Galileo Galilei
In 1632, astronomer Galileo Galilei was ordered to appear before the Holy Office in Rome to defend his work, Dialogue Concerning the Two Chief World Systems. His work compared the Copernican system, which theorized that the Earth circled the Sun, with the Ptolemaic system, the mainstream belief that the Earth was the center of the Universe. In 1633, Galileo stood trial for his dissenting beliefs and advocacy of Copernicanism.
Galileo did not stand trial because he had created the theory that the Earth circled the Sun; instead, Galileo faced condemnation because he had celestial evidence to support this theory. Galileo had proven, with the use of a telescope, that Jupiter’s four moons orbited that planet. He used this scientific observation to argue in favor of Nicholas Copernicus’s theory that the Earth circled the Sun, a theory which had been dismissed six decades earlier. Scientists and religious authorities had fiercely rejected Copernicanism, as a result of its conflict with contemporary religious beliefs and scripture, which upheld that the Earth was at the center of the Universe.
Importantly, there was no scriptural evidence that the Earth was the center of the universe. Yet, believers of this contemporary theory cited Psalms 93:1 and 96:10 which suggested that the world stood still. Galileo urged individuals not to take biblical phrases concerning the Earth literally, and instead to consider such phrases as metaphors. This suggestion threatened the power of the Established Church and angered religious authorities; Galileo was convicted of heresy.
He was sentenced to spend the rest of his life under house arrest, and his book was added to the Index of Forbidden Books. As part of his sentence he was ordered to recant and he spent his dying days speaking of his beliefs only in a hypothetical sense. It was not until more than 200 years after Galileo’s death that the book was removed from the Index of Forbidden Books, and that the theory had been accepted as scientific fact. The Catholic Church did not officially acknowledge that the Earth did not stand still in a literal sense until 1992.
This brief summary of a complex story reveals three important points relevant to the arguments that will be made in this subsequent sections of this book. First, religious leaders believed that the world was flat because this notion had been established and entrenched. Second, religious leaders defended the idea even though there was decisive proof in opposition to their belief. Third, even though Galileo had been persecuted for his beliefs, they were ultimately accepted as truth.
370 Years Later
Five years ago a client challenged me. He asked me whether he should put down 5% or 25% on his property. I emphatically answered 25%. Why was this my initial response? It was the only way of avoiding the 2-3% in CMHC fees (insurance required on all mortgages of 75% or more of the property value at the time) that it would cost him up front.
“If I took that 20% and used it as a down payment what would it cost me?” he asked.
“Nothing, it would save you not only the CMHC fee, but also the interest you would have to pay on the excess money if you borrowed it,” I replied.
“Are you sure about that?” he asked.
“Well I guess you would in theory lose whatever interest you could earn on that money.”
“Exactly!” He replied. However, I still was not sold. I was still stuck on the fact that he would be giving up that initial fee, an insurance premium designed to protect the bank, not the client. I argued for nearly 50 minutes, not because I had worked the numbers out myself, and not because there wasn’t distinct evidence against my opinion.. I argued and dismissed his idea similar to the way in which the religious authorities dismissed Copernicus and Galileo, simply because my financial mentors, at some point in time, had told me that it was better to put more money down when buying a house to avoid the mortgage insurance premiums. Someone had established this idea in my mind and it had become entrenched, but not because it was correct.
Similar to the case of Galileo, I first had no reason to doubt the customer other than the fact that someone had previously told me an opinion that I perceived as a fact. Second, even though he had evidence to backup his argument, I defended mine, even though I had no empirical evidence to support my belief. Third, I eventually realized his opinion had validity, which led to the removal of my financial blinders. The Mortgage Insurance Avoidance Debate chapter in this book, was derived from this very conversation.
The point to both of these short stories is to begin this book by helping you open your eyes to other lines of thinking, so that we can break down the fallacies of personal finance and debt.
Just as Galileo’s convictions in his beliefs motivated him to fight an uphill battle, this book will do the same. We will explore the parallels between ideas such as “the world stands still,” and “pay off your mortgage as fast as possible,” and investigate how ideas passed along from generation to generation carry important wisdom, yet should not necessarily be accepted as facts.
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