Four Money Lessons To Learn From The Harry Potter Series

By | October 4, 2018

If you are one of the crazy fans of the famous Harry Potter series, here are four money lessons that we all can learn from the magical world.    

Harry Potter is definitely the best thing that happened to most of us. Like many other avid fans, I remember burning the midnight oil reading and sometimes re-reading all the Harry Potter books religiously. The series opened our eyes to the whimsical world of magic and taught us important lessons in friendship, devotion, courage, and even investing. Yes, that’s right!

Believe it or not, even in the magical space, financial problems don’t get magically resolved with the swish and flick of the wand. So, attention Potterheads! Here are four money lessons we can learn from the wizarding world. Let’s take the Hogwarts Express one more time, shall we?

Lesson 1: Insure Your Family’s Future   

Harry was just a baby when he lost his parents. But thanks to James and Lily Potter who had the forethought to set aside some money for Harry’s future. They made sure that Harry would never have to compromise on his education and standard of living.

They left a sizeable inheritance for Harry at Gringotts Wizarding bank as they knew that in tough times if anything were to happen to them, his son’s future will be financially secured.

Financial Wisdom: If things are tough in the wizarding world, you can imagine the plight of the Muggles.  So, plan for your family’s future well in advance.

First and foremost, Life Insurance is necessary to create a financial cushion for your dependents as no one knows what the future holds.  And, if you happen to be the sole breadwinner in the family, it could get difficult for your loved ones to maintain their standard of living, if something unfortunate were to happen to you.

Additional reading: Essential Documents You Need to Know about Death Claims

The amount of Life Insurance cover that you will need depends on various factors like your life expectancy, annual income, and liabilities etc. Ideally, the sum assured should be enough to pay for any financial liability you may have, besides creating a corpus for your dependents to meet their finances in your absence.

So, whether it’s for paying for your child’s education or making sure your family gets the much-needed financial security, Life Insurance could save the day for your dependents.

After all, the last thing you would want your loved ones to worry about is money and their future financial stability.

Lesson 2: Think Long Term   

Time is money or as the wizards say, “Time is Galleons”. The twins, Fred and George realised this quite early in life.

In the stumbling wizard economy when businesses were shutting down – either because their owners had been killed or customers were anxious to shop anymore, the only retailer that seemed to be blooming in the down economy was Weasleys’ Wizarding Wheezes, a joke shop that was run by Weasleys.

Instead of following the herd, they stayed invested in their long-term plan and put their money saved into furthering their business.

Financial Wisdom: When investing for a long-term goal, discipline is the key. Most of us have our fair share of doubts when it comes to investing in market-linked products, especially equities.

A major risk associated with Equity Investing is market volatility which is influenced by innumerable factors that determine the movement of stocks. Owing to this it becomes difficult to time the market.

Therefore, in a short duration, the performance of equity shares is driven more by the market sentiment which increases the risk element.  To benefit from equities, one should always think long-term and stay invested, preferably for more than 5 years.

Additional Reading: Get a Good Equity Exposure For Your Long Term Goals!

Lesson 3: Diversify Your Portfolio

Ludo Bagman, the head of the Ministry of Magic’s sporting department, had a hard time paying off his debts, thanks to his gambling problem.

He constantly lost bets during the Quidditch World Cup and tried to pay off some of his debts with disappearing leprechaun gold. He tried his luck again to recover his losses with one last bet on the Triwizard Tournament which he lost again.

Financial Wisdom: Keep in mind that any investments that offer higher returns also come with associated risks. Look to diversify your portfolio so that even if you lose on a bad fund or a stock, you don’t lose everything like Ludo.

Diversification is an investment strategy that aims to reduce risk and maximise returns by spreading money across assets that are not interconnected so that if one does not perform well, the other may average out the return.

However, there is no set rule for the number of funds required to achieve the right amount of diversification in a portfolio.

Ideally, stick with 3-4 funds at best and track the performance of these at least once a year. This will help minimise the volatility that your portfolio is likely to face over the long term.

Additional Reading: Tips For Ideal Portfolio Diversification

Lesson 4: Don’t Get Scammed By High Returns  

One important lesson that the magical world taught us is that there’s no such thing as free money. In “Harry Potter and the Goblet of Fire,” viewers at the Quidditch World Cup got thrilled when gold started to pour from the sky.

Filling their pockets with money, the onlookers got disappointed after they realised that the free gold was just a silly prank.

Financial Wisdom: Sometimes the greed to make easy money gets so extreme that we often tend to fall for ‘Ponzi Schemes’.

A Ponzi scheme is an investment fraud where investors are promised high returns within a shorter time span compared to other conventional investment options available in the market.

The Reserve Bank of India also launched ‘Sachet’, a website from where anyone can get information about companies that are allowed to accept deposits. The initiative is taken to stop the proliferators of Ponzi schemes and share information about illegitimate acceptance of deposits by dishonest entities on this site.

Be extra cautious when investing your money in any financial instrument. Do your research thoroughly or seek professional help before taking the plunge.

Additional Reading: How To Be A Successful Investor

Like Albus Dumbledore said,” We must all face the choice between what is right and what is easy.” While some prefer the former, you can undoubtedly avoid financial pitfalls by following these simple tips.

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