[alexanderstears]

It's not accurate to characterize finance as simply something that happens to be capable of making you rich in a narrow point in time. More than you know, I'm not a cheerleader of modern finance but it is the reason that most of the capital in the world exists and it's important for people to be aware of it as a fundamental part of our society. People ignore it at their own risk.

You're right that the problems of finance aren't fundamental to the natural world, and they're not as elegant as the problems in mathematics and the mathematical sciences.

However, there is some basic amount of financial knowledge that people should have as a basis of functioning in the world. And I think many intelligent people should be interested in establishing that knowledge base because it can enrich their life.

What's fortunate is that the amount of knowledge required to simply understand one's degrees of freedom and the outcomes is pretty basic. Even if you don't find it interesting, you should be able to slog through it in less than a day. And that's a good thing because it would take a lot longer than a day to get to the state of the art in finance but that's not critical to understanding why it's unfavorable to use a credit card to buy a car.

[recursive]

How do you get trustworthy information? I'm basically financially illiterate, but I'm not really happy about it. I'm interested in learning, but how? Everyone's trying to sell me something. I don't know how to establish credibility of a source. And I'm not keen to take financial advice from an arbitrary source, since there's often a distinct incentive to give bad advice.

[clay_to_n]

The best resource I've found is Reddit's personal finance forum, and specifically their "How to Handle Money" guide - especially the flowchart and "simplified flowchart".

https://www.reddit.com/r/personalfinance/wiki/commontopics

I've found a lot of other great individual articles, but no other "how do I even start?" resource with much value.

[paviva]

The intelligent investor by Ben Graham. He's long dead, so no conflits of interests.

[alexanderstears]

I think the best thing to do is look at each transaction separately, read a few sources, and reflect on what made sense, what the sources were all agreement about, and what seemed like a pitch.

Consumer advocacy agencies usually have excellent advice. Credit unions seem to have well-intentioned advice but the information can be incomplete.

E.g if you're about to buy a car, read a few articles about getting car loans, don't just take the dealership finance person at their word.

I've been meaning to get around to making a decision tree for technical people who never had to bother with this stuff but I don't know how much time I need to dedicate to "please don't buy a jetski if you're unemployed".

[Retric]

Finance also causes a lot of problems.

If nobody could get a home loan the housing prices would drop. But, loans don't create wealth so long term would be closer to break even than you might think.

[Pyxl101]

Loans absolutely can fuel wealth creation by providing the capital to make purchases that increase productivity sooner than a person could afford otherwise.

Imagine that you're a farmer and you work your land by hand, or with the assistance of animals. You don't have enough capital to buy a tractor, which is very expensive. Only by working your land for 15 years will you save up enough money to afford a tractor.

However, if you could buy a tractor, then you could substantially improve your efficiency and grow way more crops. Perhaps with a tractor, you can grow 10 times as many crops or more. Ironically, if you already owned a tractor, then you could quickly earn enough to pay for one, but without one your earnings are too small to afford one.

So, someone comes along and loans you the capital to buy a tractor. It's not a huge risk for them, because if you default, they can repossess and resell the tractor. So you take the loan for a low interest rate and buy a tractor. With the tractor, you're so much more productive that you pay off the loan within a few years. Everyone is better off, both you and the person who provided the loan.

With this effect occurring all throughout society, everyone is better off in aggregate than they would be without loans. Without a loan, you might need to save for many years; with a loan, you can front-load the productivity benefit of a capital purchase. These loans fuel wealth creation.

Loans also enable people to achieve a higher quality of living. Imagine a young working professional has a stable job and a good income. If home loans were not available, the professional might need to save for 20 or 30 years before accumulating enough funds to be able to purchase a home in cash. Because home loans are available, the professional can purchase their home much sooner in their life, and therefore enjoy the benefits of home ownership throughout their life.

A society without any loans at all is a society in which people live as paupers during their 20s and 30s, before finally accumulating enough wealth to purchase a vehicle or housing or capital in their 40s or 50s. The gap between the rich (who have inherited money) and the poor would widen vastly in such a society. Loans are a vehicle for wealth creation, a vehicle for people to better themselves.

Lastly, these types of loans are not especially risky or bad. Home loans and auto loans are responsible and relatively low risk because the property can be repossessed in the event of default; this enables lenders to offer low interest rates, such that the "cost" of the loans is not very high.

[Retric]

Loans are not limited to cash. You could also rent a tractor, or pool money across multiple farmers to buy a tractor which is then shared etc.

Now, we can debate the benefits of ownership vs. rentals. But, the risk profiles look very different.

[WalterBright]

Loans are critical to an economy working. Essentially it allows capital to flow from where it isn't needed to where it is. Take that away, and you've got a 3rd world economy.

[alexanderstears]

and so we use finance to bridge time horizons.

The banks should only lend money to people who would be capable of saving for a house. But if you're capable of saving for a house, and someone has money they're not using, why not use their money to buy the house and pay them back?

If every party satisfies their self-interest, their transaction creates value (which is distinct from wealth).

Financial market problems are finance problems to the extent that North Korea's nuclear tests are physics problems. The body of knowledge exists, an actor uses it.

My personal estimation is that a lot of the good things in this world exist because of fractional banking and finance and that humanity is better for it. I think we can do better, but throwing the baby out with the bathwater is a recipe for disaster.

Replace 'finance industry' with 'airline industry'. Sure, the airlines pollute, and planes crash and that's unimaginably bad. But each time a plane crashes, all the subsequent trips get safer. We're never going to make it perfect, but we can make it easier to roll the dice. And people don't fly places and engage finance for no reason - they do so to improve their lives. We should focus on improving peoples lives, whether that's making it easier for them to find a place to live or transport themselves.

[Retric]

The problem IMO is by adding intermediaries to a transaction you also increase costs. Society pays a massive subsidy on home loans so many of these costs are also hidden. EX: Home ownership limits mobility reducing economic growth.

What happens without loans? Well, someone with capital to give out a home loan could just as easily buy then rent out a house. This would increase the pressure on home construction industry to build things to last. Further assuming there was no tax subsidy we would reach a different equilibrium.

I don't know if this would be 'better' but it would have different costs.