3. Prepare your children for economic self-reliance.
There was a time in my career in wealth management where the most intense financial generational burden was the daunting task of caring for one’s parents in their senior years. In fifteen years, that has completely changed. Now for every conversation we have about planning senior care, we have ten conversations about parents needing to financially support their adult children.
This phenomenon has been blamed on the challenges of the post-2008 economy to some degree—and for good reason. But, as Senator Ben Sasse has suggested in his masterful book The Vanishing American Adult: Our Coming-of-Age Crisis—and How to Rebuild a Culture of Self-Reliance, much of the problem does not require scolding the millennial generation, but rather a shift in how we prepare them for adult life. Perpetual adolescence is a systemic problem and, though it is primarily a cultural one, carries grave economic implications, as well.
The danger of including it in this book meant for a broad audience is that it doesn’t allow for the inevitable particulars of each and every family. But my underlying point is this: instilling a culture of self-reliance in your kids is not only good and loving parenting, it is also vitally important for economic well-being—both for you and for society. Household formation has been decimated by the “extended odyssey phase.”47 Financial pro formas, parents’ own aspirations, our children’s dignity, and the well-being of society doesn’t allow for the years between twenty-one and thirty-five to be merely a time of nonproductive discovery.
As Sasse rightly says, guard against this peril by preparing your kids to be “fully formed, vivacious, appealing, resilient, self-reliant, problem-solving souls who see themselves as called to love and serve their neighbors.”48
4. Consider reengaging the lost world of local politics.
Most damage is done at the local level of politics. I confess to this being a case of the pot calling the kettle black, having been a federal politics junkie for my entire adult life and most of my childhood, as well. I wish I could say that by engaging local politics you will become less cynical and frustrated, but I must warn you—it’s highly likely to get worse. I dealt with crony capitalism more in chapter 6 and argued that crony interests prevent a host of well-meaning people from getting involved in local politics in chapter 10. Nevertheless, the need is overwhelming in our cities, counties, and states.
We need greater competence and greater integrity. The dilemma we face is this: the most competent and honest in society have found the world of local politics repugnant (for good reason, most of the time). In their absence, ne’er-do-wells or worse eagerly fill the vacuum. But who fills the halls of Congress eventually? Former state senate and state assembly members. Who gets elected to these state positions? Former members of county boards and city councils. Local politics is generally a training ground for state and federal politics. Thus, our apathy for local politics leaves us with terrible consequences now for our cities and terrible future consequences for everywhere else.
Truth be told, plenty of fantastic people enter local civic leadership for no other reason than to serve their communities. By no means do I want to paint with a broad brush, but we have a systemic problem. There are not enough high-quality candidates in the local domain and not enough citizens engaged on the topics and issues that matter most. For example, city councils and county boards have done more damage to property rights than any liberal Supreme Court could have done in a lifetime. City councils and county boards control zoning laws, which have proven to be extraordinary tools for central planning and statism.
The business-friendliness of a community is often either established or destroyed at the local level, because the general process by which business gets done is determined by the tax, regulatory, and enforcement framework. When I say cronyism festers at the local level, it’s because local officials are most guilty of making special handouts of public dollars (or selectively waiving tax liabilities, the reciprocal expression of the exact same thing).
So much of the American quality of life is a by-product of our local community leadership. Protecting and enhancing that quality of life requires men and women of responsibility to lead with diligence, character, and competence. And for those who, like me, believe in subsidiarity, the best defense against a far-removed federal government intruding into a local community—whether about homelessness, school choice, park safety, police training, or water resources—is not to give them a reason to do so. Strong local governance always and forever limits the need for a stronger, more oppressive federal government.
5. Flee the cult of home ownership and home price appreciation in your thinking and behavior about real estate.
I am not telling you to abandon the goal or practice of home ownership, nor am I encouraging a drop in the market value of anyone’s home. The indisputable fact is that our societal addiction to home ownership helped create a financial crisis—and postcrisis attitudes don’t indicate evidence of a lesson learned. One can achieve a great financial feat in buying a home, and an even greater financial feat in paying for it. My criticism here is more focused on two concerns:
1.the individual obsession with short-term home prices that treats a house more like a trading card than a home
2.a bipartisan policy response that assumes pushing housing prices up is a desired end in and of itself
Regarding the first, specific and significant actions that created the inflated housing prices are not taking place now—lack of income qualification, negative amortizing loans, and the disregard for down payment. However, the mentality that created and fueled them is still alive and well—the belief that a home is more of an economic tool than a community-building place to live in and raise a family. That short-term thinking about the home itself breeds reckless financial decisions—stretching to afford too much, maintaining inadequate protective equity, and misunderstanding the very basics of economic home ownership.
As to the second, it is utterly perverse for policymakers to believe it is their job to promote rising home values. It’s also highly discriminatory—are there not two sides to every home purchase? Since when is it appropriate for a politician to root for one side over the other in a private transaction? Will home prices organically rise in a free market economy as wages rise, quality of life increases, and modest inflationary forces surface? Very likely so. But that organic increase of real estate values is subject to extensive external influences (interest rates, supply, demand, new construction, labor market conditions, etc.) and needs no input from cheerleading politicians. Besides, policies promoting higher house prices discriminate for sellers against buyers and likely favor older, wealthier people over younger people of lesser means. This discriminatory policy trend should be creating populist rage.
Why do politicians and individuals still tout the supposed advantages of higher home prices? One simple reason is most people’s personal balance sheets have so little liquidity that they want the mirage of real estate appreciation for the psychological wealth effect. Certainly those about to sell a home have a justifiable reason to desire a higher price. But what our society needs right now is to value household formation and the process of home ownership, not merely the end itself.
The discipline of saving for a down payment on a home is a virtue-creating act. Protecting one’s credit to be able to ably and responsibly borrow to buy a home is a virtue-creating act. Succeeding in a job to be in a position to buy—and then keep—a home is a virtue-creating act. When you’ve sacrificed to acquire a home, you appreciate it, you cultivate it, you value it, and you become responsible members of the local community. All of this is what Jay Richards has called the “virtuous circle” of home ownership—“wise behavior makes it possible to acquire a home, and then the acquisition of the home reinforces wise behavior.”49
Some people should not buy a home. It’s silly for people to deplete their retirement accounts and liquid savings to buy
a home based on attractive interest rates—with no way to afford maintenance, insurance, or taxes. Renting is not a sociological pariah; it is very often a wise and prudent, if not downright attractive, thing to do. How much labor market immobility—the sad state of labor dynamism we discussed in chapter 5—is a by-product of people being handcuffed to a home they never should have purchased?
The truth is that the biggest financial mistake most on Main Street will ever make will be the result of flawed thinking about home ownership. For many, the wisest thing they will ever do will be to exercise prudence, patience, thrift, and virtue in home-buying decisions.
6. Reject the social safety net when you can and choose the more challenging but fulfilling path of self-reliance.
I know this point will generate the most opposition, and I understand why. There is an apparently galling lack of empathy in a financially comfortable business owner like myself telling others to reject society’s cushions. I get that. But my exhortation here is rooted in empathy, not indifference. Yes, I am financially comfortable and live in an affluent community, but I have not always been such. I’ve tried to avoid personal biography as much as possible in this book to protect against any accusations of self-congratulatory ego. But this is a subject as near and dear to my heart as any in the book. I believe passionately, sincerely, and empathetically that able-bodied people abusing the societal safety net is not only wrong but economically counterproductive and existentially fatal. It is economically counterproductive because of the irresistible allure of dependency. It is existentially fatal because it denies the dignity of achievement through perseverance.
I want a robust system of job creation that promotes human flourishing for all, but I am sympathetic to the realities of desperate situations. I support a culture of assistance in the context of subsidiarity. I’m not blind to some of the darkest and scariest experiences many suffer. My advice here deals not with those situations, but with the ones in the middle where a real choice exists—to choose the hard but better path and reject social benefits, or to choose the easy but self-defeating option and accept them.
What I’m referencing here is the “stretch” or “abuse” of the safety net—the use of a doctor’s note to collect disability when it’s not really required, for example, or the manipulation of unemployment benefits outside their intended scope. Instead of this self-corrupting behavior, I am encouraging you to take a path that produces the virtue of achievement, the satisfaction of earned success, and the empowerment that comes only from overcoming adversity.
7. Find your joy in production, not consumption.
Consumption isn’t wrong. But my advice aims to reinforce a time-tested totem pole for that which creates real meaning and contentment in life. First, review some important basic economic truisms. When human beings creatively transform matter into resources, they create wealth. In this sense, there can be no wealth creation without production. And in a more fundamentally obvious sense, one’s ability to consume must come after his or her ability to produce—you can’t afford to consume until you first produce something of value. Consumption for the sake of consumption destroys value. Output and value creation can only come from production. Increasing consumption is always the result of growth, not the cause of it.
Therefore, discovering valuable ways to serve and produce for others is what causes economic growth. Confusion about this basic truth has led to all sorts of economic malady. But the confusion has created even worse existential problems. We live in a consumer-driven society, where short-term highs can be achieved with the latest app or video game. But decades of study about “earned success” reinforce the fact that the act of production brings sustainable value and substantive internal satisfaction. It fulfills higher needs in our hierarchy of longings.
Understanding these priorities, and consciously constructing your life around them, engenders gratitude, facilitates a life of useful service to others, and creates intrinsic value when you inherit all the rewards of meaningful productivity and purpose.
8. View and treat family as the economic building block of society.
With this advice, I am suggesting more than the intellectual awareness that the fragmenting family deteriorates the social safety net, creates inefficient allocation of resources, and undermines societal development. Understanding the inverse relationship between strong families and poverty is important, but it’s not at the heart of my advice here. Also necessary, but not sufficient, is an awareness that family formation builds wealth and family dissolution destroys wealth. What we need in this day and age is not merely the correct answers on a social science quiz, but correct living, modeling the value of strong family units in our own lives.
The macro contribution of healthy families in our society comes from the micro combination of healthy families. The macro math does not exist outside of the micro; it results from it! In this case, we are talking about the greatest economic cycle of virtue ever known to mankind. Married people have embedded incentive to produce, because they care for the other member of the marriage. Therefore, resources are shared and not wasted. Children then become the greatest incentive the world has ever seen for married couples to produce, preserve, and grow.
Marriage civilizes, organizes, and motivates people. It facilitates organization, division of labor, efficiency, routine, and structure in a fundamental way. In living out the positive social implications of this reality, loving parents model it to their children, who then grow up more likely to replicate the same productive dynamic in their own family structures. Conversely, single parenthood and divorce produce statistically worse economic implications for women and an overwhelming increase in social welfare programs. Cohesive families create structure not only for the intellectual and moral development of children, but for their economic provision, as well.
I find it hard to believe anyone reading this book doesn’t already know all of this to be true about family at the macro level. So why include it? Because I am advocating for us to practice it at the micro level.
I’m asking that we rethink the faddish celebration of late and deferred marriages. I am suggesting that the economic struggles experienced by people ages twenty-five to thirty-four in the modern economy are directly correlated to marriages being at an all-time low for that age demographic. I am encouraging resilience, problem solving, commitment, and communication in our marriages, versus the easy pull of the divorce lever. I am distinguishing marriage from cohabitation, both morally and economically. I am celebrating children, not viewing them as a nuisance or inconvenience. I am suggesting to young men that that they can dramatically enhance their eligibility for marriage by developing productive work skills and capabilities that bring value to society. I am encouraging a greater emphasis on hard work and a lower priority on video game entertainment. (I would actually prefer the elimination of video games, but I digress.)
The deterioration of family creates an overwhelming negative feedback loop and a tension that hampers our economic productivity. This book is not a marriage manual or child-rearing handbook, but when we place a high value on family, the positive feedback loop we create is a potent force, not only for society, but in each of our own lives.
9. Administer your own personal finances proactively, defensively, opportunistically, and prudently.
The era of middle-class families doing no budgeting or financial planning, pursuing no contingency arrangements, avoiding risk management, and having no plan for savings and investment—yet coveting the results of those who have—needs to end. When you have an adequate reserve account, the negative forces of job displacement can be managed very differently. You think about mobility and career options differently when you have been funding a retirement investment account for years. To determine financial objectives and organize disciplined steps to meet those objectives is both simple and far too rare.
For those who object, I can preemptively write the rebuttal, because it
is as predictable as it is unconvincing. No, financial planning and preparation are not unique luxuries for people who already have abundant economic resources. The stakes may be higher when there is more money in your net worth statement, but every adult can organize a basic financial structure. For many people, it will involve diverse and even sophisticated investment planning. For others, it may mean debating whether you can afford contributing $100 or $200 each month to their employer’s 401(k) plan. Whatever it means in your situation, you can exponentially enhance your ability to defend against unexpected economic woes by engaging the basic process of financial seriousness.
A perception exists that wealthy, corporate executives can do financial planning, but the blue-collar family struggling to get ahead cannot. Not only is this nothing but pitiful avoidance behavior, it also becomes a self-fulfilling prophecy. It ignores a surprising reality in human nature that professional wealth managers like myself know all too well: a lot of people on the upper rungs of the economic ladder don’t do a bang-up job of financial planning either! A plethora of high earners find themselves underfunded, over-indebted, and underprepared for life’s unexpected. They fall back on the same excuses as those with less wealth to work with.
Overcoming our crisis of responsibility is the subject of this book, and financial planning requires responsibility. Pursuing a basic checklist of financial preparation is a paradigm-shifting way to prepare for whatever happens next in this new global economy.
10. Be a generous, charitable giver.
When you give generously to charity, not only do you meet the needs of others, but you also receive back multiples of what you give. It’s a long-understood and glorious mystery for those who practice philanthropy. In this way, sacrificial giving can be one of the most selfish things you do, because it often does as much or more for you as it does the recipients of your gift. I wouldn’t wish to defend this claim intellectually, but it is a paradoxical truth. The more you give, the more you get.
Crisis of Responsibility Page 14