What David Copperfield teaches you about financial management

David Copperfield is a novel by Charles Dickens. It was published as a monthly serial between May 1849 and November 1850, then republished in 1850 as a book. It tells the story of David Copperfield from his birth, through his turbulent childhood and young adulthood, to contented middle age. It has been adapted several times for film and television, most recently in a 1999 two-parter for the BBC (starring Maggie Smith and featuring a ten-year-old, pre-Harry Potter Daniel Radcliffe in his first television role).

The key moment

One of the key characters is Mr Micawber, David’s landlord. Micawber is known for the following maxim, much beloved of personal-finance writers: “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” (£20 in 1850 is the equivalent of £2,000 today.) The unfortunate Micawber fails to take his own advice, trusting instead that “something will turn up”. His debts mount as a result, and despite his wife pawning her family heirlooms, he eventually goes bankrupt. He and his family end up sharing a cell in debtors’ prison (a fate that befell Dickens’s father).

The lesson for investors

Before you begin investing, it’s important to get your finances under control, so you can afford to save regularly. If you have a lot of expensive debt, you should clear this before considering investing at all. Even a great investor like Warren Buffett would struggle to produce annual returns equal to the 20%-25% interest rates credit-card firms often charge their borrowers.

Other financial wisdom

The novel’s villain is Uriah Heep, a financial adviser to several people, including David’s aunt Betsey Trotwood. Despite presenting himself as “ever so humble”, he is a fraudster who embezzles clients’ money. Eventually he is exposed by Micawber, who is rewarded with enough money to fund a fresh start in Australia. Heep is forced to return his ill-gotten gains and ends up in jail for an unrelated fraud. His behaviour underlines the point that it’s a good idea to scrutinise what your fund manager and advisers are doing, hang up on cold callers, and avoid any investment that sounds too good to be true.