Thread by @Trinhnomics

Are you ready? This is my thread on $$ for kids (Cambodian version but u can replace this w/ any country). One day I'll make a video 🤗- consider this my Twitter volunteering work to promote financial literacy, which I'm passionate about. Here we go.

Part 1: What is economics?

Economics is about the allocation of limited resources & the behavior & interactions of economic agents on both the micro (individual & firms) to the macro (economy) level.

There are 3 key resources that are finite:
a) Labor
b) Land
c) Capital

Cambodia:
a) Labour - population is 16 million people w/ a 9.3 million labor force; wages are cheap, roughly USD187/month for manufacturing;
b) Land - 181 thousand km^2; resources are gemstones, gas, oil, phosphates, timber
c) Capital - Output is USD22bn; Exports 11(7bn garment)

The role of the gov' is to "fairly" distribute resources to provide public goods where the market fail:

1) Revenue - Cambodian gov taxes consumption (VAT) not much on property & income;
2) Spends mostly on salary (chart)
2) Central bank regulate $ via rates, credit & regulation

So that's the basic of economics, obvs the devil in the details but that's enough for now. Let's talk about money ($).

Wut's money? Well, got 4 jobs: medium of exchange, standard of value, deferred payment & store of value.

In Cambodia, people like the USD for those jobs v riel

So money looks like this in Cambodia:

85% in USD (that's the percentage of deposits of USD relative to total liquidity); I know, a lot.

In other words, USD is👑in Cambodia.

Let's talk about how all this relates to a kid in Cambodia & why we care about the PRICE of money ($).

Wut's a price of money? INTEREST RATES. In Cambodia, the USD rates look like this (data from the central bank)

Banks charge 11% to lend USD 1yr; Banks pay 4% to borrow 1yr.

Notice that instead of labeling 11% as banks' lending rate, I put the costs of BORROWING & the BENEFIT of SAVING for a person;

The spread b/n the 2 is wut we call NIM 🤗(juicy for Cambodia); Okay let's take this home.

Economics is about decisions & opp costs: save or borrow 🤔

Consider 2 people: a saver & a borrower. Both have the same income, say 187/month (ave wage of manufacturing).

Saver spends 107 🍚
Borrower spends 267 💃🏻👠👜

These 2 decisions have economic consequences. Obvs good to have higher consumption in the present but that has COSTS 🤑

Let's make this concrete:

a) SAVER saves 80/month so 960/yr & if deposit in bank in USD then 4.4% or 53 income; If does this every yr for 10yrs, will have 12,258 by year 10🤑💰↗;

b) BORROWER borrows 80/month so borrows 960/yr & so in 1yr owes 106.4 & in 10yr 17,900 debt 🥶😱😰

Let's look at this over 20yrs, yep, the debt grows EXPONENTIALLY at a high rate (11%) & so if the person borrows, that person borrows into his/her FUTURE.

Consumption smoothing has costs & benefits.

Inversely, a saver, by spending below means, get income from CAPITAL SAVED 🤗

In Cambodia, only 5% of the pop has a savings account, so they do informal banking. Let's say u stuff money in mattress at 80/month & 960/yr & NO INTEREST. What happens?

Initially, u're not diff than the 4%. But compounding's powerful even at 4%. Look at the diff in 20 yrs: HUGE

Looks like this in a table. So when you are at a store looking at a pair of shoes, the TRUE COSTS of the shoes (say 80USD) is actually depends on whether:

a) Borrow to consume (then 80*1.11 to time u pay)
b) Use savings to consume (then 80 *1.044)

This is opportunity costs 🤗

What's my message to all the kids out there 😍:

1) Wage matters so study to get a good job/wage & keep pushing for a raise 💪🏻;
2) DO NOT BORROW to consume & only to invest 💪🏻;
3) Save & invest & don't forget compound interests💪🏻

Sincerely,
@Trinhnomics

P.S. And marry well 😍

Did 2 sessions on 3 ideas: a) compound interests; b) opportunity costs; c) risks. Kids asked a lot about banks (only 5% of Cambodians have access) so learned today wut u think is norm isn’t a given esp when it’s an anomaly🙏🏻 So some education on my part 😳 but was a good day 🤗