Page 26 - Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money

because their home’s value appears to go up. In reality, the purchasing
power of the dollar goes down as the net worth of homeowners appears to

go up. Higher home prices and lower wages, however, make it harder for
young people to buy their first home. If young people do not recognize that
the rules of money have changed they will be far worse off than their
parents as the U.S. currency continues to devalue.

Another Change in the Rules of Money

Another change in the rules of money occurred in 1974. Prior to 1974,
businesses took care of an employee’s retirement. They guaranteed the
retiree a paycheck for as long as the retiree lived. As you probably already

know, that is not the case any longer.
Pension plans that pay an employee for life are called defined benefit, or
DB, pension plans. Today, very few companies offer these plans. They are
simply too expensive. After 1974, a new type of pension plan emerged, the

defined contribution (DC) plan. Today such plans are known as 401(k)s,
IRAs, Keoghs, etc. Simply put, a DC plan has no guarantee of a paycheck
for life. You only get back what you and your employer contribute . . . if
you and your employer contribute anything.

The newspaper USA Today found in a survey that the greatest fear in
America today is not terrorism, but the fear of running out of money during
retirement. One of the reasons for this pervasive fear can be traced back to
the 1974 change in the rules of money. And the fear is valid. The U.S.

education system doesn’t equip its citizens with the financial knowledge
required to successfully invest for retirement. If schools teach anything
about money, they teach kids to balance their checkbooks, pick a few
mutual funds, and pay bills on time—hardly enough financial education to

handle the financial problems we face. Beyond that, most people don’t
realize that the rules of money have changed and that if they are savers,
they are losers. Underfunded retirement plans will be the next major U.S.
economic crisis.

Government Safety Nets?