Investment vs. consumption 1 | Finance & Capital Markets | Khan Academy

I always wanted to make a video to introduce some The term that people use now I think it touches what we are solving The core of the problem of credit collapse But it’s higher and deeper Next, I want to review the savings and consumption And investment concept You must have heard it many times Obviously everyone will say I have invested in the stock market Or I have already invested in a property and I want to tell everyone How do i view these ideas Frankly I have never seen this method used in any economic book To describe them even though they will talk about it But I think this is exactly The way you think about these things So if you save money everyone knows that means That's money that won't be spent There are some things you can do with money Either spend money to consume Or use money to invest Let's think about some different situations Consider these things as consumption Or investment Suppose I have operational 100,000 USD I use this $100,000 Built a factory This factory is about to start production I fabricate some products assuming it can produce Than any other factory More efficient and cheaper cars We all agree that this is an investment Why is it an investment? Because I spent this 100,000 dollars And use it to create hopefully More valuable uses than the original $100,000 In fact, in this investment, I expect Get some kind of return Questions about what the return on investment is The previous video has explained that you usually energize it If you spend 100,000 to build a factory This factory produces 50,000 US dollars per year It is very likely that it creates at least 50,000 value every year Assuming that there is no corruption in this system In fact, more than 50,000 value is created every year Is a normal thing Maybe it is creating value of 100,000 per year 50,000 of them went into the pockets of producers The remaining 50,000 in fact Into the consumer pocket of consumer products You have to take this into consideration If all the values ​​are in The producer’s pockets then lack huge incentives Let people consume this product Anyway, that's not the topic we want to discuss We should in our mind There is a general framework for consumption and investment So we agreed If i want to build a factory Suppose I draw in green is investment So building a factory is an investment Now suppose I am homeless And has $100,000 Because i'm homeless I have no place to eat and rest and sleep Because i don't have a home I can't get a job Can not be useful to society So maybe I will use this 100,000 to buy a house To cater to all my needs Suppose to build a simple house I use a neutral color to mark it This is another way of 100,000 yuan instead of building a factory But to build a simple house This house will shelter me and my family from wind and rain It can provide us with a guarantee that my child can go to school They can become more useful to society Now i have an address Can go to the bath and allow me to get a job In general, I can create value for society Instead of hiding in the corner Begging for alms I would say this is also an investment why? Because of the 100,000 dollars I paid No matter if it is owned by me or given by others It paid off What is the return? It may be easier for the factory to quantify But at least it allows me to have a job to do Because i own a house Because I have a place to live Have a refuge So i can rest It is with this guarantee that there will be returns My child can contribute to society If they grow up homeless Maybe they can never contribute to society Now that they have a house that shelters the wind and rain Then they can go to school and so on They can give back to society More economic value It’s hard to evaluate maybe I didn’t have any job before Now I have a job and every year Contribute to the society 30,000 US dollars Maybe I work in someone's factory Maybe I offer something else or I am a farmer now No matter what I can provide valuable resources Or my children if they never received education Maybe they can add 10,000 dollars in value every year But now they can increase the value of 20,000 So their difference is the return on investment How many questions So I still treat it as an investment Now my question is Suppose i already own a house This is an investment Suppose I own a house and my family is happy We have everything we need We have food, my kids can go to school I can get a job, all of these exist Suppose I still have 100,000 let me mark it in yellow I use that 100,000 Granite countertops I have some remaining assumptions I want to add a bathroom in the house Purchase the latest hardwood floors You can imagine my home will become very beautiful Maybe add another 2,000 square feet Generally you can’t buy them all for 100,000 But i think you understand Basically, I mainly did some improvement of family conditions My problem is that this is an investment Or consumption? We are like most people in daily life Treat this as an investment Why do they say this? Because they said Spend 100,000 on the house in this way, maybe– If you watch the home channel People inside do it often If you spend 100,000 on your house Maybe your house Will increase to 150,000 Or suddenly someone Realize the value of your house Worth $150,000 They will say you got 50,000 return on investment I don't think it's an investment That's speculation Basically you invested money in this I use red to indicate consumption is red What will happen here economically? When you add granite or bathroom Or hardwood floors or additional housing area This makes the people living inside Is it more productive? Does it make you work harder? It makes you more likely Has a cure for cancer been discovered, is it still possible to invent Ways to obtain cheap energy Or is it to produce more small parts? If there is any difference, it just provides more things Let you take care of you and you can't pay attention Put more on work Or need to add more energy To maintain this kind of room Let the room warm in winter and cool in summer So if there is any, I will flow out the 100,000 You did create something about to consume More social resources In fact this will never increase The wealth of collective society The two examples cited earlier add The wealth of collective society That is the return from investment Generally speaking, this is an investment into society It contributes to the economy The one on the right does not contribute to the economy It might make you happier Make your self feel better Let your self-esteem grow, your self-justice grow Tell others you succeeded But it will not increase the wealth of society When you said you invested You are actually saying you are speculating What you said is by paying this 100,000 Essentially you are looking for a bigger fool there If it can make them happy They could have done the same thing They could have bought your house And spend 100,000 to do these things But what you want is essentially You are looking for someone He will be willing to spend an extra 150,000 to buy Originally worth 100,000 In fact if you use these things Their value will fall So you just assume that the Granite countertops will suit someone's taste Or hardwood floors will suit someone's taste Someone will like In fact i think When you decorate your house in this way You spend 100,000 on your taste If someone is really willing to pay more than 100,000 I would be very surprised unless they are somehow Irrational or affordable Because it is part of the debt Anyway, I think the overall situation is like this: Investment increases social value A simple house increases social value Consumption is something that may be called investment Because it is some kind of speculation One might be able to find something willing People who pay more But the money was "burned" It cannot create value for society Continue this topic in the next section

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