In the families of the hardcore poor, there is usually a low appreciation for higher education and an utter absence of knowledge pertaining to the power of capital. Why?
To find out, let’s dive right in:
1. Not valuing higher education
When life is hard, it is natural to sacrifice the important for the urgent. This results in parents viewing extra years in the education system as an unnecessary luxury. When there are too many mouths to feed and twice as many feet to shod, it is essential that the able bodied in a family start earning quickly.
If you think back to stories related by, say, your great grandparents or even your grandparents, those may have featured accounts of boys and girls who could only be educated up to primary school before being sent out to work. Later, in your parents’ time, circumstances improved and many were permitted to stay in school throughout secondary school before entering the workforce to help support their younger siblings.
Even today, among the poorer segments of society, the perceived value of a college or university education is often eclipsed by the need or the allure of starting to earn money in their late teens instead of waiting till their 20s.
Nowadays, when tertiary education spots at accredited institutions of higher learning are more readily available than in the past, the poorest segments of society still lose out even when means tested scholarships are available.
This is because it’s often difficult to appreciate the long-term increase in lifetime earning ability that comes with each additional year of tertiary education when the peers of the poor kid in question are chafing at the bit to start work, get married and have children.
This entrenched avoidance of higher education tends to embed the progeny of the poor within the same lower socioeconomic strata of their parents. It takes a rare, proactive individual within this group to lift up his or her head from the frenetic blue collar busyness of earning a living as a youngster to contemplate life as a graduate with a shot at landing, later in life, a higher paying white collar job.
Thankfully, some such individuals do exist in every normal capitalist democracy, which is why partial demographic uplift is seen from generation to generation.
2. Not understanding the potent power of capital
Unfortunately, regardless of their formal education opportunities most people are acculturated by their peers and the insidious clarion calls of slick advertising to passively accept that money earned is meant to be spent as quickly as possible.
The constant barrage of news reports on how important it is for “the consumer” to spend money in increasing measure aided by the “need” for credit expansion conditions most of our world’s 7.7 billion people to fixate on their active income providing the best possible quality of life RIGHT NOW.
Scant emphasis is placed in school, university or the workplace on the value of personal delayed gratification. Note: It is widespread ingrained immediate gratification among the masses that keeps the wheels of commerce (overly?) greased.
This results in most people unthinkingly accepting the default role of mere cogs in the interlocking gears of Earth’s integrated consumer culture! But if we take a step back to think about the reality behind the illusion, we will realise some people need to own and manage our country’s — and by extension — our world’s productive capacity.
They are in the minority and tend to be business owners. While 90 per cent of businesses fail in the first five years of setup, the 10 per cent that succeed go on to contribute to, and thus reap the bulk of benefits from, Earth’s growing productive engine.
Now, regardless of our highest personal educational level, if we proactively choose to exercise delayed gratification, we will then overproduce (by working ever harder and smarter) and underspend. When that economically wise behaviour is scrutinised through the lens of our respective cash flow statements, we find that when the money flowing IN as active income from our diligence and smarts is more than the money flowing OUT as our expenses, we generate consistent cash flow surpluses.
If we then CHOOSE to accumulate those surpluses, our build-up of funds becomes our precious stash of...
CAPITAL
When we judiciously channel our capital derived from our active income and willingness to sacrifice consumption today for wealth tomorrow, we behave like beneficial capitalists.
So, we might invest in businesses by purchasing private or (more readily) public company shares; in investment real estate through brick-and-mortar buildings or in the form of real estate investment trusts (REITs); in a diversified portfolio of unit trusts; or to merely save our money in the bank or in money market instruments.
In each instance, we act like true blue capitalists who put our capital to work and, therefore, at modest risk. The rewards that may flow to us for sacrifice, courage and effort are passive income in the form of dividends, rental, distributions and interest.
Few things in life are as satisfying as building a passive income engine so I urge everyone, regardless of formal education level, to learn to morph some portion of his or her active income into a stream — and then hopefully a flood —of passive income.
That’s how true Financial Freedom is attained.
© 2019 Rajen Devadason
Rajen Devadason, CFP, is a Licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at https://www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com You may follow him on Twitter @RajenDevadason