How to use learning theory to make good financial decisions.
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I mentioned exemplars in the previous entry and I want to show how this idea from learning theory can help you in business decision making, particularly when looking for a property to buy. The ideas come from my background in teaching and my study of cognitive theory.
Teachers talk too much; I should know because I am one when I am not running Jacaranda Lodge Bed and Breakfast. The reason we talk so much is because we are often trying to explain concepts to students but the danger is that all our talk turns out to be just that; talk. Concepts are in fact based on real things called exemplars and by looking at exemplars we can understand concepts more easily and maybe not have to listen to so much talk, which my Professor of Education at Liverpool University, U.K. (the late Professor Stones) used to describe as often no more than ‘carefully modulated puffs of air’ delivered to the students.
Take the example of assets and liabilities. Accountancy textbooks give conceptual definitions but what the entrepreneur needs to know is that an asset puts money in your pocket whilst a liability takes it out. In the world of investing and business, entrepreneurs need to view all financial propositions as either the positive exemplar of an asset putting money in their pocket or the negative exemplar of a liability taking money out of their pocket. I am indebted to Robert Kiyosaki for the exemplars given and I wonder if his success with the Rich Dad Poor Dad series is in no small part due to him supplying these straightforward exemplars rather than a lot of academic definitions which people often find difficult to understand.
Kiyosaki sums up what I am saying about words not being enough i.e. teacher talk about concepts when the key thing is what the words are telling you i.e the exemplars. Here is a short quote from Rich Dad Poor Dad:
” In accounting,” rich dad would say, “it’s not the numbers, but what the numbers are telling you. It’s just like words. It’s not the words, but the story the words are telling you.” (Kiyosaki 1998, p.59)
You are looking for the story from the numbers demonstrated through financial statements presented by an owner of a B & B who is trying to sell you the property. The exemplar and determining whether it is positive and will put money in your pocket or negative and will take money out of your pocket is the story you are looking for - with, of course, the help of your accountant.
References
Kiyosaki, R.T. (1998). Rich Dad Poor Dad. TechPress: Scottsdale, AZ.
Stones, E. (1994). Quality Teaching: A Sample of Cases. Routledge: London.