To preserve the life they deserve as a young adult.
Like a loaded firearm, debt can ruin your life before you even understand it.
You know what’s even crazier? Debt is both the reason that the rich get richer, and the poor get poorer… like if Twinkies made you gain 30 lbs, but gave your neighbor a beach-bod. Not cool.
Look, if you don’t get it, you must be doing it wrong. Don’t let your kids suffer that fate. They won’t learn it in school, so we better get to work.
Wait, they don’t teach kids one of the most important and responsible things to learn in order to be successful in life… why the hell not?!? Umm (thumbs twiddling)…. they can’t.
Too many vested interests need sheep for shearing and hogs to slaughter. They wait with open arms to prey upon your smiling graduates, leading them carefully into a life in chains.
First up is none other than the broken higher education system.
It’s bigger than that though. Bigger than $1.6 trillion in student loans, shoveled onto mere children, without even the courtesy of bankruptcy protection?
Our very system of money needs your kids to take on debt. It doesn’t care if they do it well or not, just as long as they slop at the trough, sucking down borrowed funds with the rest of the peanut gallery.
So, what’s a parent to do?
Make sure your kids know these three things well, to preserve the spices of youth sprinkled generously in their path – spontaneity, freedom, opportunity, and contentment, setting the stage for their own American Dream (should they want it), marriage, home ownership, children, and a white picket fence.
1. The money system needs to grow, and only by way of debt.
This debt-based system grows until it collapses. As long as the central banks prevent hiccups, downturns, and bankruptcies, Armageddon merely gets bigger in waiting. We’ve now reached an inflection point-
It is why we have a student debt bubble, a bond bubble, a subprime auto-loan bubble, and frankly, an everything bubble. It’s why the Federal Reserve just printed $3 trillion dollars in less than five months.
If you need a refresher, here’s how it works: Every dollar in existence is created as a loan. Loans require interest. Therefore, more dollars are needed tomorrow to pay back the principal plus interest.
More dollars tomorrow mean more loans tomorrow, means more interest is due the day after tomorrow, which means more dollars, and more loans, are needed then, too.
Debt, debt, debt… ka-boom.
Suffice to say your kids will be poked, prodded, and goaded to borrow. Everyone is doing it. This is groupthink at its worst. Because of this immutable fact, they better understand #2 and #3.
2. Bad debt is bad. Really bad. There is no faster ticket to the poorhouse.
How do you define bad debt? Easy. Bad debt is consumptive.
Credit cards, car loans, payday loans, care credit, mattress financing, even student debt if it’s for any, near-worthless college degree without a defined career path that is in high-demand by employers.
Sure, you can do these well (no-annual-fee credit cards paid in full each month with rewards, or buying that car or mattress at 0%), but it’s easier to muck it up and fall behind.
In summary, don’t borrow – save instead – for consumption. Buy used, or not at all.
3. Not all debt is bad. Good debt is self-liquidating. It pays itself off.
First, there are few sure things, so debt always comes with risk.
You shouldn’t borrow money without a careful plan to use that borrowed money to generate income to pay off the loan, then leave you with an asset, excess capital or continued income.
An example? Borrowing money to scale up a proven business model.
Another approach that can work is real estate, for example, rental properties, or a homestead bought at a fair price and held for a long time.
Homes don’t really appreciate. They fall apart. Land can grow slowly in value with population or preferences, but taxes are a bitch.
The biggest reason, then, that real estate can work over long periods?
Because the government is always inflating the money supply by printing more dollars, nominal prices for homes go up. When they are purchased with borrowed money – ideally fixed, long-term, low interest rate mortgages – the loan is paid back later with inflated dollars.
Over time, you own more of the asset. Rents come up, home prices go up, and your mortgage payment stays fixed.
Borrowing money to buy productive assets – businesses and real estate – while the government inflates the money supply, is the biggest mechanism by which the rich get richer. It’s why they tolerate, even encourage, so much inflation. It’s how the government and super-rich fleece the working man.
It’s private equity, in a nutshell.
Sure, they do some good, sometimes, but let them rig the money supply, and of course they’re going to f— you. Who wouldn’t?
You may as well figure it out yourself and get in the game. Consider it a leveraged short on the US Dollar. With the way they are printing money today, who wouldn’t want the other side of that trade?
I have, with well over $2M in debt sitting on the balance sheet. Real estate on the other side, I’ll sit patiently on the assets while the debt is inflated away by Uncle Sam (even as I advocate for a gold standard).
Remember, there are no sure things. Big plans for my time on Earth, it’s a calculated risk. Besides, the bank wouldn’t let me put 20% down on 1,000 ounces of gold or three tons of silver at 3.5% interest.
Debt is like a loaded gun. If you don’t know how to use it, stay away. If your kids can do that, to live their lives debt-free, cheers to their freedom, and more power to you as a good parent.
But debt is everywhere, so you better make sure your kids understand it. It’s the reason the rich get richer, and the poor stay poor.
If you want to get rich, really rich, you better understand how the rich use debt differently.
If you need help with the material, join the Better Bedtime Stories Alliance Partnership. Our next hardcopy – due August 20th – is on this very topic: “Good Debt, Bad Debt, and the Big Green Blob”.
Your kids will love it.
The best way to teach children isn’t lecture or lesson, but illustrated story. This is what we call better bedtime stories, preparing them for the challenging world that awaits.
The school system won’t do it, and Santa Claus doesn’t come down the chimney without you, either.
It’s on you, per usual, Champ!
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Want more like this? Try The College Debt Bubble (and six rules for 529s).