Who makes more money

There are a few success stories on people who don’t graduate from University but ended up earning much more than people who graduate with high paying jobs. Bill Gates is an over-used example so I shall refrain from using him as my thesis. How about hawkers? Businessmen ? Entrepreneurs ? Whom manages to carve a niche for themselves and makes good money. We often hear that education is a waste of time and when you go out to work, everything else remains constant. “Ceteris Paribus”

My explanation on the difference between the poor and the rich is based on an economic perspective I learnt in school. On my first macroeconomics lecture I came across these two terms, Induction and Deduction. As the definition implies,

· With the inductive method we begin with an accumulation of facts, which are then arranged systematically and analyzed so as to permit the derivation of a principle or arranged systematically and analyzed so as to permit the derivation of a principle or generalization. Induction moves from facts to theory, from the particular to the general.

· Economists may also go about their task by beginning at the level of theory and proceeding to the verification or rejection of this theory by an appeal to the facts. This is the deductive, or hypothetical, method.

The remaining article will describe why people who are uneducated can earn a higher return compared to the educated.

My assumptions in my thesis are that the educated tend to be deductive, whereas the uneducated tend to have an inductive characteristic. My assumptions are derived based on the fact that the educated tend to read more and hold a regular job, they read more and thus tend to apply whatever they have learnt on books to their job or to their daily lives.

In comparison to the uneducated, as they have no prior or little education compared to the educated, the uneducated have to derive knowledge from either experience or observations, thus when they learn something new, and it works well, they actually induce a theory because they did not refer to any theory to begin with.

So What Has This Got To Do With Who Makes More Money?

Well, in order to gain an abnormal return, you possibly cannot go with the flow but have to go against the flow. Take the stock market for example, if everyone can learn valuation knowledge from books, no one would be able to profit from abnormal returns because everyone is faced with the same identical information and knowledge. This is known as the efficient market hypothesis in portfolio management.

So How Do We Make Lots of Money from the Stock Market?

My thesis on why the uneducated makes an abnormal return is because the information they have learn from induction is not available from any books or published from any source. This “Independent” findings works solely for the user who has induced that particular theory and works well solely for that user. This is shown from many businessmen, who earn more than people who have received higher education compared to them. As they are not educated, they have to rely on their experience to carve out a niche for themselves. Subsequently, they discover a particular method or model that works well for them. However, what they do not realize is that they have actually induced a new theory. Another reason is possibly due to the fact that they are not restricted by theories.

To substantiate my thesis, I shall give an illustration on the business model of a loanshark. Well, in the past, if you were to borrow money, you probably need to bring your identity card, visit a loanshark, and sign an IOU certificate. This “business model” is not very effective because the loanshark are exposed to high risk of defaulting their “loans” and getting caught by the police.

Then the illegal business model was evolved into something that deserves commendation.

If you are in an urgent need of money today, you visit a loanshark, but instead of exchanging cash for an IOU, he takes you to a departmental store that accepts installment payment scheme. In this scenario let’s assume you want to borrow $5000. The loanshark purchases a Plasma television that is worth $7000 and you pay for it under your name. The end result is that you get the $5ooo cash, the loanshark receives a Plasma television which he/she can sell more than $5000, and he avoids default risk as you have to pay the installment in your own discretion. How ingenious can this be? The particular who thought of this model would have gotten a distinction for a business model project if he ever made it to University.

My point is not to conduct in illegal businesses but people who induce theories have a higher chance of gaining a higher return compared to people who deduce theories. No doubt that it is good to read more and receive a higher education, but it is definitely not the way to make it rich. The next time you don’t understand a point made by your lecturer in school, think in another perspective that the lecturer is not doing a good job in explaining well. Well if all else fails, fret not, because you will probably make it bigger on your own!