I wrote this essay for your children and grandchildren.
You’ve probably heard about America’s huge debt load. The U.S. government’s financial obligations now exceed $663,000 per American family. This burden will fall on the youngest Americans.
It’s unethical. It’s unfortunate. But it’s the reality.
With this giant financial obligation bearing down on them, it’s critical that now – right now – your children and grandchildren learn about money and finance. They need to know the basic principles… like how to be independent, why debt is dangerous, and how to grow money.
They don’t teach finance in schools. If you don’t teach them this knowledge, no one will. They call this financial illiteracy.
If our children are financially illiterate, they have as much chance of survival as a swordsman in a gunfight. There will be no mercy for the financially illiterate in the future. It’s likely these people will live as indentured servants to the government and its creditors.
But if our kids have a grasp of finance and its basics – and they obey its laws – they will grow up rich. They will be in a position to help other Americans, too.
Below, you’ll find the three vital financial concepts all children need to understand. Please pass them on to your children and grandchildren as soon as you can. I have two young children… And these three concepts are my starting point for their financial education.
First of all, our kids must know that they are not entitled to money or wealth… or anything for that matter, even Christmas presents. They must earn money. I want my children to learn that they shouldn’t expect anything to be handed to them. I don’t want them to rely on the government for their livelihood, like many people do right now.
So many people treat money and prosperity as an entitlement. The government even calls its welfare programs “entitlements.” This word – and what it represents – gets stamped into young people’s brains. Kids act as if they are somehow entitled to toys, video games, and cars. But why should they be? Just because they have parents, it doesn’t mean they should get everything they want… or anything at all, for that matter.
I plan to regularly remind my children of this when they are old enough to understand it. And I’m not going to pay my kids an allowance. An allowance would reinforce the sense of entitlement. They can make money by earning it: doing the dishes, making their beds, mowing the lawn… there are a million things. My wife and I will pay them for doing those things. But I’m not going to just give them money.
The second concept our children need to understand is debt. Debt is expensive. If you abuse it, it will destroy you. Like the entitlement mentality, debt is an enslaver. It robs you of your independence. I avoid debt in my personal life… and when I’m choosing investments.
The best way to illustrate the cost of debt is to calculate the total amount of interest the debt generates in dollars over the lifetime of the loan, instead of looking at the interest rate (like most people do). Once you look at it like that, you can see how expensive borrowing money really is.
For example, say you borrow $100,000 with a 30-year mortgage at 7%. Over 30 years, you’ll end up paying $140,000 in interest to the bank. In the end, you’re out $240,000 for a house that cost less than half that. Not a good deal.
The third thing our kids need to learn is the power of compound interest and the best way to harness it.
Compound interest is the most powerful force in finance. It is the force behind almost every fortune. The brilliant Richard Russell calls compound interest “The Royal Road to Riches.” And it’s mathematically guaranteed.
Let’s say, for example, you have $100 earning 10% annual interest. At the end of a year, you’ll have $110. During the second year, you’ll earn interest on $110 instead of $100. In the third year, you’ll earn interest on $121… and so on. This is the power of compound interest. The numbers get enormous over time, simply because you’re earning interest on your interest.
Because time is the most important element in compounding, it’s an incredibly powerful idea for children to understand. They have the ultimate edge in the market: the time to compound over decades.
The stock market is the best place to earn compound interest. You buy companies that have 50 years or more of rising dividend payments ahead of them. Then you let the mathematics work.
As soon as my kids are old enough to understand some arithmetic, I am going to sit down with the classic compounding tables and show them which stocks they have to buy. I’ll use Coca-Cola, Johnson & Johnson, and Phillip Morris as examples.
After that, assuming they have the discipline to follow through, they will get rich. There’s no doubt about it.
In sum, you have the responsibility to educate your kin about finance. If you don’t, no one else will, and they will suffer for it.
Encourage them to work hard and avoid the entitlement mentality. Teach them the power of compound interest and explain the dangers of debt.
If you do this, you will equip your kids and grandkids to survive financially in the difficult circumstances ahead. You’ll provide them with something that nobody can place a price on: the power of independence.
Good investing!
By Tom Dyson, publisher, The Palm Beach Letter
younique Gold & Silver – A Business Opportunity for building gold and silver reserves and earn a monthly residual income, month after month.
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How Big? How Bad? How to Protect Yourself.
A free online video event by Doug Casey from Casey Research with special guests such as Lew Rockwell and Mike Maloney.
Mike Maloney is the author of the world’s best selling book on precious metals investing. Since 2003 he has been advocating gold and silver as the ultimate means of protecting wealth from the games played by our governments and banking sector. In this 90 minute presentation he lays down his ‘most likely’ scenario for the global economy over the next deacde…short term deflation, followed by big or even hyperinflation. Here you will learn the true definitions of inflation/deflation, the difference between currency and money, price vs value, ‘Wealth Cycles’, gold and silver accounting for the expansion of fiat currency, gold and silver supply and demand, the differences between the today’s bull market and that of the 1970s, The Debt Collapse, and more.
If you would like to know more check out Mike’s website http://www.GoldSilver.com
Mike sends out a free weekly newsletter from each of the above sites each with valuable information on the economy and gold & silver, see you there.
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Investing in Gold & Silver During Inflation, Stagflation and Deflation?
By: Julian D. W. Phillips, Gold/Silver Forecaster – Global Watch
In this piece we are looking at some critical fundamental features of precious metals that are rarely considered or accepted in the developed world markets. Expert investors like Warren Buffet look at inactive, buried gold with amazement, because he is focused on companies that produce things and earn money. And most of us wish we had his skill and money behind us.
George Soros and the like invested in gold as an anti-deflationary measure. Most analysts appreciate the anti-inflationary value of gold and silver. The protection of gold and silver in stagflationary environments are a combination of both abilities.
But why are gold and silver capable of giving such protection in bad times as well as good times?
They have certain qualities that shine forward at times when other investments fail.
The Limitations of Cash
In times of monetary stability and soundness, safely-stored cash never fails. Most consider cash in the bank to be the safest conservative investment, and in the distant past, the days of our grandfathers, this was largely true.
But that horrible word, inflation, came into being where prices kept on rising and cash saved would buy less-and-less. Interest rates compensated for this inflation, but then interest rates stopped rising. When interest rates did rise, it was at a slower pace than inflation. Cash lost its buying power as time went by. Bank charges would eat away any gains that might be made. At first inflation would occur one country at a time, and the exchange rate on those currencies fell, hurting international buying power even more. Today inflation is a global phenomenon.
Investors would have to move out of cash and into businesses or other investments that offset the cost of inflation. This was not easy unless inflation happened while growth was vibrant. And this benefitted those middle classes that enjoyed such growth. The poor, whose income rises slower than inflation, feel the pinch.
Suddenly, booms turn into busts and businesses don’t do well. The value of businesses and its shares fall, losing investors money. Even self-managed businesses fall in value, putting rich people into bankruptcy. This is deflation, a monetary mood that causes values to shrink. In deflation the value of cash grows as prices fall.
Those who believe they are skilled investors answer, sell, then cheaply buy back. We look at that timeless story of an investor who did that just before the Wall Street Crash. His friend did not do so well selling only when the fall was half way down. But our hero who sold at the top, overwhelmed by his own skill bought back in, when the fall was half way down. His friend did not buy back in, but stayed in cash. It’s not so easy!
Then you get a situation when the bust happened and all of the markets plummet because forced selling drives investors out. Interest rates fall to negative levels. If cycles are consistent, there should have followed a boom period. But growth was so anemic that stagnation set in. Businesses and the economy struggle to find small amounts of growth and some cut back, turning over at survival level.
Suddenly, something that shouldn’t happen in a downturn happened. It was inflation, driven by factors no government can control. It came from energy and food and became uncontrollable. This type of inflation is deflationary. Businesses covering expenses suddenly found their costs ate away at profits much the same as deflation and inflation would have done. This is ‘stagflation’, a climate where stress levels steadily eat away at sanity.
Surely bills and bonds are a way out of the hole, as they pay an interest rate, while being almost like cash?
The trouble with this thinking is that interest rates have fallen so low that the bill and bond markets are so high as to be heading for a fall, far worse than any Wall Street Crash.
Next interest rates rise to stop negative interest rates from rising higher. Then the prices of fixed interest securities have to fall, while their yield rises. Investors rush to exit those markets the moment that happens.
Surely there is no escape from these three economic ailments?
Well, there is….
For a long time, our Asian friends have suffered through poverty, hard times, government corruption and mismanagement. They have found refuge in good times and bad times. They want financial security and their investments to last for more than one generation. Correctly invested, their savings provide financial security for many generations.
You would have thought that Europe in particular would have learned the same lessons with their history of currency collapses and wars.
Why Precious Metals?
Gold (and to a lesser extent, silver) is more than a barbarous relic from yesteryear. Its rising price is telling us that it is a very modern investment preference because
It is both cash and an asset.
In the long term, it outperforms cash because of these qualities…
v It has all the features that makes cash valuable, even capable of earning an income(when lent out).
v It is an enhanced version of cash, in that it is not subject to the vagaries of interest rates solely dictated by central banks and banks.
v It carries no national obligations. It does not rely on nations to supply collateral to honor payment. If you ask the Fed to honor the value of your dollar, they will simply exchange it for another.
v It is not dependant on the creditworthiness of the nation issuing money.
v It has the same value in Mongolia as it has in the U.S. or Europe.
v It is collateral in any transaction and of greater value than the price it can be exchanged at.
v It cannot be issued at will, with the intention of being withdrawn from the system later.
v It does not decline when an individual currency declines (and does not rise when that currency rises in value). It is a ‘counter to currencies’.
v This century it has moved away from the control of the U.S. and Europe to global control. In the years to come, rising Asian demand will dwarf demand from the developed world, making it a fully internationally-valued asset again.
v In a deflating global economy (just as cash is a national protection) gold is better than cash even when local currencies are not deflating.
v In an inflating global economy, gold acts as an asset, when currencies are cheapening. There are no other currencies that are deemed as assets, like gold.
v In a stagflationary economic environment, gold acts both as cash and an asset.
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