Fun and Learnings: 7 Money Lessons from Harry Potter

Harry Potter is among the most read books in the world. And for many of us, ‘Potter Heads’ is among the favourite reads. We grew up with Harry Potter. While the series has officially ended, both books and movies, Harry Potter will always have a special place. 

If you are a ‘Potter Head’, you know that the Harry Potter series offered valuable lessons on friendship, loyalty, bravery, and education. It doesn’t stop there; there are a few financial lessons too. Yes, yes. You read it right. Harry Potter does offer some learnings on the importance of investing. Read on to find out what they are. 

Financial Lessons from Harry Potter Books 

Books, like art, would convey different meanings to the reader. The same is the case with Harry Potter as well. Here are a few money lessons from the Harry Potter series. 

Save for the future

In the first book/movie, Harry Potter comes to know that his parents (James and Lily Potter) had left him a fortune to see him through his entire schooling. If not for their savings, Harry would have dealt with financial issues. This is over and above a powerful wizard behind him. 

• Takeaway: For an individual, it shows that life is unpredictable. Therefore, always save for the future. Many experts recommend having atleast 6 months of pay (salary) for emergencies. For instance, the outbreak of Covid taught many the importance of savings. Many had to borrow to fund their medical expenses. Some may have had to sell/mortgage their jewellery or real estate to meet any income shortages. 

Invest early

Fred and George Weasley, the infamous twins in the Harry Potter series, are known for the trinkets and tricks. Whatever money was made by selling these items, it was saved to be invested in their business. Harry, too gave his Tri-wizard tournament winning money to the Weasley twins, knowing their potential. This timely financial aid from Harry helped them open their business. While Harry didn’t expect any return from the Twins’ business, they did offer him freebies from their shop. 

• Takeaway: Timely investments could help you in wealth creation. Investing early over a long period (beyond 5 years), either in stocks, mutual funds, or other debt instruments, including PPF or FD, can help wealth generation. The power of compounding comes into play in each of these instruments in the long run. As a step towards achieving this, one can consider SIPs for as low as Rs 100 per month. 

Diversify Your Portfolio

This comes from the most powerful and dark wizard in the world of witchcraft and wizardry – Lord Voldemort himself. While his intentions are pure evil, his act of dividing his soul 7 ways teaches investors valuable lessons. So, Voldemort prepares for contingencies in case of his absence. He prepares to come back one way or the other (in seven different ways). 

• Takeaway: You can ignore the wrong things and learn a lesson of diversification. That is, if you spread your money across different investment avenues, including mutual funds, equities, debt instruments and gold, to counter the effects of market volatility or interest rate fluctuations. 

Do Your Research

Hermione Granger is a studious girl. She is always with a book and is reliable for any information. She also has a keen eye for detail. For instance, when the three have a face-off with Fluffy, the three-headed dog, Hermione notices the trap door. She said that Fluffy was guarding something. Similarly, Hermione figured the monster was a snake in the Chambers of Secret nook/movie. 

• Takeaway: You need not be studious as Hermione is, but you should do sufficient research before investing. Like Hermione, who read all about Hogwarts before joining the school, you should do thorough research about a company before investing in the stock. These include the company’s debt and cash positions, financial ratios, and other metrics. You, as an investor, pay attention to the company’s past performance and prospects to know how your investment would fare. Additionally, understand the external, that is, economic factors, that may affect your investments. 

Don’t Gamble

Even in the wizarding world, people lose their money. Take the case of Ludovic “Ludo” Bagman. He was an employee at the Ministry of Magic. He was heading the Department of Magical Games and Sports. However, he was to leave the position due to multiple gambling allegations against him. Bagman lost a lot of money too. Well, gambling is frowned upon even in the wizarding world! 

• Takeaway: While ‘don’t gamble’ is sure one learning from Ludo Bagman, it is not the only lesson to learn. If you plan to start trading in the equities market, make sure you know the basics. Otherwise, you may end up losing a lot of money like Bagman. After all, it is a bet (your assumptions) gone wrong. This is particularly true in the case of market volatility. While a seasoned trader can take advantage of the price fluctuations, it is better to wait and watch if you are new. 

Create a Will

Albus Dumbledore created a Will for Harry, Hermione, and Ron. He ensured that all 3 had sufficient knowledge or equipment to complete the mission (destroying Horcruxes). If only Harry’s parents had left a will or Sirius had left a will (in his absence), Harry’s life would have been easy.

• Takeaway: If you are the only breadwinner in the family, it is important to safeguard your family in your absence. While the emotional toll is heavy for the family to bear, the financial burden could be reduced. Creating Will or taking an insurance policy is a way to ensure all family members are taken care of. It also helps avoid disputes between them when it comes to inheritance distribution.    

Investments and External Environment

When Voldemort makes a strong comeback, Death Eaters raid the cities and throws everyday life out of balance. On the other hand, when a ministry takes a call on the workings of Hogwarts teaching, it affects the daily life of students. Similarly, when the ministry (under the influence of Voldemort) decides to send the muggle home, it strikes fear in the magic world. 

• Takeaway: You as an investor should watch out for the company’s performance and management commentary and keep an eye on external factors. These include regulatory changes, Government announcements, central banks interest rate changes and even geopolitical changes, including changes in government in the US. All these factors could have an impact on your investments. For instance, an increase in interest rate by RBI could bring down the bond prices and increase the bond yields.