Most reasonably educated people have "some idea" of what leverage is. We might think of the simple device known as the "lever".
What any kind of LEVER really amounts to is a trade off to gain advantage. Lifting the block on the left requires a lot of effort until you position the fulcrum closer to the load. Sure, you have to push the lever a greater distance--but--the advantage is that LESS effort is required.
Generally speaking, every mechanism uses some sort of lever to gain an advantge mechanically.
And automobile uses explosions of gasoline as energy to push a piston down (effort) multiplying that energy for forward movement (varoom zoom!).
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Of course there are OTHER forms of Leverage as well!
In Finance you hear about "Leveraging your position" or "leverage buyouts". Metaphorically, an advantage is gained or lost by multiplying either profit or risk.
A simple example: You want to apply for a high paying job but don't have a good suit to wear for the interview. You also don't have the money to buy
a suit fine enough to impress your prospective employer-to-be. Where do you turn?
You may borrow the money under an agreement to pay (for the money borrowed) interest (the cost of money borrowed).
There are two risks; one for you and one for the Lender.
You risk not getting the job. The Lender risks not getting the loan paid.
The Lender may require collateral. This is leverage against risk. You sign over ownership of your car title, for example. If you fail to repay the Lender gets to seize your car and resell it to pay off your debt (plus profit).
Your risk is offset by the fact you believe your chances of being hired are multiplied by presenting yourself as successful. Your annual salar will be more than worth the interest in repayment of the loan.
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The above examples are obvious to everyone.
The better we are at leveraging our risks and understand the advantages/disadvantages the more traction we have to move beyond remaining static in life and moving ahead toward better living prospects.
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But, what if we don't really understand LEVERAGE against us?
For example, what if we think buying a New Car is an "investment"?
We may take out a loan+ interest for something at a certain price thinking the price reflects ACTUAL VALUE.
Within the 1st year of ownership that same automobile loses 20% (1/5th) of its total value!
What sort of "investment" is any good that you must borrow (leverage) to lose 20% in value??
Don't Do It! [Fool.com: Buying a Car]
Yup, that's right: all that iron, glass and plastic losesvalue over time. ... However, there are a few things that make car-buying much more important ... On average, cars (and trucks, too) lose more than 20% of their valueinthefirstyear. ... If you feel that you really do need a newcar, then write down the second question, " Why ...
http://www.fool.com/car/car01.htm
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How about a new house? Aren't they a proven good investment?
Financial analysis and statistical appraisal of the last one hundred years in every major industrialized country demonstrates the fallacy.
In his book "The Signal and the Noise" author Nate Silver puts the record clear. The statistical average rise in a house's value is 6% at best.
Factor in the loss of value due to inflation and the cost of debt service (interest paid) and the advantage vanishes into ponderous RISK.
Buying A House Is The Worst Investment You Will Ever Make
caps.fool.com/Blogs/buying-a-house-is-the-worst/714396
Feb 28, 2012 – Telling people that a home is a bad investment is bad advice. ... If you are looking to buy a house for yourself, you are not investing in real ...
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When leverage works against us
Do we understand that we often cannot afford the Risks we undertake to multiply our hope of advantage?
The Leverage against us may be due to our ignorance of the true position we are in regarding gain vs loss.
Take RELIGION as an example.
Jehovah's Witnesses were once NOT Jehovah's Witnesses if they are converts.
The magazines and books and sermons present the householder with a litany of RISKS (such as dying at impending Armageddon) with an offer.
That offer seemingly bestows a way of gaining advantage and multiplying benefits at the cost of losing a bit of Leverage.
Everlasting life is what the prospect is offered as a potention GAIN. The leverage lost is what? The life the convert will live will cause them to surrender control of their own life while they are alive BEFORE any post Armageddon rewards.
The interest they will pay amounts to being an oddball in their school, family, community and nation. The will not have any social solidarity with their fellow citizens. Their education and income will undoubtedly suffer. They won't vote and will be at risk in certain emergency room situations due to blood loss.
The Watchtower Society holds all the Leverage because it sets the terms of the offer.
The fine print on the contract may change after signing (baptism) too! The policies and theology may be "adjusted" like an adjustable rate on a mortgage.
In fact, becoming a member of Jehovah's Witness religion is a mortgage on a potential FUTURE with the rates constantly being adjusted upward as to how much time, effort and sacrifice is necessary to remain a debtor to this loan in good standing.
None of us who made such a deal came out ahead by remaining under full force of such a contract. We were losers because we were upside-down in our profit and loss.
No matter how hard any of us struggled to "make payments" it was never enough to satisfy the requirements of the contract.
We were Leveraged beyond any reasonable expectation of gain for ourselves.
We multiplied our efforts at a LOSS of advantage.
The fulcrum on the Lever was pushed the wrong way from our own standpoint. The weight we lifted was heavy, heavier and heaviest until we broke under the burden.
Do you really understand how much LEVERAGE is used against you when you become a Jehovah's Witness?
Your family may be lost. Your "friends" may stop being your friends. Your social status will be nil. You may toil lifelong at maximum effort and find yourself without having accrued any value whatsoever that can be cashed in for retirement benefits.
Who but a fool what accept such a transaction as a good investment?