[Financial Planning for the 100-Year Life] The Essential Difference Between Risk and Danger

Perhaps because the economy has entered an era of low growth and scarcity, a risk-averse trend seems to be rapidly spreading in our society. Reflecting on over 50 years of experience in the financial investment industry, I think the parent generation in their 50s and older in Korea was braver than parent generations in any other country. They boldly purchased apartments worth over 1 billion won with more than half financed by short-term debt, and it was common to see cases where they invested their retirement funds aggressively in highly volatile stocks just because they believed they could make big money.

However, a noticeable change is occurring among these once brave parent generations. “Don’t marry a risky man,” “Don’t join a risky company,” “Don’t buy risky financial products,” “Don’t start risky ventures”... Many parents seem to be making their children foolish. It even seems that there was more hope in those reckless days.

Why have the parent generations become so timid? It is probably because they have seen many cases where themselves or people around them suffered big losses from brave investments, failed marriages, or were forced into early retirement from stable jobs. However, one thing must be clearly recognized here. If one failed in marriage, work, or investment, it was not because the marriage partner, workplace, or financial product was inherently risky. It was because they undertook risky marriages, jobs, or investments but failed to properly manage the risks.

People often translate risk as the Korean word ‘위험 (危險)’, meaning ‘danger’. The media also uses it this way. Products like stocks or funds, whose prices can fall and cause losses, are called risky products. This is because ‘price drop = risk’ evokes negative thoughts. However, the precise English term for ‘위험’ is 'danger'. It refers to dangers like dying in a flood or from a bomb explosion.

Risk is different from a situation that is only dangerous. Both danger and risk imply uncertainty, but risk has the attribute of being manageable. For example, investing in stocks, which carry risk, can result in losses, but if managed well, can yield high returns. This is the nature of risk.

In the coming era, one cannot avoid taking on risk when getting married, choosing a career, or managing assets. Without actively accepting risk and learning how to manage it wisely, one cannot live a prosperous life. For example, in the past when lifetime employment was maintained and average life expectancy was short, a man who could work at a stable job until retirement was an excellent marriage partner. But now, many cases show that a job once thought stable can suddenly become unstable.

Failing to adapt to changes in the times may cause loss of competitiveness and greater difficulties. It is wiser to have a mindset from the start to take on risk and challenge. A shift in perception is needed: “A good job is one that builds the capability and competitiveness to survive amid uncertainty.” The Latin root of risk means ‘to have courage and challenge.’ What the parent generation needs most in these uncertain times is not the idea of protecting children safely, but rather teaching them the wisdom to courageously face risks and manage them wisely.

Kang Changhee, Representative of the Happy 100-Year Asset Management Research Association