F.R.I.E.N.D.S Intelligence

Counterintuitive Pattern 3: The Explosiveness of Exponential Growth The surprising rapid growth of exponential change is covered in most finance books. It deserves special attention because all financial growth is essentially exponential. Before exploring the financial world, let’s understand why exponential growth goes against human intuition. In nature, most things grow (or decline, which is negative growth) in a linear fashion, meaning the change between consecutive events is mostly consistent. For example, as seasons shift from summer to winter, days become shorter by a few minutes each day. When temperatures rise, the average temperature increases by a few degrees over time. As the rainy season approaches, river surfaces expand by a few metres. After observing these linear changes for hundreds of thousands of years—where the difference between yesterday and today, and today and tomorrow, is always the same—our brains have evolved to predict changes based on this linear model. Thi...

Counterintuitive Pattern 2: Overestimation and Underestimation of Risk The second counterintuitive pattern relates to our ability to interpret risk. When assessing financial risk, we tend to slightly overestimate risks that are somewhat larger than normal and underestimate those that are smaller than average. This happens because our Stone Age brains lack the fine granularity needed for risk arousal. To clarify, let’s define two scales. The first is known as the objective risk level, which measures the actual risk of a specific event in the physical world, with 1 indicating no risk at all and 10 indicating extreme risk. The second is the subjective risk level, representing how our brain perceives the risk, with 1 meaning we don’t see it as risky at all, and 10 meaning we see it as a life-or-death threat. Ideally, these scales should align. For example, an objectively level 3 risky event should be perceived as level 3 subjectively. However, in the financial realm—especially among those...

Counterintuitive Pattern 1: Proportion VS Absolute Value The first counterintuitive pattern is about how the human mind perceives proportion and absolute value. Essentially, our brain excels at recognising absolute value when the number is small, but it automatically shifts to thinking about proportion when the number is large. Let’s use a concrete example to illustrate this. Imagine you’re making two purchases today. First, you need to buy a $200 printer from the local office supply store, as your partner has asked. Second, you’re buying a new car. After weeks of searching, you’ve chosen a white Honda CR-V from a local dealer. You have $20,000 in cash, freshly withdrawn from the bank, and you’re ready to pay the dealer and drive the CR-V home. When you picked up the printer from the office supply store, you noticed a sign at the checkout stating that anyone using the Bravo Loyalty card, which you are, would receive a 10% discount on any printer purchase. Delighted, you showed the cas...

If I had the magic opportunity to have dinner with Santa Claus and the head of the Department of Education together, and they were drunk enough to allow me to make a wish, I know exactly what to ask for. I would say, “I wish Santa would grant all the resources you need to make Financial Intelligence a compulsory unit in all schools, Mr Head of the Department of Education.” After all, financial intelligence is such a critical component of people’s intelligence matrix that it is a must-have to live an enjoyable life. What exactly is financial intelligence? It is the ability, knowledge, and skills to drive money to serve one’s purpose. Let’s break down this sentence. The money in the above definition is a general term. It includes, but is definitely not limited to, the ten-dollar bill in your pocket. In fact, the money here refers to financial resources that one can spend in exchange for other goods and services. Cash is the most straightforward form of financial resources that can be us...

Needless to say, living a happy life these days is not easy. The world is turning into a fast-paced machine, where everyone acts like a finely tuned cog in a wheel. Each person is expected to perform their role precisely, delivering a specific task at the exact right moment. Is this cog happy? Not that anyone seems to care. Personal finance has become much more complex than it was decades ago. A financially savvy person needs to understand loans, interests, taxation, bonds, options, stocks, investment portfolios, superannuation, education funds, inflation, CPIs, the property market… You name it. It is now essential for individuals to equip themselves with increasing financial knowledge to make smart investment decisions, avoid traps, and combat the fear of missing out. Managing romantic relationships is becoming more challenging. With everyone on Earth virtually connected at lightning speed, there are countless options to find a soulmate. Maintaining a long-term relationship now faces...