Our Wealth!

J.S. Kim asked:


Today there is much talk about how young adults are financially illiterate as if financial literacy were adequate to build wealth. Millions of people have read one of the best financial literacy books out there “Rich Dad,Poor Dad” yet there is a loss of translation somewhere between the sound principles of financial literacy and their utility in building wealth. Somewhere, there still is a bridge to building wealth that books such as “Rich Dad, Poor Dad” have failed to cross. This bridge is one of not financial literacy, but one of wealth literacy. If I were a university President, I would ensure that my business program offered the following courses:

(1) How to Leverage Money

(2) The Four Pillars of Wealth

(3) How to Invest Money

(4) Gold and Precious Metals

(5) How to Leverage Time

(6) Debunking Widespread Investment Myths; and

(7) Networking

There would be several more lessons that I would provide after this basic curriculum was completed, including:

(1) The Connection Between Politics and Investing; and

(2) Leveraging Technology to Build Wealth

With an adequate foundation of knowledge in all these courses, a young adult would be prepared to build wealth without so much trial and error, struggle, or outright failure. Instead, no level of traditional institutions of education teach such courses and instead remain mired in curriculums skewed towards theory and not applicability such as statistics, economics 101, marketing and finance. If you think about it, even at the Master level, none of these traditional business or financial literacy courses will really teach any student how to build wealth. This is precisely the reason why young adults must seek an entirely different foundation in order to understand how to truly build wealth.

Various surveys that I have stumbled across that assess the financial literacy of young adults are inadequately structured because they focus too much on traditional concepts such as stocks, options, real estate, and so on versus granting an assessment on whether young adults are knowledgeable about any concepts necessary to build wealth. Being “financially” literate versus being “wealth” literate are two entirely different concepts. I believe that one can be financially literate while not being wealth literate.

The difference between financial literacy courses and wealth literacy courses is this. Financial literacy courses focus on topics such as budgeting, basic understanding of investing concepts, funding retirement accounts and so on - concepts that young adults rarely consider but still not concepts that will help them build wealth. Financial literacy courses teach young adults what they need to do to build wealth but grants them none of the tools they will actually need to successfully build wealth. Furthermore, they never inform them on actionable steps to build wealth other than common sense such as learn how to invest, max out your 401 (k) contributions and so on.

For example, if one was a basketball player, the comparable level of a financial literacy course would be to tell a power forward that he needs a good array of post-up moves close to the basket, a sweet outside shot to make opponents respect his range, a quick first step to create off the dribble and a solid defensive game so that opponents can not exploit him for being a one-dimensional player. But after telling the power forward that, there would be no further explanation but a wish of “good luck” and a pat on the back. A wealth literacy course would actually teach the athlete specifically what he would need to do to achieve success in each area of his game that would make him a premier athlete.

Telling young adults what they need to do will have little impact on improving their quality of life or making a successful transition from young adults into financially independent adults. Providing a toolkit for how to do so is far more important. To this end, seeking courses that teach wealth literacy instead of financial literacy to young adults is much more important.

J.S. Kim asked:


According to a recent study conducted by Charles Schwab, today’s teenagers in the United States have huge expectations about the type of wealth that they will build as young adults. Of the 1,000 teenagers that participated in the survey, boys on average expected to be earning $173,000 a year while girls expected to be earning $114,200 annually. The reality is, however, that only 5% of all wage-earning adults in the U.S. earn six figure salaries.

The Schwab survey further discovered that nearly two-thirds of American teens aged 13-18 years-old believe that they were knowledgeable about money management, including budgeting, saving and investing. However, despite this typical braggadocio that accompanies teenagers, barely a third of them admitted to knowing how to budget money (41 percent), how to pay bills (34 percent), and how credit card interest and fees work (26 percent). Here is where this survey is lacking and where a crucial gap in understanding must be bridged. Despite most teens lacking this knowledge, this is not the knowledge they need to build wealth. It is the knowledge they need to perhaps assume a baseline of fiscal responsibility as young adults, but hardly the knowledge that will help them assert their wealth-building muscles. As I stated in my last blog, teenagers need to learn the below subjects to acquire the critical gap in knowledge that will convert them from fiscally responsible young adults to adults capable of building wealth.

Many adults assume that their children will have zero interest in learning about how to build wealth, but the Schwab studies reveal otherwise. According to the Schwab survey, “nearly 9 in 10 say they want to learn how to make their money grow (89 percent). Two-thirds (65 percent) believe learning about money management is ‘interesting,’ and 60 percent say that learning about money management is one of their top priorities.” These stats are encouraging but the accessibility to the type of education that will truly benefit young adults is still highly guarded and certainly unavailable through typical channels of traditional education.

I strongly believe that young adults will never acquire the proper education to learn the critical knowledge they need to build wealth through traditional education or certainly not through educational programs sponsored by investment firms. Why?

If investment firms truly provided the type of education that young adults needed to independently build wealth then it would render their own services obsolete and unnecessary. No firm would ever willfully engage in such self-defeating behavior. This would be analogous to a tobacco firm sponsoring educational programs about the deleterious effects of smoking including lung cancer. I imagine that such firm-sponsored educational programs carefully design the programs to spark an interest in young adults about investing while still leaving them dependent upon them to invest their money in the future. It’s the perfect set-up for investment firms. Shaping young minds to give them their future earnings. However, it is most definitely NOT what will help young adults build wealth.

So wherever you seek information for not only your children but for yourself, ensure that the program you seek does not just teach you basic fiscal responsibility skills that still leave you dependent upon someone else to manage your money, but ensure that such a program is comprehensive to teach your children how to manage their money themselves as well. Ensuring that your children (or perhaps even you) seek knowledge regarding wealth literacy will in the end, be 1000 times more important than seeking financial literacy.