For the past half century, the hubris-laden financial industry has led Americans to believe that the individuals and organizations on Wall Street -- renamed Dull Street by the author -- and their minions on Main Street know more than clients, independent insurance advisors, and financial advisors know about our clients' personal finances and personal economies.
In fact, many of these self-appointed gurus of finance ended up penniless, in jail or in failed enterprises:
- EF Hutton
- Executive Life
- Mutual Benefit Life
- Arthur Anderson
- Indy Mac Bank
- Washington Mutual
- Freddie and Fannie
- Bear Stearns
- Lehman Brothers
- Bernie Madoff
... and the list goes on.
In my experience, most financial executives and advisors have bought into the myth that the typical American is incapable of understanding personal finances and economics, much less managing them effectively. The unfortunate reality is that many of these advisors don't actually know enough about personal finance and personal economics themselves to even discuss the topic intelligently. They, like the clients they serve, have embraced the debt paradigm.
These advisors know all about products. In fact, the financial tools that many advisors use to develop personal financial plans for their clients are often no more than sales tracks that lead to the sale of specific products and services that redirect the money of everyday Americans into the accounts of the behemoths.
The Seven Myths and Mysteries Series is an attempt to begin (just barely, but to at least begin) deconstructing the debt paradigm and replacing it with a simple and effective model that American families can use to grow rich and secure wealth without risk or worry.
This kind of model doesn't rely on esoteric insider analyses or on "secret" strategies known only to the initiated few; it rests on common sense and readily available information and ideas. The amazing part of that equation is that the "many" purport to have the inside track to financial success and the "few" -- and you are among them because you are reading this -- are the ones who actually do.
The two most important ideas you'll take away from this series are these:
1. There is a model for helping your clients manage their financial lives and create a personal economy that they control
2. You and your clients are in charge! It's up to you to guide your clients to ensure that their money works for their benefit and that of their family, including (and especially) their future generations
It is not the intention of this series to develop solutions to the financial problems created by the myths it discusses or to demonstrate how to apply the mysteries it unveils to individual situations. Its goal is to uncover the lack of wisdom in "conventional wisdom," and the abundance of wisdom in common sense. It aims to make the reader aware of some of the fallacies in the debt paradigm and some of the common sense that the cacophony emanating from the financial world obscures.
We wish you well in your quest to serve your clients and their families. I sincerely expect and desire that the seven myths and mysteries series, while not claiming to be an exhaustive study, will add to your understanding and insights about how to help your clients manage their personal finances and construct their own personal economy.
The myths 1
Bad thinking creates bad habits. The myths that prevail in today's thinking about managing personal finances and building personal economies lead to financial disaster.
Seven myths -- alias "Wealth Destroyers"
1. I'll do OK on Social Security.
Myth No. 1 -- I'll do OK on Social Security.
2. My home will keep me secure.
3. I'm a saver.
4. I have a retirement plan from work.
5. My investments will carry me.
6. My financial advisor knows.
7. I'll never quit working.
I believe in Social Security because I believe in the United States of America. I believe that Social Security will survive its current troubles because Americans are a good and compassionate people.
However, it is naïve to believe that Social Security will continue in its current form. It is turning a blind eye to believe that Social Security is at all adequate as the reliable and only source of income for those who qualify for its benefits.
Most of us look forward to a time in our lives when we can dedicate our energies to pursuits that fill our souls, regardless of whether or not they fill our pockets. Some of us want that to happen when we are 40, 50, or 60. Others can't imagine not following their career path until they step into the grave.
Social Security can help those who qualify for its benefits, but it is a myth that Social Security is liberating enough to permit us to live in even the most basic prosperity one expects in our wonderful country without any other source of income. For most of us, it is not even adequate to pay for rent and food, much less the lifestyle we have imagined for ourselves as we age.
The stories about folks who relied on Social Security alone (whether or not by choice) and ended up eating dog food or having to choose between necessities and medical care abound. This is not urban myth.
A simple bit of arithmetic demonstrates that the costs of a modest apartment, food, transportation, Medicare coverage, clothing and a modicum of entertainment add up to more than a monthly Social Security check, even if you are receiving the maximum Social Security has to offer.
Moreover, if you can get by today, you will shortly find that inflation of the cost of necessities added to unexpected but unrelenting medical and long term care costs will quickly erode the value of that monthly check.
Living on Social Security alone is a myth.
This provides a departure point for the second myth, which will begin the second in this series of articles: Many believe that owning a home will, in some way, insulate them from poverty and need as the years go by.
1 For every myth that is discussed in the ensuing pages, one could find a negative example, i.e., someone who didn't fit the profile the myth addresses. The Unabomber lived in a cabin in the mountains on less than $500.00 per year. We all know someone who doesn't fit the pattern that we explode with each myth. That does not make them less mythical. Rather, the fact that those cases amaze us re-enforces the reality that the myth is just that -- a myth.
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