Sunday, December 4, 2011

The Matthew Effect

I was reading a blog post by Scott Young today and thought I would write my own take on it.  Basically, the post is about the Matthew Effect (see here and here), the inflection point (more on that in a minute), and getting your aimed in the direction you want after getting side tracked.  The Matthew Effect is named after a statement from the bible, specifically Matthew 25:29:  "For to all those who have, more will be given, and they will have an abundance; but from those who have nothing, even what they have will be taken away."  While I don't agree with this in the general case (Those who have candles, more will be given???), I can easily point out how this is true in some cases.

The power of the Matthew Effect can be seen most easily by the power of compound interest.  If you have invested $1000 at a set rate of 10% each year, you will earn $100 the first year, $110 the second year, and so on.  Conversely, if you have $1000 worth of debt set at a rate of 10% each month (cheap by credit card standards), you will owe an extra $100 the first month, $110 the second month, and have debt collectors after you the third month.  Those who have debt, more will be given.  The moral of this story is to avoid debt.

The inflection point, in light of the previous example, would be where you pay off your debt and start to invest.  Instead of incurring more debt each month, you gain more interest.  Unfortunately, this can, and often does occur, in the opposite direction. 

The Matthew Effect is not limited to money, however.  As per the second second Wikipedia article I linked to above, those who are poor readers early on in school will continue to do worse and worse in later years. 

Yet, all is not lost.  The inflection point can be reached.  Let's say you want to learn to read, speak, and generally understand Polish.  The longer you speak your native tongue, the more difficult it is to learn another language.  This is because our brains and vocal muscles are so used to speaking, in my case, English, that it takes a long time to retrain them.  It's an uphill battle, at first, to get to the inflection point.  Once we hit that point, however, our learning of Polish will take off.  We won't have to learn new Polish words through our native tongue; we can use a Polish dictionary and learn new things.  Compound learning.  The more you know, the easier it is to learn more.

But what about non-finance and non-learning?  Sure.  For the anti-social, meeting new people can be very difficult.  It's a challenge to just get out there and do it.  So much so, in fact, that socialites can't understand the trouble.  However, once you have enough experience in meeting new people, it becomes effortless. 

To summarize, if you want to learn a language, start learning the language.  If you want to become an expert in classical guitar, start playing classical guitar.  It'll be rough at first, but once you reach the inflection point, you're golden.

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