Check out this video, taken last week in Oakland and broadcast on “Channel 4 KRON” on the February 11th nightly news.
The video shows a man loading a weapon and firing it in the air, with the people around him hardly paying attention to his actions. Later on, members of the Oakland sideshow found a deputy sheriff and realized that they had him outnumbered significantly, so they taunted the officer until he drove off.
One of the reasons why the United States has been so successful at building wealth (where other nations faltered) is because of a general belief in the rule of law. I don’t mean that in the arrogant, patronizing sense—instead, I’m talking about the protection of assets.
If you deposit $50,000 into a bank account, you know that money is going to be there. If you show up at the bank the next day, you don’t fear getting a notice saying, “Well, the government decided you didn’t need that much, so there’s only $5,000.” As an aside, that is why the Cyprus bank account levy this past summer was so disastrous. By taking 6% out of small accounts and almost 10% out of larger accounts, the Cyprus bank system got tarnished. It takes a long time to recover from that kind of trust issue (if you had to choose between a Cyprus bank yielding 10% or a Swiss bank yielding 4%, and had to keep the money there for 30 years, an intelligent investor is going to pick the Swiss bank every time because of the higher probability that the money will be there).
Heck, there are still older people in this country who still don’t fully trust the American financial system because of the bank runs that preceded FDR implementing FDIC insurance during The Great Depression. When they die, their heirs or beneficiaries end up finding $2,500 in socks and closets, and stuff like that. People that came of age in the 1990s aren’t on pace to do things like that, because they’ve never had to deal with the true misery of wealth confiscation.
In terms of investments, we know that if we purchase 500 shares of Kimberly-Clark, the only way we can lose money is if the stock price declines. The money can’t be arbitrarily taken from you, barring some kind of tax delinquency, legal settlement liability, or divorce. The protection of assets is robust.
When I see videos of people taunting like cops like the one I attached above, it’s hard to grow up in that environment and then simultaneously grow up to trust the financial institutions that have to be utilized in order to build wealth. The inflationary hit and opportunity cost problems of going through life with the proverbial cash under the mattress is just too overwhelming.
When people talk about the transition from living paycheck to paycheck to building wealth, we usually hear the vague and clichéd phrase, “We need to educate people.” Sure, that’s part of it. But more importantly, you need to build trust. I doubt anyone in the video was on their way to mail a $500 check to Computershare to pick up some Exxon shares after hollering at the cop to “get the f out.” If you’re a child growing up in that environment, how do you learn to trust the bank, the custodian, the stock brokerage where assets are held? Financial education and literacy are important, but the most important thing to teach is trust, particularly in areas where you aren’t given any reasons to do so.