Learning by (losing): Getting up-to-speed on personal finance in Brazil

One of the things that’s consumed some of my free thinking and time of late has been how to translate well-trodden personal finance concepts that are easily facilitated and can be nearly automated at this point to the experience of living in another countrry, especially one with a history of inflation, a dynamic foreign exchange, rate, and a protectionist and nationalist approach to investing.

While the concept of the modern stock market originated in the Netherlands, well before the founding of the United States, through the issuance of bonds and shares of stock in the Dutch East India Company to the general public, the US has long usurped its European counterparts as the largest concentration of markets and market capitalization. As pension schemes have been increasingly rescinded from the typical American private sector employee, the privatization of retirement savings became a huge, trillion dollar+ industry, propped up by legislation leading to the creation of tax-advantageous vehicles like the 401(k) and IRA that incentivize saving (and not touching that savings). And while it’s shocking to me how much lower American stock market participation is than the television and print media would lead you to believe, given sub-inflation level interest rates and the advent of exchange-traded funds that remove much of the diversification risk from the investing puzzle, those with the means, wherewithal, and luck to invest should do so.

I was first acquainted with the market and its infinite puzzles through books like Liar’s Poker and The Snowball, books that captured the seductive allure and nearly-unquantifiable potential of the markets. The publication of Ramit Sethi’s I Will Teach You to Be Rich, handed to me by a benevolent older cousin, seemed almost written to my 19-year-old self. The book implored its readers that it’s never too late to start, and participating, learning, and (sometimes) losing was better than feeling lost and unexperienced when it came to your money. I tried to build credit and develop my personal finance infrastructure as much as possible for someone earning very little, to reap the benefits of compounding interest and dividend reinvestment, with as much patience and humility towards the markets as I could muster.

Moving to a new country, with its own market and personal finance culture, has been an exploration of my philosophy towards money and the very real benefits that living in a market-driven, inflation-controlled economy provides. Brazil’s historic inflation, mostly tamed since the implementation of the Plano Real in the 90s, still seeps into the popular culture and attitude towards consumption here in Brazil. If my money will be worth half of what it’s currently worth if I leave it in the bank, what wouldn’t I spent it and reap the benefit of its value, now? Similarly, despite a longstanding (and ongoing) tradition of monthly payment-based purchases for everything from airline tickets to sneakers, credit cards are still a nascent industry, far from ubiquitious and leagues from the points-maximizing culture that exists in the United States.

As an American living in Brazil, I’m only now beginning to be acquainted with the advantages, disadvantages, and vast differences that exists between the US and other parts of the world when it comes to personal finance and its relationship to the broader economy. For example, Brazilian consumer banks pay a significantly higher interest rate on its holdings than the US, reflecting a significantly higher base risk in the Brazilian economy, and the need to incentivize consumers to save and leave their money subject to exogenous risk. The Brazilian state, through its rigorous labor laws, takes a large role in inducing retirement and other savings onto the Brazilian worker. Interestingly, Brazilian personal income taxes seem to be more evolved and efficient than their US counterparts, completed via “several clicks, all online” (though here, I’m not talking about the broader tax code.)

Market investment participations seems to be restricted to Brazilian stocks and financial products, and the range of products offered appear to be much smaller than the United States, with comparatively higher expense ratios reflecting the lesser role of automation, and competition, in the financial services market. The recent all-time high in the Brazilian stock exchange (called the Bovespa), does not seem to reflect an increase in partipation by Brazilians, but rather of yield-seeking foreign money, which can be removed from the market at the click of a mouse, or increasingly, automatically via servers in unspecified locations, leaving Brazilian investors left with the result.

Whether or not I dive into this frenzy is a topic left to be explored over time as I begin to think about how to optimize this experience, more broadly but also from a financial standpoint (with mistakes sure to be made along the way), all the while learning and expanding my perspective on markets. As always when I find myself away from the US for a period of time, I remind myself of Warren Buffett’s now classic adage of winning the ovarian lottery – a constantly useful reminder whenever I find myself in doubt or in a moment of self-pity.