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Why
Savers Are Losers
by Robert Kiyosaki
Monday, October 17, 2005
My poor dad believed in saving money. "A dollar saved is a dollar
earned," he often said.
The problem was he didn't pay attention to changes in monetary policy.
All his life he saved, not realizing that after 1971 his dollar was no
longer money.
You see, in 1971 President Richard Nixon changed the rules of money. That
year, the U.S. dollar ceased being money and became a currency. This was
one of the most important changes in modern history, but few people understand
why.
Prior to 1971, the U.S. dollar was real money linked to gold and silver,
which is why the U.S. dollar was known as a silver certificate. After
1971, the U.S. dollar became a Federal Reserve Note -- an IOU from the
U.S. government. Instead of our dollar being an asset, it was turned into
a liability. Today, the U.S. is the largest debtor nation in history due
in part to this change.
Taking a brief look back at the history of modern money, it's easy to
understand why the 1971 change was so important.
After World War I, Germany's monetary system collapsed. While there were
many reasons for this, one was because the German government was allowed
to print money at will. The flood of money that resulted caused uncontrolled
inflation. There were more marks, but they bought less and less. In 1913,
a pair of shoes cost 13 marks. By 1923, that same pair of shoes was 32
trillion marks!
As inflation increased, the savings of the middle class was wiped out.
With their savings gone, the middle class demanded new leadership. Adolf
Hitler was elected Chancellor of Germany in 1933 and, as we know, World
War II and the murder of millions of Jews followed.
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?"d
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LavaCafe's featured $ article ::
The
one thing I despise are men that build a life of complaining. For all
you ball players out there who choose to work hard and not let domestic
demands get you down read this article about kids and savings.
Motely
Fool:
Thursday June 2, 3:29 pm ET
Last week, I wrote an article ("Do You Want to Work Forever?")
that offered possible reasons for why people choose not to save for retirement,
and I asked readers for their suggestions. I received several responses:
Our consumer society doesn't value saving, people don't know how to delay
gratification, and the government taxes us too much, to name a few.
ADVERTISEMENT
But those were from people who actually are saving. What do the nonsavers
have to say for themselves? I received some genuinely poignant stories
about financially devastating health problems and job losses. (Is anyone
safe from those?)
However, one reason was offered more than all the others: kids.
The Census Bureau says that the median family household income in the
United States was $52,704 in 2002 (the most recent number available).
According to the United States Department of Agriculture, the annual cost
of raising a cow, I mean a child, in 2004 will be $9,800 for middle-income
families. That's right, a kid consumes almost 20% of the paycheck. The
USDA estimates that raising a chicken, er, a kid born in 2003 will cost
$172,370 to $344,250 by the time he leaves the nest -- and that doesn't
include college costs. No wonder parents have trouble saving for retirement.
Go forth and multiply... something
So I, as a father of three, must ask the question: Are they worth it?
Sure, the tax credits are nice, but they barely cover the cost of milk
these days. And ever since the enactment of child labor laws, kids are
guaranteed a free ride. Of course, if your progeny are like Berkshire
Hathaway (NYSE: BRKa - News),(NYSE: BRKb - News) CEO Warren Buffett --
who bought his first stock at age 11 and earned enough from his Washington
Post (NYSE: WPO - News) paper routes to buy land at age 14 -- you'll at
least get an earlier return on your investment. But for most of us, kids
are money pits that keep on growing.
OK, so you can't boil down procreation to dollars and cents. There is
also the humiliation. I never thought I'd spend so much time helping other
people go to the bathroom, and talking about it with my wife (not to mention
going through my 3-year-old son's bodily byproducts to make sure the penny
he swallowed made it out OK). Then there's the time he pointed to the
lady in front of us in the checkout line and asked (for all to hear),
"Why is she so fat?" Which is just as bad as the times he talks
about his private parts in mixed company. (So far, we have been spared
this ignominy with our 2-year-old daughter, who, because she still has
trouble pronouncing V's and G's, refers to her private parts as her "china."
However, we anticipate confusion when, in eight months or so, my wife
and I adopt a girl from China.)
Oh, and I eat my children's scraps. It's true. Sometimes they eat everything
on their plates; sometimes they don't. And wasted food drives me nuts.
So when I make lunch, I don't make myself a complete meal because I can
usually count on their leftovers. The same goes for ordering food at restaurants
(I don't mind half-eaten "smiley face" pizza).
I can't figure out why they'll sometimes eat their bananas and why sometimes
they won't. But I'll finish it for them. This is what I've been reduced
to. (By the way, any food I don't finish goes in the "goulash shake"
for the evening's dessert. All the leftovers -- yogurt, juice, blueberries,
hot dogs -- end up in the blender, then into a cup with a straw. The kids
love it.)
Retire or reproduce?
I profile "success stories" -- people who retired on their own
terms. Of the folks who retired very young, they have many things in common:
They were aggressive savers, they managed their expenses, they took control
of their investments... and they didn't have kids. Socking away an extra
$172,370 to $344,250 can do a lot for a nest egg.
On the flip side, some parents really have to make a choice between contributing
to an IRA or feeding and clothing their little Ira. One reader sent me
this email:
We have eight children. The youngest two are still in high school. I'm
56 and my wife is 54. I'll be 63 (almost 64) when my youngest gets out
of college... and then I'll have a large Parent PLUS Loan bill to continue
paying on. These were all our choices, but we'll never retire.
So again, I must ask: Are they worth it?
For my wife and me, the answer is a resounding, emphatic "Yes!"
Despite the costs -- the lower savings, the sleepless nights, the drool-stained
shirts -- I have never been happier than I am now. No one makes me laugh
more than my kids do. Nothing will rival the experience of being affectionately
mauled by my kids when I come home, or getting all choked up when my 13-year-old
daughter sings a solo in the school play. Not even the Super Bowl can
do that to me.
As I've suggested many times in my articles and newsletter, the key to
maximizing your money is paying for your priorities and forgoing the frivolities.
Whether you're struggling parents or super-flush DINKs (double income,
no kids), your net worth will certainly be enhanced by deciding what's
most important to you, examining where your money is going, cutting out
the expenses that provide just fleeting satisfaction, and directing as
much as possible toward the things/people/experiences that bring you the
most genuine, lasting happiness.
Parents who want to retire have to be extra-vigilant (and brutally honest)
about where their money goes. My wife and I had to make some tough choices
this summer after she quit her salaried job to start her own business.
It may mean we won't contribute as much to her Roth IRA this year.
But even if we have to retire a little later because we've spent so much
on our kids -- and chosen jobs that allow us to spend more time with them
-- I know we won't have any regrets. For us, there has been no greater
investment than our embarrassing, exhausting, hilarious kids.
This article was originally published on Aug. 12, 2004. It has been updated.
Robert Brokamp thinks you should thank him for creating future workers
who will one day pay your Social Security. The Motley Fool is investors
writing for investors.
By Robert Brokamp |