Napkin Finance

When it comes to money and finances, it seems like everything we learn is more complicated than we hoped.  The book Napkin Finance: Build Your Wealth in 30 Seconds or Less by Tina Hay offers very short overviews of a wide range of financial topics.  The format is appealing in some ways, but it’s an American book and much of the content isn’t relevant to Canadians.

The book covers a wide range of financial topics, including compound interest, credit, investing, college costs, retirement, taxes, GDP, and Bitcoin.  Each begins with the image of a napkin with drawings overviewing the subject.  Then there are a couple of pages with further explanations.  The format felt gimmicky at first, but it grew on me.  Before people can understand the many details and subtleties of an area, they want a quick understandable overview for context.

The book contains lots of humour to help hold readers interest.  One of my favourites was “A hedge fund is a fee structure in search of a strategy.”

In most cases, it’s obvious when subjects are only relevant in the U.S., such as discussions of 401(k)s, 529 plans, and Social Security.  However, when Hay calls advisor fees “moderate” and mutual fund fees “comparatively low,” it may not be obvious to some readers that she’s definitely not talking about Canada.

For the most part, the explanations are very good.  One part I particularly liked: “Investors waste a lot of energy (and money) trying to guess when a bull market is ending so they can sell, or guess when a bear market is ending, so they can buy.  The reality is, no one can predict those turning points consistently.  Most investors do a lot better by just holding on through bull and bear markets.”

One subject area explanation I didn’t think much of was “Risk vs. Reward.”  The pyramid from low risk to high risk includes savings accounts, bonds, stock, start-ups, and cryptocurrency.  With the risk-reward trade-off, reward refers to expected returns, not possible returns.  Stocks have higher expected returns than bonds.  However, when we get to cryptocurrencies, there’s no reason to believe that expected returns are higher than those for stocks.  It’s not sensible for investors to move from stocks to cryptocurrencies because they are willing to accept more risk in exchange for a higher expected return.

If we ever get a Canadian version of Napkin Finance, I’d likely recommend it to my readers.  However, this U.S. version could mislead readers looking for basic information about financial topics.