Jay Williams on Finance and Chess
Jay Williams was an All-American and “National Player of the Year” at Duke University and was a first-round draft pick for the Chicago Bulls. He graduated in three years with dual degrees in sociology and business, and his work ethic was a hallmark of his college career. His #22 is retired at his alma mater.
After being drafted by the Chicago Bulls into the National Basketball Association, he had one solid season and was pegged as the future starting point guard. An unfortunate motorcycle accident effectively ended his playing career, but he went on to become a sports commentator and analyst. Lately, Williams has been recording very insightful clips on financial management.
The topics cover building wealth, LLCs, trusts, home and car ownership, and personal finance. In a recent video, he discussed debt leverage, with the main takeaway being to use debt for assets (real estate, education), not for liabilities (cars, high-end clothing). In discussing debt and equity, he uses a chess analogy.
Think of it like chess. Debt is the opening move. Fast, aggressive… designed to claim space. Equity is the endgame strategy. Patient, compounding… designed to win. The player who knows how to connect them, controls the board.
~Jay Williams on debt leveraging
Photo by Stephen Lovekin/Shutterstock
Video by Jay Williams
Now, Some Financial Notes…
Williams provides valuable tips for understanding the debt/equity balance. It can help consumers avoid accumulating high interest on depreciating goods. Many people like to buy luxury items, but assume high interest rates, become overexposed, and fall into interest traps. The product they purchased loses value, while the interest payments increase the debt.
Imagine having a product that you are paying increasingly higher debt in proportion to what it’s worth. Also, imagine paying interest on a meal you consumed 30 days ago. It’s a convenience you pay for, but it’s not financially savvy. Some have to resort to “predatory loans” to cover runaway debt. These lending companies can charge up to 700% interest!
If you are young and have not developed a financial plan, consider a couple of ideas for the debt/equity scenario. Luxury vehicles are among the worst depreciating assets, which is why it is a good idea to consider a reputable used model. When you are young and without any savings, do not run out and buy a new luxury vehicle. You’ll look great now, but you’ll feel financial pain later. Go with a reliable used car, pay it off quickly, and drive it until you can comfortably upgrade, or the maintenance exceeds its utility.
Education is the best form of debt, as it can yield the highest return. In the U.S., you defer payments on federal loans while you are enrolled and get an additional six months after graduation before you start paying. Student loans are the cheapest money you’ll get for the value. Even after earning a degree, certificate courses (e.g., AI, Google, Six Sigma, Blockchain) can lead to an appreciation of intellectual capital and, thus, higher income generation. Real estate is also a good way to use debt to build equity over time. A well-located property can appreciate over time, increasing equity.
How does personal finance relate to chess? In the opening phase, avoid credit card debt, buy used cars, save a portion of every paycheck (for an emergency fund or vacation), and prepare a budget. At the same time, you can plan for the middlegame. Create an investment strategy that leverages debt for increased equity. This may include homeownership, company investment plans, (perhaps) entrepreneurship, trust funds for children, and the mobilization of appreciable assets. These ideas will set you up for the endgame: a nice personal balance sheet, a comfortable retirement, and the flexibility to do what you want.
You may wonder how so many rich celebrities end up filing for bankruptcy. Many are crippled by a lack of tax sheltering, no budgeting, “conspicuous consumption,” and bad debt. Navigating one’s financial health is certainly analogous to chess, and if you can plan the three phases, you stand a better chance of succeeding in other areas of your life. While it is good to start early, sound financial planning applies to any phase of life. Jay Williams seems to be passing on these timeless lessons despite his short career as a professional athlete. He is now advising many young athletes on how to avoid financial pitfalls.