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Financial Literacy

Financial Literacy

Growth

Type A business people have a motto: "If you're not growing, you're rotting."

Actually, they have a bunch of mottos, including "The guy with the best BMW wins." But let's not worry about that right now.

The main thing they want (other than fancy cars) is growth. Plenty of people think that if they just hit a certain income level— $70,000, $1 million, $20 million—they'll be all set. But you can never really leave the hustle behind. No matter how much or how little you've got, you're going to want to make your cash grow…starting now.

Here are a few reasons it pays (literally) to think about growth early.

Saving for retirement early saves you a lot of hurt later.

Let's say you start putting aside $2,000 a year for retirement at the ripe old age of 18. That's less than $6 a day, but thanks to the power of compounding and investing, it can mean a lot of cash by the time you retire. Investing $2,000 a year and making some smart moves with your money can mean that you earn $2-4 million by the time you retire. That'll pay for a lot of prune juice and Ex-Lax.

If you start saving for retirement when you're 40, you're going to have to save twice as much—and you might never catch up to the young whippersnappers who started saving at 18 and made a killing because of it.

You can't expect to inherit money.

Maybe Daddy owns a chain of restaurants, is a big-shot lawyer with a Porsche, or rocks it out on stage on tour. You expect to inherit the big bucks when he heads off to the Big Corner Office in the Sky.

You still need a job.

If you've got a sibling or two, Daddy's estate will be split among you—and there are still taxes to consider. If Daddy leaves $4 million to your two sisters, your mom, and you that might be $1 million each. The IRS will want about $500,000 of your share for taxes. That'll leave you with $500,000. Invested, you might make $25,000 a year from that…not exactly leaving you rolling in dough.

And this is all assuming Daddy doesn't leave everything to the Save the Cats foundation because he decides in his dotage that Mr. Snuggles gave him the most affection.

You might not get social security.

Hey, there's a safety net in place to catch you if you screw up and need help, right?

Well, yes, but that net has holes you could drive a tractor-trailer through. For one thing, Social Security benefits for retirees are only one step above poverty levels—and it's a tiny shaky step above poverty at that. You don't want to spend your Golden Years worried about paying for your next meal after you've worked hard for a lifetime. Unfortunately, that's what Social Security can end up being like. And private pensions might not be much better.

It's also possible to live past your pension. You might have some pension money or social security benefits coming your way, if you live for a good long while after you retire, you might outlive your benefits. What will you live on when all those nice checks dry up?

And all of this is assuming that social security benefits will even still be around by the time you're in dentures. The reality is that with government cutbacks and changes, there's no guarantee that the social network will still be in place (or solvent) by the time you're a Golden Oldie.

Bottom line: you can't count on anyone but yourself, toots. So you may as well start working on growing that retirement fund and nest egg so that you can afford to eat.

Health care costs.

Got the sniffles? Better grab your wallet—that stuff's going to cost you.

The less you have, the more you tend to spend on health care. If you have a high-falutin' job, your employer probably gives you good health coverage. If you're rushed to the hospital in need of an appendectomy, your insurance company will handle a lot of costs for you (because you've been paying them premiums).

Here's how it works: a big insurance company pays hospitals for Kleenexes, bed pans, and other stuff you probably don't want to think about if you've just had lunch. They bring a lot of money into a hospital and have a team of attorneys who know all about how hospitals work. If your hospital stay requires a plate of mush (officially called "breakfast" by the hospital) the insurance company will negotiate with the hospital so that you only get charged $5 for that breakfast (hospitals cost a lot of money to run, so everything costs more in the hospital).

If you don't have insurance, you're out of luck.

There's no one to negotiate for you, and you might find you're charged $12 for your morning mush. What are you going to do about it? There's not much you can do. Worse yet, since you don't have insurance, you're going to have to pay those costs out of pocket while the guy with the nice job in the next room gets to have his insurance cover the costs.

People without health insurance are considered a bad credit risk. They might not have enough cash to pay for insurance. Or they might have pre-existing conditions that could make their health costs high. And you can be sure insurance companies don't want to deal with that.

Giving Back

In the past, charity and not-for-profits enjoyed almost as much public and financial support as movers and shakers do today. Back in the era of John F. Kennedy and the Flower Children, the Peace Corps, arts funding, and charities did a lot of good—and they had the support to help. Lots of folks believed in karma and had hopes for a brighter future.

That changed when times got scarcer and people tightened their wallets. The 1980s weren't known as the "me" decade for nothing. Funding to public programs and charities were slashed and some charities had to close their doors.

Well, times they are a-changing again. Millennials care about the earth and want to make a difference. A quick look through Kickstarter shows a ton of feel-good projects and startups wanting to make a difference. The government is doing its (very small) part, too: there are tax advantages for giving to charities. And some employers are hopping on board and making volunteering or contribution part of work time.

The biggest challenge to charitable giving (and the world economy) in the future might be another type of growth: population growth. As the number of people in this world explodes, resources become scarce. The number of people being born into poverty and need far outweigh the folks being born into Versace cribs and Tom Ford bibs. How will we deal with this challenge? Can non-profits cope with this sort of need? Should they be expected to?

Stay tuned for the next chapter in the history of the world…

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