Financing Your Future
Teach your children the value of dollar
In these days of economic conflagration, what are you going to do? Who are you going to turn to for advice? Here’s a radical suggestion: Get back to basics. Don’t rely on anybody except yourself.
Years ago, billionaire Warren Buffett (who owns this newspaper) opined that investors should only invest in fields they know something about, and in companies who make products they like. If you like Coke, and you think they make a nice product, you should buy Coke stock. If you think everybody has to wear shoes, and you run across a company that makes a good pair, then you should buy into that company.
I am reminded of a New Yorker cartoon from decades ago that has stuck with me: Two portly investor-type suits are walking down Wall Street and one says to the other: “I buy AT&T because I figure people will always keep talking.” That’s not altogether bad reasoning.
I was surprised when Buffett bought into Microsoft a few years ago because computers did not strike me as one of his fields of expertise, but I guess his buddy Bill Gates convinced him it was a good thing. I wasn’t terribly surprised when he bought into GE a few weeks ago, because the man surely knows a bargain when he sees one.
What is fascinating about the current crisis is how it has focused our attention on what has been a massive shift in society’s mind-set to a credit mentality. Practically every talking head on television these days pontificates about how we have to save the credit market, how we have to pump billions of dollars into the banks, so they can loan us more money. Am I missing something here? Isn’t free and easy credit precisely the cause of the problem? Aren’t banks in trouble because they threw mortgage money at people who couldn’t afford to pay?
The talking heads say we have to “unfreeze” the credit market because credit is the engine that makes the economy go. Well, no. Credit can be used to make the economy grow, but not to make it go. One talking head the other day talked about a company that had to borrow to meet next month’s payroll. This is crazy. Borrowing to expand operations, or modernize facilities, is one thing, especially if the growth leads to paying off the credit early, but borrowing to meet basic ongoing costs of doing business is just nuts. It means you’re in a hole and digging it deeper.
The shift to the credit (and credit-card) mentality has been generations in the making. The shift out of it will be just as glacial, but we have to start. Let’s get back to basics. Let’s live within our means, and not feel obligated to keep up with the Joneses. Let’s, for a while anyway, only buy what we need, not what we want, and let’s pay for it with cash, not credit. Let’s teach our children the value of a dollar, and let them feel the self-satisfaction of saving for something they want, and buying it themselves, rather than running to Daddy for a handout.
Resolving to teach your children to save can result in several unintended consequences, all of them good. First, you might learn (or relearn) a thing or two yourself. Second, saving will teach your children self-reliance and confidence in their own abilities (and most of the problems on Wall Street today stem from a lack of confidence). Third, it will teach them the definition of value.
This is important, because an awful lot of the 30-and 40-somethings out there who are running Wall Street these days do not appear to have a real handle on value. They’re selling paper, bits of paper, instead of product. Hedge funds and derivatives and shorts and longs and all sorts of paper-pushing products that in the end, have no inherent worth but are designed to make a quick buck for the few and fortunate.
I’m just a newspaper hack, so what do I know?
And it might be that I’m just jealous that I can’t get in on the action, but it seems to me that a house built on paper cannot stand, and neither can an economy.
America goes through this type of economic spiral every 30 or 40 years (We had the “malaise” of the Carter years in the ’70s, the Depression of the ’30s, the panic of 1893). Basically, every generation seems hell-bent on repeating the mistakes of the previous generation. And we will bounce back from this downturn as we have bounced back from all the others. But if, in the meantime, we can instill in our children an appreciation of value, a sense of worth, work and self-reliance, then perhaps the Great Downturn of 2040 will never come to pass.
I doubt it, but one can always hope.
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