In the classic Christmas movie It’s a Wonderful Life, George Bailey, who’s considering committing suicide, is visited by an angel who shows him what the world would be like without him.
Not only is It’s a Wonderful Life a great movie about the difference 1 person’s life can make, it also teaches us some very valuable lessons about money! Here are a few of them.
How a bank really works.
When the stock market crashes, a mob rushes to the Building and Loan. When someone wants to withdraw their money, George says they are thinking of the Building and Loan all wrong, as if he has the money out back in a safe. He explains that their money is in the houses other people took out a loan to build.
A bank works the same way. They don’t simply store the money you deposit, and pay you interest for letting them store it. They loan out the money you deposit, and charge a higher interest rate on the loans than they pay you. In other words, they make money off of your money, and pay you a little of what they made off of it. Not only that, but they actually loan out many times more than what is deposited with them. They keep a certain amount of money on hand, but not enough to give everyone back their money if they all demanded it at once. That’s why banks get in trouble if too many people try to withdraw their money at the same time.
Buy in a down market.
When the stock market crashes, Potter offers to pay the Bank and Loan shareholders 50 cents on the dollar for their shares. George responded by telling them that Potter was buying, not selling, and that he was picking up bargains. Potter was trying to take over the bank and loan by purchasing all the shares 50% off. The people were willing to sell this low because things weren’t going well.
To succeed financially, buy when everyone else is trying to sell. You can score some pretty big bargains on investments in an economy that has taken a turn for the worse. Then when the economy recovers, you’ll have a bunch of assets waiting to make you tons of money!
When you panic, you lose money.
George told the frantic crowd that Potter was buying, not selling, because they were panicked and he wasn’t. Think about it – the people were willing to receive half of what their shares were worth, because they figured it was better than nothing. Making a snap decision out of panic would have cost them half of their money!.
Never make a financial decision in a state of panic. Let yourself calm down, and think things through rationally so you don’t make a choice you will later regret.