It is sort of amazing that in America we don’t teach basic finance in public high schools. I remember I had to take a required class in personal finance at my high school. It was taught by a teacher that had no interest in teaching and didn’t understand basic finance. She was more interested in trapping us and sending us to the principal’s office.
One of the best things my wife and I did was save for retirement. Since I was self-employed, I had to save for my own. We maxed out on contributions every year. Early in our careers we worked for big corporations and maxed out on the retirement plan that they offered. It makes a difference. When we turn 59.5 there will be money waiting for us.
I have read a couple of things and had a couple experiences that caused me to think about this. My friend Josh Brown tweeted this,
401(k) / IRA balances have never been higher
More 18-19, 20-24 year olds than ever are enrolled in universities and getting advanced degrees that lead to higher incomes
QE only “robbed” retirements from people who listened to fearmongers https://t.co/9nDB3Royjh
— Downtown Josh Brown (@ReformedBroker) January 19, 2018
You might agree or disagree with the extent of QE, but Josh is exactly correct that the fearmongers out there who had people buying gold instead of stocks cost them more money than QE ever did.
My friend Rendel Solomon is on a mission. He is trying to teach kids about building wealth. He started One Stock, One Future. It’s pretty cool. He gets kids to buy one share of stock. They get exposed to money management, the ups and downs of the stock market, and finance. I really hope Rendel is successful because I believe strongly in what he is doing.
I invested in a company called Smarteys back in 2010. It didn’t make it. Charisse and Adrissha tried to build a company that taught college-age kids how to budget and save money. They saw a problem because so many people they knew got upside down on credit cards. It turns out, they were not the only people trying to build something cool in this space. Nick Grossman wrote a blog post about a budgeting app. He is with Union Square Ventures in New York. USV invested in Wesabe. It was a company attacking this space, but alas the company failed.
It turns out, many Americans just don’t understand finance. My partner Kenny and I knew that most people didn’t understand B2B Finance. But, most Americans don’t have any idea about personal finance either. I guess it is not shocking to me but it is troubling. Public schools don’t teach much of anything spectacularly anymore. However, the private school my children attended didn’t teach basic finance either. Education leaves that to parents and it turns out a very large percentage of American parents don’t even know what interest or inflation is. How are they going to teach their children? No wonder so many people live paycheck to paycheck.
The reality is you don’t build wealth off of a salary. Salaries pay for the roof over your head and the things you need to live. You build wealth by owning equity in something. As an employee, it could be the company you work for. If you are self-employed, you better go to the public markets and buy a low cost no-load mutual fund that replicates the S&P 500 and own equity that way. I think it’s important for startup founders to distribute equity to their employees. We make sure there is an option pool in deals we lead for that very reason. If the company is successful, that employee can gain transformational wealth.
At least two to three times a year I hear a pitch from an entrepreneur trying to build a company that is going to solve this problem. I just cannot for the life of me envision how anyone will be successful. The problem is pernicious. It’s difficult because it is taboo to talk about money. It’s also difficult because it is very hard to explain finance to people when they don’t even have a base to begin to understand it. All people do is think bankers are out to get them and the stock market is rigged for rich fat cats. Certainly, there are bad apples out there but the news media sensationalizes these stories to sell advertisements.
The truth is the free market capitalistic system we have developed in the US has created more wealth and gives people more opportunity than any other place on earth despite the bad apples. We need to start educating people about that.