause I want a good nest egg in re­tire­ment I will choose a higher risk/higher re­turn Ki­wiSaver fund.

The great thing about the big pic­ture/lit­tle pic­ture ap­proach is that it pro­vides a mea­sure of in­su­la­tion against the en­emy of sen­si­ble risk/re­ward choices: What ev­ery­one else seems to be do­ing.

If we see lots of other peo­ple do­ing things, they start seem­ing nor­mal and OK.

Rob­bing aMr Whippy is a very poor risk/re­ward choice.

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