The Danger of Limited Knowledge

There is an old saying that a little knowledge is a dangerous thing. When it comes to money this is not only true, it can be very consequential.

Partial Knowledge Affects Us Negatively

No matter what area of life we are talking about, knowing a little often leads to misguided thinking and poor decisions. We see it every day.

getting fit on weights

For example, I have a site where I explore fitness topics, especially from the perspective of senior adults. I don’t have to tell you how opinionated people are about subjects like weight loss or nutrition. Everyone you know is willing to tell you all you need to know about many topics—each one knows the facts, but everyone’s facts are different.

The reason all this is so dangerous is that when we make quick decisions based on very limited knowledge it is easy to make mistakes. Sometimes it is of little consequence, but at other times it can have disastrous effects on our health or well being.

The Danger of Our National Debt

What led me to discuss this topic today is a conversation I had yesterday. Because one individual involved was so strongly advocating a particular idea I decided the situation was not conducive to education and let it go, but I will share it with you here.

This individual was noting that the national debt was in part inter-departmental. In fact, about five trillion, a little less than 30%, of it is (social security trust fund, civil sevice trust fund, and military retirement fund). He insisted that this part of the debt could, without any negative effects, be erased by just zeroing out these debts and going on from scratch.

Sounds great doesn’t it. But it is based on jumping to a conclusion based on limited facts. Think it through and you can see why.

You can look up the numbers, but suffice it to say that the bulk of this “interdepartmental borrowing” is from retirement funds, money borrowed and spent for years. The biggest part of this is from Social Security.

chart - who owns national debt

Now the interest income to the Social Security fund from this borrowing, along with new Social Security receipts, goes out to pay people their social security checks. Even as it is, the fund income is expected to be deficient sometime in 2016, all too soon for those of us living on Social Security!.

If the fund did not receive the debt interest the government would have to put in the same amount from the general fund anyway or there would be an equal shortfall of money for Social Security payments. The same with the other payments such as for military retirement. Are you ready to stop paying the Vets their retirement any more than the senior adult population? I don’t think so.

The above is not the end of all there is to understand this problem (there is a matter of when and how these cash flows are affected because of excess or short inputs currently, etc.), but the point is that the unfortunate consequence of thinking based on limited knowledge is quite significant. However, shortsighted thinking is what causes most people to downplay the long term affect of the national debt which is far more dangerous than most people realize.

Working With Limited Knowledge

There is no avoiding the problem of working with partial knowledge. No matter the subject it is impossible to know all there is to know. We have to carry on. But there are some helpful approaches to better decision making using what we do know.

The most important step is to adopt an attitude of humility. We can be wrong about anything. It is completely possible that the most ill informed person we know may know one very important fact about a given topic that we do not! Humility allows us to have an open mind to greater truth.

Next, learn how to research and make it a habit to check out the facts we can get before making decisions. We should not rely on the personal opinions of people around us or our own assumptions. Years ago I used my encyclopedia, now the computer. We have great resources if we use them.

Most important, use your brain. That is what it is for! Think things through. If a politician says something is free, have the good judgment to know nothing is free and ask where the money is coming from to pay for it. Know that if corporations pay more taxes prices have to be higher and you will pay them. Think.

We Never Know It All

We have no choice but to operate with limited knowledge. But we can make the best of it by following these guidelines.