The economy is in the forefront of everyone’s mind these days. Over the years, we’ve been exposed to different economic theories, none of which I am qualified to discuss. However, we all have our opinions, so since this is my forum, I’ll throw my two cents in the ring (Bush-ism). My theory is not original, as I have heard many people express the same sentiment. However, I have thought about it for as long as I can remember.
I call my theory “Rising Tide Economics”. As in, “a rising tide lifts all boats”. No, it isn’t about wealth redistribution by the government. It’s about what the rich teach their children about money, and what the poor and middle class do not. It is about education – starting at the preschool level.
The 25th Anniversary Edition of Forbes Magazine interviewed the 400 richest people in America. They were asked “What is the most important key to building wealth?” and 75% of those interviewed said “becoming and staying debt free” is the #1 key to building wealth. Now, becoming debt-free does not make you wealthy. It does lay the foundation essential for getting your money to work for you.
Having said that, I do not mean to imply that all debt is undesirable. There is good debt and bad debt. Simply stated, good debt can make you rich, and bad debt makes you poor. Trouble is, most people have too much of the latter, and few know the difference. With good debt, you leverage assets to create cash flow over and above the underlying debt service. Our money works for us to earn income. Bad debt is that which causes cash to flow in the opposite direction, creating a liability, draining our resources.
I propose that we start teaching the financial ABC’s in addition to reading, writing and arithmetic. Let’s teach our children how to read a financial statement. Teach them the difference between an asset and a liability, and income vs. expense, and how they all relate to each other. It is a very simple concept, yet I believe that the reason that most people are resistant is that they themselves don’t really know the difference, because they haven’t been taught. However, it isn’t rocket surgery (another Bush-ism). Anyone can learn these basic principles.
Financial literacy is essential to an economically vibrant society. The Rising Tide of Financial Literacy raises all boats, and I believe it can do more than “bailouts” to get us out of the mess we are currently experiencing. Let’s make informed, responsible decisions with our money so we don’t have to rely on the government.
To find out more about becoming more financially literate, visit United First Financial.