Lefebure.com / Articles / Money goes to where it is cared for

"Money goes to where it is cared for." A wise man once used that phrase while we were having a conversation about the book ‘Rich Dad Poor Dad’ by Robert Kiyosaki. The basic premise of the quote was that some people will find a way to spend any money they have access to, regardless of how much money that is. You see this most visibly with professional athletes that were making big money until they quit playing, and end up broke just years later.

This happens in most other sectors of society too, although usually in a less visible way. Carrying a balance on a credit card at 18% interest when you could get a loan from a bank at a fraction of that rate. Renting a big TV from one of those rent-to-own places and ending up paying twice the price of the TV. You even see it in the corporate world where someone buys a company that has zero chance of ever turning a profit. This was rampant in the 1990s, ending with the burst of the dot-com bubble in 2000.

To some people, the problem masquerades as a lack of funds, while in reality, the problem is bad spending habits. When funds are poorly allocated, there is no return on investment. You don’t get the money back. Do this enough and you run out of money.

As a thought experiment, imagine the government seizes all the assets in your country, and then evenly redistributes them to every person in the country. At that point in time, there are no classes of people – no poor people, no rich people. Everyone is on a level playing field. Going forward in time, what will happen to those assets? Eventually there will again be classes, with some owning more than others. The new rich people will mostly be the same people that were rich before the government seized assets, and the new poor people will mostly be the people that were poor before. Money goes to where it is cared for. The question without a definite answer is: what percentage of people switch sides: from rich to poor or poor to rich?

As a second thought experiment, have a look at the US federal government. As I write this mid 2011, we’re deep in debate over the debt ceiling. Should we raise it or not? Spending money that we don’t have is very much the same spending habit as someone with a credit card balance that continues to buy more things. However, in this particular instance, who is the sucker? Is it the citizens (via their elected representatives) that keep spending money they don’t have? Or is it the people that loan their money to the government despite continually demonstrating poor money management skills?

I’m going to venture to say that it is the people loaning money that are the suckers, and eventually they won’t get their money back. Well, at least not in terms of purchasing power. By continually loaning money to a government that will spend as much as you give it, they’re acting as the enabler. Let’s say you are a parent with a child in college. If you give them money for tuition and they instead spend it on alcohol, then what? Do you give them more money and hope that they’ll pay for tuition this time? No, you quit being the enabler. You either pay the tuition directly yourself, or you just cut the kid off completely. Some people have to learn money management the hard way, and the quicker you get that started, the better it will be for everyone.

Last updated: July 30, 2011

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