Here’s a better depiction of the Financial Knowledge stack I proposed last week after reading an article on Psychology today. Based on this diagram, I think I am better able to appreciate how much a person needs to know in order to put his financial house in order.
Let’s first talk about the problem at each part :
a) We are not adequately trained at the theoretical level to address financial problems.
At the top-most layer of the FK stack, we have to deal with theoretical knowledge that comes from different disciplines. This can be diverse as the use of partial differential equations to derive the Black-Scholes model as well as legal knowledge on the structure of a business trust. This means that unless you spend years in school studying finance, you probably have holes in your knowledge to make financial decisions.
b) Market Knowledge is unwittingly outsourced to folks …