The Coming Financial Disaster
Baby Boomers in the United States had a pretty easy life.
We grew up during the biggest economic boom in world history. Our children and grandchildren—Gen X, the Millennial generation born after 1982, and the Gen Z internet-generation born after 1995—have a very hard road ahead.
Not only are many Millennials unemployed or underemployed, but many start their adult lives burdened by onerous student loan debt. They also inherit a massive national debt – a ﬁnancial disaster left behind by their parents, grandparents, and great-grandparents.
In many ways, millennials are victims of a cruel combination: systemic debt, asset bubbles, and an antiquated education on how money works.
The key here is that although money is still not taught in school (and although many Millennials still lack basic financial education) there is more opportunity for the Millennial generation to become wealthy than previous generations.
What we are seeing is a generation of middle-class children, now young adults, raised on conventional middle-class financial advice being completely left behind when it comes to their financial future.
A New System Of Money
In the closing days of World War II, the Bretton Woods System was put in place to stabilize the world’s currencies.
This was a quasi-gold standard, which meant currencies were backed by gold. The system worked fine until the 1960s when the U.S. began importing Volkswagens from Germany and Toyotas from Japan. Suddenly the U.S. was importing more than it was exporting, and gold was leaving our country.
In order to stop the loss of gold, President Nixon ended the Bretton Woods System in 1971 and the U.S. dollar replaced gold as the world’s currency. Never in the history of the world had one nation’s fiat currency been the world’s money.
To better understand this, my rich dad had me look up the following definitions in the dictionary.
Fiat money – money (as paper money) not convertible into coin or specie of equivalent value
The words “not convertible into coin” bothered me. So, my rich dad had me look up the word: “fiat.”
Fiat – a command or act of will that creates something without – or as if without- further effort
Looking up at my rich dad I asked, “Does this mean money can be created out of thin air?”
Nodding his head, my rich dad said, “Germany did it and now we are doing it.”
“That’s why savers are losers,” he added. “I fought in France during World War II. That’s why I never forget that it was after the middle class lost their savings that Hitler came to power. People do irrational things when they lose their money.”
Most economists would disagree with my rich dad’s correlation between the loss of savings and Hitler. It may not be an accurate lesson, but it’s still one I never forgot.
The Coming Financial Disaster
In recent years, the U.S. government has been creating money out of thin air through what is known as quantitative easing.
This means they bolstered the Fed’s balance sheet by buying U.S. Treasuries in order to keep interest rates low, hoping to spur the economy through this artificial means. It’s the equivalent of you or me printing money to pay off our credit card debt. And it has worked…for now.
As Bloomberg reports, “From 2008 to 2015, the nominal value of the global stock of investable assets has increased by about 40 percent, to over $500 trillion from over $350 trillion. Yet the real assets behind these numbers changed little, reflecting, in effect, the asset-inflationary nature of quantitative easing. The effects of asset inflation are as profound as those of the better-known consumer inflation.”
The effects of quantitative easing have been to bolster the balance sheet of those who were already rich while keeping salaries stagnant and creating a bubble in the stock market.
This means that when the stock market crashes, and when consumer inflation does kick in from the stock market money moving into different places, savers will be the ultimate losers.
They will not have cashed in on the stock bubble, and consumer inflation – which will have the potential of being hyperinflation – will eat away at their savings. Worse yet, it may happen at a point in time where it will be impossible to recover for retirement.
The good news is, there are still a host of wealth building opportunities today – as long as you take the time to get financially educated.
The Difference Between Financial Winners And Losers
I don’t have a crystal ball, and I don’t pretend to know if betting on any presidential candidate or form of government will actually change the default future of these millennials.
One thing I do know, however, is that the surest way to prosper is the same as it has always been: to understand the rules of the game of money and to play by them as best as you can.
Today, millennials are increasingly losers at the game of money and investing. The question is, how can they become winners?
A truth that will never change is that there are always winners and losers in life and in business. But have you ever stopped to wonder what the difference is between the two? Is it just sheer luck, or is there something else at work?
They have learned from books, seminars, and coaching. Most importantly is they applied their knowledge and learned from the mistakes they’ve made. Each loss is an opportunity to learn how to gain later on.
To be clear, I don’t think that millennials are losers. They are, however, at a severe disadvantage because they don’t fundamentally know how money and investing works in the real world. The good news is they can rise up and win—if they apply themselves to financial education.
If you want to be a winner, you must be able to put emotion aside and you must always be learning about money and how it works. It never stops, but it does get better.
With each lesson learned, your confidence grows and your losses don’t sting as much. In fact, sometimes they become welcome and the money lost is worth the lessons learned.
Editor, Rich Dad Poor Dad Daily