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
Financial Advisers can have great professions and be real assets to their communities, but they can fall prey to preventable mistakes. Errors 1 through 6 cover ethical concerns and 7 through ten cover business strategy and personal concerns.
1) Making uninformed decisions.
In order to eliminate problems, be sure to double check appropriate rates and facts about the product(s) you are offering.
2) Fraudulence
In order to stop fraud, go into your appointments with the attitude that you are going to do what is right for the client whether or not you make the sale.
3) Signing an application with fields left blank.
Make sure that the application is fully filled out prior to signing it.
4) Asking for a check in the adviser’s name.
This should never be done, because premiums or payments from clients belong to the firm under which the agent is employed and should never be intermingled with the adviser’s personal records.
5) Putting unwanted pressure on the customer.
Good sales agents can close a sale without using coercion. Always look out for the client’s best interest.
6) Failing to disclose possible issues of an investment product
The advisor is always obligated to disclose all elements of a financial product, regardless of whether the client chooses to purchase it.
7) Forgetting to learn
Financial advisors should always be learning more about their roles and how to help the community better. Good ways to do this are by studying books and attending conferences.
8 ) Forgetting to seek out new business
Even when financial advisors are successful, they should always be making partnerships with potential new customers so that their business will succeed in the long run. Ways to do this are through recommendations and participating in trade shows.
9) Forgetting that a good frame of mind is vital
Even when financial advisors are active in seeking out new customers, they must have a can-do attitude that will help support them during dry periods. Ways to foster a good attitude are to read inspirational books and to set aside time to do things they find enjoyable.
10) Neglecting to find a tutor.
Financial advisers need a good support system in place, because oftentimes they work on it’s own. A good coach can act as a instructor and a sounding board with whom younger financial advisers can share their joys and worries. Financial agents should contact their supervisors for ideas on how to find a mentor.
And also you? What are the top faults made by financial analysts?
About the author: Ashley Mulvey contributes articles for financial advisor career path , her hobby blog she uses to share her knowledge to assist people handle the facets of economic advisory.
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- Image by Getty Images via @daylife
One of the most dangerous lies in all of finance and economics is the implied myth that inflation somehow “destroys” wealth. It doesn’t. Inflation doesn’t hurt everyone equally — inflation helps some and hurts others.
Inflation is actually one of the biggest reasons large corporations are so powerful in society. The government and big banks use inflation to force people to spend their money and go into as much debt as they can afford.
But how does it all work? Before we answer that, let’s first look at a parable. Some things are best learned in a story format, and inflation is one of those.
The Saver and the Slave: An Inflation Story
There were once two men who were neighbors. Their names were “Jack” and “John”.
Jack was a saver. He spent his entire life saving every penny he could get his hands on. He saved money with coupons, saved money by buying stuff only in off-seasons, saved money by spending as little as he could, etc. He was a saver. By the time he was 45, he had saved exactly $100,000.
John was a spender. He spent every dime he ever earned. Back in his 20s, he even took out a $100,000 loan, and bought two houses with it. He never used coupons, never looked at prices before buying anything, and wore nicer clothes.
During this time, inflation started to hit in. Inflation was fairly high. By the time Jack and John were 45, inflation destroyed 90% of the value of the US dollar.
For Jack, this was disastrous. He spent his whole life saving $100,000, and suddenly it was worth only 10% of what it should have been worth. This means that rather than having 100k it was as though he only had 10k. Not enough to even buy a house.
For John, this was perfect. He spent his whole life spending his money, so he didn’t see his money lose value. He took out a 100k loan, but his loan was only like he had a 10k loan now — and he still has two houses. John ended up selling one house, paying off the loan, and walking away with a free house, and 90k.
Inflation Destroys Debt and Dollars
Inflation doesn’t destroy wealth — inflation destroys dollars. This means if you’re in debt, inflation makes your debt less and less. If inflation is 10%, it’s like your debt is getting 10% smaller every year. If you’re a saver, inflation makes your savings 10% smaller every year.
Every year people in debt see their net worth increase because of inflation.
Every year people who are savers see their net worth decrease because of inflation.
Inflation doesn’t hurt everyone equally — it just hurts people with cash, and forces them to spend their money and get into debt. Inflation essentially forces people to become slaves to banks and to not have money.
In an inflationary society, people who are willing to go into debt to buy houses, businesses and such are at a huge, huge advantage over people who just save their money. Savers are penalized. Spenders are rewarded.
What This Really Means
Because inflation makes debt more attractive, an economy with inflation will see a much higher level of debt than societies with less inflation. This leads to the economy becoming much less secure, and sets us up for financial catastrophe.
Inflation is one of the reasons so many people purchase houses and property even before they have the money — inflation makes cash less profitable or secure.
There’s a reason the government and large banks support creating inflation. It pushes individuals into debt. It makes consumers slaves to creditors. It transfers wealth from savers to people in debt. It stops frugal people from being able to make ends meet unless they have large incomes.
This all means several things:
a) Investing makes more sense. Savings accounts don’t pay interest that’s higher than inflation. This means that most people will use the stock market to build up wealth over time — they have to take part in the financial system. Plenty will get fleeced in the system. Big financial institutions make more money this way.
b) Debt makes more sense. This should be obvious. You’re using inflation to essentially get free money. Most debt comes from banks, meaning you’ll be a voluntary debt slave to a bank because it’s profitable to become one. You’re shackled to the system.
c) An independent retirement is difficult. Being able to save your own money for retirement is much, much more difficult with inflation. If it wasn’t for inflation, social security would be much less likely to exist. This means inflation makes the people more dependent on the government. The establishment loves this.
If you save $1,000,000 for retirement over the course of 50 years, and inflation is 4.07%… you actually only save $136,000 in today’s money, which probably won’t be enough to own a nice house.
Does this mean you shouldn’t save? Does this mean you should go into debt? Not quite. I’ll be writing what you should do in the future… hint: gold is a great inflation hedge.
Right now, inflation is skyrocketing. Gold is exploding. Silver is exploding. The dollar is dying. This is all happening in a way that is destroying savers, rewarding debt, and creating an economy that is based on debt and insecurity.
Shaun Connell is the the founder and editor of Stand Strong Research. He’s an entrepreneur and investor living in rural America. He’s also a firm believer in income investing, inflation hedging, and debt-free living.
Related articles
- Millions of savers have no choice but to lose money (independent.co.uk)
- Through the Looking Glass economics (theglobeandmail.com)
- Why bother saving? (telegraph.co.uk)
- QE2 and Its Effects (economicnoise.com)
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Check out episode two of Mike Maloney and Max Keiser in Paris, France.
Covered topics include:
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Click on the video below:
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Mike Maloney was recently in Europe working on his next top-secret project. While passing through France, Mike got the chance to visit with the one and only Max Keiser.
Intelligent, witty, and never bashful, Max Keiser is pure financial entertainment. With over 25 years of experience with markets and finance, Max often draws from first hand experiences when providing his listeners explicit insights on how the financial markets truly operate.
He has been described as a film producer, a journalist, and as JP Morgan and friends are now finding out, an activist investor with powerful ideas on how the masses can help themselves in taking their financial power back.
Without further ado, let’s check in with two of the most brilliant minds on the gold and silver scene, Max and Mike:
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