Want to Save Your Kids from the Rat Race? Raise Their Financial IQ

You've read the news. It's not pretty. Too many Americans are mortgaging their futures. They are on the road to financial serfdom. Consider some stats:

• It is estimated that, on average, 20% of Americans have “maxed out” their credit cards. About 25% of adults in the United States have a history of credit problems. Americans’ average credit card debt is $8,400 per household.
• Among former college students, every type of debt — from credit cards to college to personal loans — has risen. Over the last five years, student-loan balances rose 16% to an average of $14,379 (revolving debt, including credit cards, surged 24% to $5,781; and total installment debt, including student and personal loans, rose 4% to $17,208).
• Meanwhile, we are now in the midst of a national credit crisis tied to $1.3 trillion in sub-prime mortgages. Approximately 16% of such loans are now 90-days into default or in foreclosure proceedings, roughly triple the rate of 2005. Nearly 447,000 U.S. homes were targeted by some sort of foreclosure activity from July to September 2007.

When you think of a father and mother staring at a foreclosure notice, you think of people who’ve had a poor financial education. Maybe they had a dream once, but it’s eluded them now. How free must they feel as they are kicked out of their homes or threatened with bankruptcy? 

But the situation is not always so dramatic. More typically, the tragedy is one of unmet potential and a life of continuing disappointments. That's the situation for people trapped in what author Robert Kiyosaki calls "the Rat Race." As he explains:

The rules have changed today but many of us, as parents, keep giving the same advice to our children "Go to school, get good grades so you can get into a good college and get a good job with a good company that offers good benefits." This advice was good during the Industrial Age but is no longer applicable for the Information Age.

Young people graduate from college and get good jobs. They begin to make money, credit cards arrive in mass and the spending begins. They meet other young people, date, fall in love and get married. Life is wonderful because now they have two incomes.  As a successful couple they decide to buy a house and two cars, and have children. A pay raise comes in and they decide to buy a bigger house, because someone told them they can get a tax break from the interest. They realize they need to start saving for their children's college education so they work harder to make even more money.

This happy couple is now trapped in the Rat Race for the rest of their working days. They work for the owners of their company, for the government paying taxes, and for the bank paying off a mortgage, car loan and credit cards. They learn nothing about money along the way. Then they advise their own children to "study hard, get good grades so they can find a good job." The process repeats itself creating another hard-working generation. The only way to get out of the "Rat Race" is through financial education. You must learn about money, accounting and investing.

So what will it be: The road to financial serfdom? Or the road to financial and personal independence? That's the question we are now challenged to answer.

Comments

[mike in CT]

Wow, very cool! It's always reassuring to discover there are other parents worrying over the same questions that keep me awake at night -- such as, what should I be teaching my kids about business? about finance? about money? what are they learning in school that will really help them? what are they not learning that they need to know? what skills and capabilities will be necessary for success in 2020? 2030? where should they live? which languages should they learn?

[Ici]

Thank you for this information esp the statistics. I printed this out and plan to use it in my upcoming workshop called "Who's Standing on my Financial Hose?" I will give you credit.
Keep it up!
The Naked Accountant (uncovering & exposing tricks of the trade in the mysterious world of money)

[trading options]

Very interesting post. It's important to give your children good financial education. I read rich dad poor dad, and it was really good.