Financial Education for Teenagers

Everyone likes to think they are free and they live their lives on their own terms. They overlook the influence of governments, organizations, family, and friends on their lives and the decisions they make. This may seem to be an odd way to start a blog about financial education, but it goes to the heart of money and financial freedom. Let me explain to you what is happening in the world.

We are living in an age in which power and influence are concentrated in the hands of a few organizations. Today we have a company that listens to what one billion people say. We have another company that answers the question that four billion people ask. We have one company that delivers the food that is needed to survive hundreds of millions of people in the US. There is one company that delivers all the business solution software to 80% of all corporations. We have another company that stores the photos, stories, and lives of 3 billion people. What would happen if you got canceled from Apple, Amazon, Facebook, Google, and WhatsApp? Would your life go on? Think about what would happen if they turned off your account. Seized your photos, deleted your messages, and take your documents. What if Microsoft denied you access to your business systems - could you work? Apple is the most valuable company in the world because it can change the lives of a billion people over the weekend by shifting some electricity.

What would you say if I told you there was a company that managed $10 trillion in assets? That is a big number - it is one followed by twelve zeros. Humans tend to get baffled by large numbers so let me try and put this number into context. With that money, you could buy the third and fourth largest countries in the world (Japan and Germany respectively) and then buy Tesla with the change. BlackRock, Inc. is an American multinational investment company based in New York City. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world's largest asset manager and operates globally with 70 offices in 30 countries and clients in 100 countries.

So let's identify the players with the most influence and control over us.

1) Governments

COVID taught politicians that its citizens would easily surrender their basic human rights. The Great Lockdown forced people to stay at home, wear masks, and limit the people they could be in contact with. The world's biggest cities like New York and London were converted into ghost towns. While a rebellious fringe pushed back on these restrictions, 99 percent of the global population complied.

2) Organizations

Social media giants like Facebook and Google are constantly gathering information on us. They know who are friends are, where we work, our interests, our passions, and our moods. They are mining this information constantly and selling this data to corporations who use that info to sell us goods and services.

3) Friends and family

Most teenagers have spent 25,000 hours in the company of their parents. This means their characters, interests, and preferences have been molded by their experiences. Social media and your friends also play a strong role in forming the person you are. We generally conform to social norms and given that we are happy to publically document our lives, the need to conform has never been stronger.

So let's do a quick recap. If you are a teenager (or even an adult), it is highly unlikely you can say you are your own person. You are a function of your environment which has molded the person you are today. So what is the relevance of all this?

You have an option. You can either be a master or you can be a minion. You can try to break away from all the external things that influence you and live an authentic and free life, or you can let the system swallow you up and live a life of quiet desperation.

If you choose the former, this is what you need to do.

1) Be Curious

You need to develop a strong interest in the world around you and ask questions like, what are the biggest risks faced by humanity, what is the future of the world economy, how will the world look in 20 or 30 years, what do I need to do know to live my best life for the rest of my life? Being curious and getting educated are two sides of the same coin, and your biggest curiosity should be about money and finance.

I am going to give you a crash course. There is a reason the majority of people are financially illiterate. Have you ever wondered why you never learned about money in school? Governments know the best way to control people is to control information and control money, and given they control the education system, they will make an effort to keep you financially illiterate. They will convince you to finish school, go to university, get a job, earn a salary, buy a house and car, and live a lifestyle that will support the businesses of the biggest stakeholders in the economy, namely the banks, the retailers, the transport companies, the healthcare providers and the electricity suppliers.

2) Question Everything

We tend to assume that governments want the best for us. We think they regulate the food we eat because they are concerned about our health. We think they regulate the healthcare and drug companies because they want us to be fit and strong. We think they regulate the banks because they want us to be financially independent. These are all lies because most things they do are driven by self-interest and the lust for money and power.

Do not assume that banks, governments, social media companies, and other corporations want the best for you. Take responsibility for your own education and question everything. If something has a different impact on your personal rights and freedoms, fight against it and find alternatives.

Ok, now that we have laid the foundation, let's jump into financial education. Let's start at the beginning - money. It makes the world go round. Here are the 10 most important things your need to know about money

1) Money has no Intrinsic Value

Money is an asset that has taken numerous forms over the centuries. It has evolved from shells to coins to notes. It is a wonderful medium of exchange. Before money, we used to barter. If you had sheep, and needed shoes, you had to find a shoemaker who wasn't a vegetarian. With money, there is no need to solve these kinds of puzzles.

In the history of money, 1971 is the most important date. Before 1971, all money was directly or indirectly linked to gold. In the old days, you could take your money and exchange it for gold of the same value. Today, those bills and coins in your wallet, those numbers on your bank account, are only backed by the government. If you trust the government and believe they will look after you, you should have no problem always using government money as the center of your financial world. If not, keep reading through to the end.

When money was linked to gold it had intrinsic value. A house has value because it is made up of bricks and mortar, and is built on land that also has value. A money bill is simply an expensive piece of paper.

2) Money Comes in Different Forms

It is either physical or digital. It is estimated that 92 percent of all money does not exist in the physical world - it is represented by numbers in your bank account. Counties like Sweden are almost completely cashless. This does not mean there is no money, it means there is a limited amount of cash notes in circulation. The Swedes buy and sell goods and services primarily through credit cards and other digital payment forms. This is important because it is easy for governments to issue more money without having to physically print the bills.

3) Your Money is Not Global

Each country uses its own money. If you are carrying Mexican pesos, and walk into a deli in New York to buy a slice of pizza, you will need to pay in US dollars. This is good news for banks because run a monopoly in the business of currency conversion for which they charge high fees.

4) Money Supply is Always Increasing

The amount of money in circulation is always increasing. Governments always need more money and the easiest way for them to get their hands on more money is to issue more money. You now need to understand one of the most important concepts of economics- scarcity. What happens when governments print money? It becomes less scarce. There is a direct link between value and scarcity. One reason why the Mona Lisa is so valuable is that Leonardo da Vinci only painted one. If Leo had painted 10, each one would be less valuable. The more money the government prints, the less valuable it becomes. This is known as debasement. The Romans debased their silver coins by adding more and more copper. Modern governments debase through the issuance and printing of more money. In times of crisis, as we experienced with COVID, the more they print and the greater the debasement.

5) Banks and Governments Control the Money

Governments issue it, you earn it, and then you put it into the bank. When you want to use that money, you need to ask the bank's permission. If the bank does not give you access to your money, as happened in Cyprus in 2012, you have to make alternative arrangements. If you have the wrong nationality, governments can tell banks to freeze your money as happened to many Russian oligarchs in 2022 after Russian invaded Ukraine. Money is one of the most centralized commodities known to man.

6) You can Spend Money You do not Own

This is one of the most important rules of finance and is what drives modern economies. This is known as credit. Credit allows businesses and individuals to spend and invest more money than they own. Companies can build factories, buy heavy machinery, and hire skilled workers to grow their businesses. Individuals can get student loans to study, mortgages to buy a house, and small business loans to buy inventory. All these activities help the economy grow which also provides new opportunities for other companies and individuals who do business with their credit users.

7) Demand for Money is almost Limitless

Humans are wired in a way that they will never have enough money. Our appetite for money is almost insatiable. People will do anything for it - including committing murder.

8) Money is Taboo

Like religion and politics, we are taught that the issue of money should not be raised in polite conversation. With household debt at record levels, this taboo is more entrenched than ever. The reason is that most people are in abusive relationships with money. It controls their moods and emotions. It is the silent monster that they fear and they think the best way to deal with it is not to poke and anger it. By keeping money in the dark, we are feeding a monster.

9) Most People are Money Illiterate

Financial literacy around the world is low. This has been bourne out in numerous global surveys. Most people do not know how to draw up a budget, they don't know how to save and they do not have a clue about investing. They live in debt, pay high levels of interest, and live paycheck to check. They do not know how to plan financially, do not know about the stock market, and never advance financially. The reason for this is that we were never taught about money in school. It could be that governments have no interest in us being financially literate because it is easier to control the ignorant than the informed.

10) Financial Institutions have no interest in educating you about money

Do you think the healthcare industry wants you to be healthy? If everyone are well, exercised, didn't smoke, and only drank alcohol in moderation, the healthcare industry would be small. Healthcare companies want to only treat your symptoms and medicate you up to your eyeballs, so you become a repeat customer. Financial institutions are only interested in selling you then shiny new products. They get you into debt, enslave you with a 30-year mortgage, throw credit cards at you, and get you to pay your savings into an account that pays little or no interest. The more educated you become the less you need them. If you know how to invest, you don't need to buy mutual funds. If you know how to save, you don't need to get into debt. Education is at the heart of financial freedom and this freedom does not serve the interests of the financial industry.

Now we need to talk about cryptocurrencies.

Everyone has basic physiological needs. Some of those needs are met for free - such as the air we breathe and sleep. Other needs such as food, water, and shelter now require access to money. This was not always the case. As hunter-gatherers, we lived off the land for "free", but in the modern economy, money is required by the majority of us. Sure, there are people that try to live off the grid, but even that requires access to some money. Not all money was created equal. One United States dollar can buy a lot more than one Zimbabwean dollar, so we often think of money in terms of what it can buy. If I have 100 units of money today, will the value of that money be more or less the same in 1 year? If that 100 units can buy me 10 chickens today, what happens if in 1 year it can only buy me 8 chickens? The gradual erosion of the value of your money is a problem and depends on the ability of the issuer of that money, the government, to maintain the buying power of that money. You need to have trust in their ability. Secondly, you need to decide where to store your money. The most common place for many is in a bank because it is deemed to be safe. Again, we need to go back to the issue of trust. You have to believe that the bank will not steal your money and they will give it back to you when you need it. You will notice that when it comes to money, trust is a key ingredient.

Over the past 20 years, how have banks and governments performed in honoring the trust we have given to them? Let's start with the banks and let's start with the most trusted country in the world - the United States. After the financial crisis in 2008, 465 banks failed in the United States. You might think that they must have been small and insignificant banks that went bust. Not really. Nine of the banks had more than $10 billion in assets and the largest was Washington Mutual with $307 billion in assets. In terms of governments, many have done a horrible job of preserving the purchasing power of their money. The list of countries with hyperinflation (a situation where the prices of goods and services rise uncontrollably over a defined period of time), is long. There are ten countries that have seen the value of their money decline by more than 30 percent over the past 12 months. Remember 30 percent means this. If your money could have bought 10 chickens 12 months ago, they can only buy you 7 chickens now. There are 4 countries with more than 100 percent inflation. This means you could have bought 10 chickens 12 months ago and today you cannot even buy one. Venezuela has inflation above 1,000 percent meaning you could have bought 10 chickens 12 months ago but today you cannot even buy one egg. While I am not saying that you cannot trust any banks and any government, you need to know that you cannot blindly trust every bank and every government. Now we need to understand currency debasement. It sounds like a complicated concept but it is actually quite simple. We mentioned inflation and the purchasing power of money. You need to know that there are many things that reduce the purchasing power of money, but the most important is debasement and governments have been doing this forever. The Roman Emperor Nero started in the year 60 AD when he reduced the silver content from 100% to 90%. Over the next 150 years, the silver content was reduced to 50%. By 265 AD the silver content was down to 5% and replaced mostly with copper. In modern times, debasement entered a new era after 1971. Before 1971, all global money was linked to the United States dollar which was in turn linked to gold. You could take a $100 bill to the Federal Reserve in the United States and they would theoretically need to deliver you $100 worth of gold. As the world economy expanded and the demand for dollars increased - remember that 87 percent of all global trade is done in US dollars - it was necessary to move off this gold standard, and the US government was able to print more money. But you have to be very careful when you print too much money because if you print too much, it quickly loses its value. That is what is happening in Venezuela. Most countries do not print money as a long-term solution to financial challenges - they print as a short-term solution to try and overcome the challenges. In the case of Venezuela, it did not work at first, so they kept printing until it was too late. You might think that currency debasement only happens in places like Venezuela. You would be wrong. Again let us go back to the strongest economy in the world - the United States. Since 2008, the money supply in the United States has grown on average 7.7 percent per annum. Although we like to say that governments literally print money, that is not entirely true. You need to realize that the global money supply is approximately $60 trillion. Of that total supply, only 10 percent is in physical cash notes or coins. This means that 90 percent of all money is nothing more than entries in a computer server. The government does print money, but the majority of the debasement is done by adding numbers on a computer. So why is the United States printing so much money? Since 2008, the world has had to weather numerous financial storms. First was the financial crisis in 2008 and the collapse of Lehman Brothers which almost lead to a collapse in the global banking system. Failed banks needed to be bailed out, unemployed workers needed to receive payouts, and wars around the world had to be financed. Then COVID hit which meant the presses had to keep running. Now we have a war in Ukraine, energy prices have increased and the high demand for money continues. Now you need to understand the concept of the half-life of money. This is how long money will take to lose half its value. If you are increasing your money supply by almost 8 percent per year, the half-life is approximately 6 years. If you live in an emerging market like South Africa, Brazil, or Mexico, you need to know that money is being printed at twice the pace which means the half-life is 3 years. So let's go for a quick recap. We know that money is based on trust in governments and banks, and we know that this trust is not always warranted. We also know that humans generally are self-centered. They generally focus on their own needs and interests. This means that banks and governments are not always concerned about their customers or their citizens - they are more worried about their own issues. We now need to go back to where to store our money. We know the most obvious answer is in a bank. Another option is on your backyard but there are obvious risks to that - rats may eat it, water may cause it to rot, and neighbours might dig it up. Let's now look at a third option and let's see how it goes about addressing the challenges we have mentioned. We know the biggest challenge of money is that is based on trust in and permission from centralized institutions like banks and governments. Imagine there was a form of money that was not physical, not centralized, not regulated, not based on permission, and did not require you to have trust in an organization or an institution. How cool would that be? What would you say if there was a currency like that - Bitcoin? 1) Physical versus Digital The physicality of money has numerous drawbacks especially when it comes to moving money around. In many countries, money transfers do not reflect immediately, especially if done between different banks. For the money to reflect on the same day, a fee is charged. International transfers are even more complicated and can take up to three days to arrive. There is a long-standing joke that the quickest way to move $10,000 from Singapore to Los Angeles is by airplane. In a world that is increasingly more digital, where we have digitalized our photos, music, and much of our information, why is it that money has been left behind? While I am not a fan of all things digital - because digitalization often comes with greater centralization and control - when it comes to money, I am in favour of a little digital. Bitcoin is completely digital which means transfers are almost immediate and they are not limited by time of the day. Many banks will not do a money transfer for you after 4 pm and you can forget about weekends. While money sent on Friday may arrive on Saturday, money sent on Saturday will arrive on Monday at the earliest. With Bitcoin, someone in Hawaii can pay someone in North Africa on a Sunday morning. Frictionless movement of money 2) Centralized versus Decentralized We live in a centralized world. The internet was supposed to herald the democratization of information and in many ways, it did, at the expense of our personal privacy. Today a small number of companies control an inordinately large amount of information. Google answers the questions of 4 billion people every day and tracks our interests and movements. Your device even listens to you - how often have you mentioned something to a friend - such as a desire to travel to Bali - and then you get a pop-up message for flights to Bali. Apple has over 1.2 billion iPhone users which means it could listen to tens of billions of conversations every day. Financially, there is a centralization of power in the hands of financial companies. When you have money in the bank, that does not mean there is a pile of money in a vault with your name on it. It means there is a big computer, and on that computer, there is a file or document that testifies to the fact that you are the owner of that money. It is possible that the file is backed up in some location other than the physical address of your bank, but the information is stored on a centralized server. In theory, although highly unlikely in practice, a hacker can gain access to that server and steal your money. It is likely the bank will compensate you if the attacker does not steal all the money. Banks are also insured, but you understand what I am trying to say. Your money is located in one physical place and this centralization makes it vulnerable to external and internal threats. How about a money system that was completely decentralized and you never lost control of your money? In other words, you never had to ask someone's permission to do something with your money. When you use your debit card, credit card, or bank card, and you present that at your local coffee shop to pay for that double cappuccino, you are asking permission from your bank to acquire that beverage. If you have exceeded the limit on your credit card, they can decline it. Does it make sense to you that you need to ask permission to use your own money? Bitcoin is decentralized and permissionless. If you hold your Bitcoin in a private wallet, you are the custodian of it. If on the other hand, you hold it on an exchange, you will need the permission of the exchange to do anything with it. 3) Regulated versus Unregulated This is linked to centralization and control. There are pros and cons to regulation. On the one hand, regulation means less freedom but on the other hand, there is more security. Banking is highly regulated. This means that there are lots of rules and oversight. If someone steals your credit card number and spends on it, there is a good chance your bank will reverse those charges and that is largely thanks to regulation. Regulation, however, is a sword that cuts both ways. With greater security, there is a tradeoff for freedom. Regulators will prescribe to you what you can and cannot invest in based on what they think your risk tolerance and education are. For example, there is a special type of investment fund known as a hedge fund. They are unconstrained funds that can invest in a wide range of assets such as derivatives and other cool financial instruments. Regulators have deemed these funds to be too risky for the average person, and have restricted them to qualified/accredited investors. These investors are defined in terms of how much money they have. Regulators, therefore, make the assumption that if you are rich, you must be smart and educated. If you don't like being told what to do, regulation is not going to be your jam, and that is the beauty of Bitcoin - it is largely unregulated and therefore best suited to the rebels. But with this freedom, so too comes responsibility. You need to educate yourself on the pros and cons of Bitcoin. You need to understand the potential risks and the potential returns. 4) Permissionless versus Permissioned It is crazy to think we still live in a world where need to ask permission to use our own money. Banks can block your cards, and reject large purchases. Ask anyone who travels a lot and needs to pay for a taxi at 1 am in South America and has their credit card declined because the company sees it as being a suspicious transaction. I understand the need for security, but often these credit card algorithms make no sense. They allow a large purchase in a dodgy nightclub at 11.30 am but reject it when you want to buy a Starbucks espresso. So, this is a quick and easy run-through of how to speak to a teenager about money and crypto. It is important to educate your kids early because there is a vacuum when it comes to financial education. Schools don't teach it and parents often cannot because they are as clueless as the kids. We are at an important intersection in the world of finance. The world is going digital and it seems one of the last things to join this trend is money. Banks do not want this change to take place so they have come out aggressively against Bitcoin and other cryptos. You need to understand that negative rhetoric in the crypto space is often motivated by fear of change. This is not a case of "if" crypto will be widely adopted - it is a case of "when" it will be widely adopted.