Two more important points

Do you now understand that investments aren’t magic? That money doesn’t “grow” and doesn’t come from nowhere? Always ask yourself: where does the money come from? Where does it go?

Two final points to clarify before concluding the section on investments:

Passive income: We often hear about the passive income strategy, meaning “making money work for you.” Money doesn’t “work”… money is simply a promise of payment to someone else, nothing more, nothing less. However, the income from an investment is linked to the work of others: rent paid by a tenant from their salary, dividends paid from profits generated by employees’ work… A “passive” income is a very real and active expenditure by other people.

Interest is not a universal law. It is an arbitrary decision that prevails in our current financial system.

• Interest is not the reward for risk: the borrower (entrepreneur, buyer of real estate, etc.) takes on more risk than the lender.
• Interest is not compensation for the lost revenue that the lender might have earned otherwise… it’s the borrower’s choice to lend; they could invest in stocks, become a partner in a company…
• Interest is possible because the lender has available funds—or, for banks, this exorbitant power to create money—and the borrower doesn’t have any. It reflects a power imbalance.

Interest results in a transfer of money from borrowers to lenders.

Food for thought…

We have now reached the end of this course. Read all the lessons again… and complete the final quiz to help your brain transform what you have read into long-term knowledge and use that knowledge to make more informed decisions!