Mission Statement
So why this blog?
The genesis of the idea came from a growing concern of mine in the wake of the economic turbulence of the past year, particularly in the land in which I live, the USA.
While it is clear that much was promoted in the way of harmful financial products, in particular mortgages that were virtually guaranteed to never be repaid, it also becomes apparent that financial illiteracy on the part of the consumer is a rampant problem. For whatever reason, be it greed or financial illiteracy, someone accepted these loans. Assuming that humans are logical beings at some level, likely many did so based on false premises. Premises such as; "I know I may not be able to make the payments when the rate resets upward, but I'll simply sell the house at a higher price and walk away with a profit." Then, the thought went, a similar process could be repeated endlessly.
The only problem with such thinking was that it ignored the most fundamental questions that needed to be asked as such a transaction was entertained: "Why, exactly, will house prices go up from here? What is the basis for such a belief?"
A related challenge is the re-thinking of the culture of instant gratification. Inundated by advertising, it is all too easy to live far beyond one's means, financing the lifestyle by means of credit. For many, this pattern starts when they are in their teens, and even before. But, often forgotten, or not properly understood, are the long-term results of such choices.
Sadly, as Peter Lynch, legendary former manager of the Fidelity Magellan Fund, observed in his wonderful book Learn to Earn, schools in general are sadly deficient in equipping the next generation with the tools they need to face the challenges ahead and emerge successful. While math is taught, it is often not applied to even basic budgeting, or analyzing what the 20% interest rate on a credit card does to your finances over time.
Additionally, basic financial concepts are often not explained. Things such as; How to build a basic budget, and why you should do so. Why it is important to live within your means, yes even beneath your means. Why saving is so important. And, what the power of compounding can do for you over time.
Nor are financial products adequately explained. In other words, what should you do with the money you save? What is a savings account? A CD? A money-market fund? A stock? A bond? A mutual fund? What is a 401(k), and why should you invest in one as soon as your employer's plan allows you to do so? What are the advantages and disadvantages, and the risks, of investing your money in each of these vehicles? Should you work towards buying a home, or rent?
It will be the goal of various articles on this blog to explain these concepts at a basic and simple level. For example, while I will occasionally touch on concepts involving taxes, I will not dwell extensively on tax planning strategies. There are many publications that can take the reader well down a path to increasing their detailed knowledge of the areas I touch on. The articles will be written from the vantage point of a young person ranging in age from approximately a Junior in high school to just entering the work force. However, it is my hope that the information will prove understandable, and useful, to individuals of varying backgrounds and ages, even those without an extensive formal education.
© 2010 Karl D. Pratt - All Rights Reserved
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