'Investor literacy' = Big hoax

[Jim Nickerson]

http://www.marketwatch.com/news/stor...CF7D6D38513%7D

Commentary: Wall Street prefers clueless, irrational investors

ARROYO GRANDE, Calif. (MarketWatch) -- So Congress made April "Investor Literacy Month." What a hoax, a cruel joke, yes, an insult to America's 95 million investors.



What's really happening? Here's the short version: In the past five years Wall Street's out-of-control greed (with the backing of Greenspan's cheap-money Fed, an "anything-goes, free-market" White House and a banking industry that loves piling up debt in order to charge excessive fees) created a massive housing-credit bubble to rapidly replace their earlier busted dot-com bubble.




Then last summer the new bubble failed, exploding in our faces, nearly destroying the global monetary system. Result? These two bubbles triggered a diversionary, knee-jerk reaction: A wave of so-called "investor education" programs across the U.S. and world.

That's the joke, the hoax, the insult. Get it? Wall Street's greed nearly destroys the world's economy twice in less than a decade. Solution? Bail out Wall Street, then blame it on the little guy, the Main Street investor, for not being "educated enough!" That's a hoax.

The truth is, Wall Street needs an education, not Main Street! Wall Street needs some "antigreed, ethics education!" Until then nothing will change, we'll just get more of these well-meaning but ineffective initiatives spelled out recently in The Economist:

• Congress's designation of April as Investor Literacy Month
• The President's Council on Financial Literacy chaired by Chuck Schwab
• Project Hope created in the aftermath of the 1992 Los Angeles riots
• Jump$tart, an American coalition of 180 groups promoting financial literacy
• Cities for Financial Empowerment Coalition inspired by New York Mayor Bloomberg that now includes Miami, San Antonio, San Francisco, Savannah and Seattle.
• Child Savings International educating 6- to 14-year-old "entrepreneurs" worldwide
• The World Savings Bank Institute, representing 92 countries, recently held "a summit in Brussels about financial education in light of the subprime crisis."

Yes, well-intentioned, but destined to fail. But before we focus on the real problem (Wall Street's insatiable greed) we need to focus on the investor's brain to see the first 10 reasons. Simply put: Educational initiatives are doomed to fail because the investor's brain is not "rational," never was and never will be.

OK, maybe some of these new programs will help a few investors. But these misguided programs cannot "correct" the genetic irrationality wired into the investor's brain.

No matter how much new information, facts, data, tips, slogans, theories and systems are pumped into your brain by these well-intentioned "investor education" programs, irrationality always trumps rational thinking. Seriously, think about the wealth of new online resources and technologies since the 1990s "information revolution." Has it helped? No. In fact, just the opposite: The investor's brain has regressed, becoming less intelligent and vastly more irrational. You simply cannot make an irrational brain "less irrational" by filling up it up with more information!

How the investor's irrational brain really works

The truth is, every day America's 95 million investors make unconscious choices to remain illiterate about simple money matters like savings, asset allocation, expenses, retirement, the stupidity of market timing, etc. But you can't fix a defective (irrational) brain with a defective tool.

As weird and illogical as it sounds, investors choose to stay illiterate, dumb, stupid and irrational about investing. Here are 10 reasons why:

1. Each month, most have little money left for long-term saving
2. Or they simple enjoy satisfying immediate needs and fun stuff
3. For many, planning for the future is not how their brains work
4. Others are novices, naive and new to the game, easy prey for hustlers
5. Many people have no interest in financial matters under any circumstances
6. Others are simply too confused by the money math and block it out
7. Some are just dependent personalities who have trouble making decisions
8. Others believe money is the root of all evil, so they deny the devil's due
9. And many are so busy making money, and successful at it, that they don't have the time to spend on becoming educated investors
10. And reason No. 10, the second biggest: Your brain is your worst enemy! Your brain is not programmed for successful investing. No matter how intellectually gifted you are, emotions always trump logic. Daniel Kahneman, Princeton psychology professor and Nobel economist, says we "would be better investors if we just made fewer decisions ... Even people who are specifically trained to bring" rational decision-making skills "to problems, don't do so even when they know they should."

You heard the man: The investor's brain is genetically predisposed to irrationality, a "defect" that will invariably overrule all those well-intentioned educational programs designed by idealistic backers of the new financial literacy programs: But you cannot make the brain of an irrational investor "less irrational."

No. 11: The biggest reason 'education' fails

Now here's the biggest reason more "education" will never work: In spite of all the public hype about programs designed to make investors smarter, the truth is Wall Street makes more money off investors who are illiterate, dumb, ignorant, stupid and irrational. You heard me: The last thing Wall Street wants is 95 million investors who wise up to its greedy games.

Wall Street "needs investors who are irrational, woefully uninformed, endowed with strange preferences, or for some other reason willing to hold overpriced assets," says University of Chicago Prof. Richard Thaler, America's leading neuroeconomist and co-author of the esoteric "Advances in Behavioral Finance II."

Unfortunately, that's not the message The Economist article mentioned in discussing Thaler's new book with its cutesy title, "Nudge: Improving Decisions About Health, Wealth & Happiness."

Thaler's new book fits in with a new wave of lightweight "investor education" initiatives seen in several other recent books you should be wary of: Harvard Prof. Dan Ariely's "Predictably Irrational: The Hidden Forces That Shape Our Decisions." Ori and Rom Brafman's "Sway: The Irresistible Pull of Irrational Behavior." Tim Harford's "The Logic of Life: Rational Economics in an Irrational World." Michael Schermer's "The Mind of the Market." They're all based on the silly notion that a little dose of investor psychology will make us "less irrational" and better-informed investors. Nonsense.

Neuroeconomics sells out to the Dark Side

Unfortunately, all these new pop-culture books hide the real goal of 40 years of behavioral finance and neuroeconomics research: Arm Wall Street with powerful quantitative math algorithms designed to help Wall Street secretly outwit, take advantage of and beat vulnerable investors.
In a battle pitting "irrational, uninformed" Main Street investors against Wall Street's quants, it's no contest: Wall Street always wins.

Add your comments: Tell us what you think about the effectiveness of these "investor education" programs. Can they make us smarter and "less irrational?" Or, does America need a totally new strategy: Some "antigreed education" to reprogram Wall Street's behavior before it triggers a massive meltdown, bigger than the dot-com and the housing-credit meltdowns combined?

Question: What do I do next with investing. Please someone tell me, help me. I don't want to have to deal with my future.;)

[Spartacus]

Re: 'investor literacy' = a big hoax

Come out of retirement, become a great salesman & go to work on Wall St. That's the root of the problem, after all - they're used car salesmen without cars, but with paper ...

Or become a good mathematician/statistician/"quant" and invent the next financial instrument that will explode, destroying all financial assets, but leaving the buildings standing - the neutron CDO.
Retire rich & let the next crop of sales people trip the mines you left for them.

http://www.marketwatch.com/news/stor...CF7D6D38513%7D



Question: What do I do next with investing. Please someone tell me, help me. I don't want to have to deal with my future.;)

[Slimprofits]

Re: 'investor literacy' = a big hoax

11 reasons 'investor literacy' is a big hoax

ARROYO GRANDE, Calif. (MarketWatch) -- So Congress made April "Investor Literacy Month."

It is Cover Your Ass month in Washington and New York.

The Congressional designation follows up President Bush's announcement on January 22nd: Executive Order: Establishing the President's Advisory Council on Financial Literacy

And just last week, as part of the April effort:

Sandra F. Braunstein, Director, Division of Consumer and Community Affairs, Federal Reserve Testimony - Financial literacy Before the Committee on Financial Services, U.S. House of Representatives

And similarly (more CYA), it is always fun to see who the President pardons on his way out.

[nathanhulick]

Re: 'investor literacy' = a big hoax

Considering that the vast majority of people I talk to think that prices of everything are going up because of "speculators", "Big Oil", or "Chinese demand" and think that the value of the dollar has nothing to do with them because they havent been out of the US since that trip to Jamaica in Spring Break of '97, I would have to say that Wall Street has plenty of clueless investors available to fleece.

[Jeff]

Re: 'investor literacy' = a big hoax

The financial Darwinism of an unfettered market rewards the bright, the amoral and the lucky while punishing the dim witted, the moral and the unlucky. This makes a good argument for government regulation to some degree to save the sheep from themselves. It's also a good argument for why social security privatized equals millions of sheople fleeced.

Jim, I firmly believe that the 4 keys to successful investing are a firm grasp of economic history for the last few centuries, patience, a long view on returns and investing in what you know.

It drives me crazy when the financial news is focused on today's stock moves, when what's important are the big secular long term moves. It like measuring how far up the beach the wave came at 4:00 pm every weekday, when what you're actually interested in are the tides, or in the longer term, tsunamis and hurricanes.

Patience is key. Financial panics are called panics for a reason. If you think through how you'll react if something happens, then when it happens, just look up what you decided, and do it.

The long view is key as well. I felt like hell in 1999 when gold was at $250 when I'd bought 10 pounds 3 years earlier at $350. Today I'm pretty glad I didn't sell.

Investing in what you know (or at least understand) is important. That way you won't be at the complete mercy of Wall Street sharks. A wise man once said, "When playing poker, take a look around the table and find the patsy. If you don't see one, it's you." Over the last few decades I got involved in (and obsessed with) the internet in the early 1980's. Needless to say, my bets on the internet made in the early 1990's paid off absurdly well. Similarly, my youthful years in carpentry made buying, fixing and selling houses a natural hobby/investment. In the 60's my Dad bought rolls and rolls of 19th century US silver dollars. I'd go to the numismatics store with him, and will never forget our discussions. He taught me that he was buying silver because everyone said it was a bad idea. "Son, the conventional wisdom is wrong."

He bought those coin at less than $2/oz in the late 60's and they helped put his kids through college in the late 70's when he sold at $10-20/oz. That's why I felt comfortable buying cheap gold in the mid 90's, and look forward to spending them at a much higher price.

History, patience, the long view and what you know. It's worked for me, and I haven't worked for a paycheck since I was 37 in 1996.

[GRG55]

Re: 'investor literacy' = a big hoax

I would like to add just one thing to Jeff's post. Not everyone has the talent, skill, insight, perseverance, knowledge, opportunities, luck, whatever, to accomplish what Jeff has.

However, everyone can understand one thing about planning for their future...the incredible power of time. The one thing that would benefit large numbers of citizens would be to have the school system early on teach compounding - the constructive power of compounding by starting to save just a little bit early in ones working life, and the destructive power of interest compounding from borrowing more and more.

A couple of decades ago a Canadian author had a hit book called "The Wealthy Barber". It simply advocated setting aside 10% of each paycheque, starting with your first, and spending the other 90% any way you wanted. No budgets, no complicated investment advice, no spreadsheets. Now I appreciate this may be a tad oversimplified, but surveying the wreckage around you in the USA today, seems to me this would have been a pretty good start for a lot of families in credit trouble today, non?

[EJ]

Re: 'investor literacy' = a big hoax

I would like to add just one thing to Jeff's post. Not everyone has the talent, skill, insight, perseverance, knowledge, opportunities, luck, whatever, to accomplish what Jeff has.

However, everyone can understand one thing about planning for their future...the incredible power of time. The one thing that would benefit large numbers of citizens would be to have the school system early on teach compounding - the constructive power of compounding by starting to save just a little bit early in ones working life, and the destructive power of interest compounding from borrowing more and more.

A couple of decades ago a Canadian author had a hit book called "The Wealthy Barber". It simply advocated setting aside 10% of each paycheque, starting with your first, and spending the other 90% any way you wanted. No budgets, no complicated investment advice, no spreadsheets. Now I appreciate this may be a tad oversimplified, but surveying the wreckage around you in the USA today, seems to me this would have been a pretty good start for a lot of families in credit trouble today, non?

In doing research for my book, one of the questions I seek to answer is how Americans got so lousy at household finance. The answers I've dug up so far are not surprising. Three coincident factors:

1) For the post WWII generation, household budgets were managed by the wives. The wives learned household finance in usually mandatory high school Home Economics classes. In the the 1950s and 1960s these became elective, and by the late 1960s the changing roles of women in American society meant that Home Economics was seen as a symbol of 1950s roles and by the 1970s all that was left of Home Economics were classes on baking cookies. After that, the basics of household finance were not taught at all.

2) The other source of household finance were religious principles, especially of Christianity, that taught savings and frugality and avoidance of debt. As the US became more secular, these ideas receded under an onslaught of consumerist ideology from Madison Ave via TV, newspapers, and magazines. The new religion was consumerism.

3) Banks joined the consumerist religion, marketing ideas that fly in the face of 2,000 years of basic finance, such as "Do not use credit to finance the purchase of depreciating assets (e.g., cars and appliances) and "Save and let compound interest do the saving for you."

Over this period since the end of WWII there has been no source communicating the old pre-consumer ideology beliefs about saving, borrowing, and investing to effectively provide balance with the same authority, production values, and frequency of mass media advertising. (There is a whole section of the book that focuses on the principle of authority, production values, and frequency as the system for developing beliefs.)

So here we are with that vast majority of Americans believing a lot of things about saving, borrowing, and investing that are simply not true. Who benefited from the widespread adoption of these false beliefs? Banks and producers.

Two things have to happen:

1) Events prove the ideas false. This occurred in the 1930s after a period of debt-based consumption occurred on smaller scale. Clearly, government policy is designed to avoid a repeat. My current belief since 1999 is that these efforts, when the time came – apparently in the current debt deflation cycle – will ultimately fail.

2) But they will not fail in the 1930s manner but via an inflation driven by currency depreciation.

Reinforcing the long standing iTulip view that inflation is in the cards is a curious interview with Dr. Paul A Samuelson and Dr. Robert Mundell from Dec. 2005 titled: "China, US should adjust approach to economic growth" in the People's Daily Online. Consider the source, of course. When you read it you will agree that the interviewer took some liberties with Samuelson's words. A few intriguing excerpts make us wonder what he really said. Still, Samuelson's forecasts are better than Mundell's. I don't quote Mundell here because his ideas, while occasionally amusing (e.g., "Oil prices are high in nominal dollars but not in real dollars. For example, oil prices are lower in real terms than in 1980. Katrina was a tragic devastation but its impact on the economy as a whole was neutral or even positive. The U.S. economy is the most flexible economy in the world.") are entirely predictable coming from a FIRE Economy economist.

Yong Tang: It seems that American economy in 2005 is quite good. According to the Department of Commerce report, the economy grew by a robust 4.3% annual rate during the third-quarter and real GDP in the fourth quarter appears to be increasing at a healthy pace of greater than 3%. For all of 2005, real GDP is on track to expand by 3.7%.

With an economic growth rate above 4 percent, an overall GDP inflation rate below 3 percent for the year and an unemployment rate currently at 5 percent, the performance of the U.S. economy has understandably been the envy of the developed world. Why does the US economy grow so strongly?

Samuelson: US real GDP growth will help sustain 2006-2007 global growth. Why? No mystery. Hurricane Katrina spending on rebuilding plus unlimited spending on our Iraq war fends off recession, just as the deficit spending by both Franklin Roosevelt and Adolph Hitler in 1933-1939 did end capitalism's worldwide Great Depression.

Yong Tang: The US economy performed above expectations amid rising oil prices and unexpected developments including Hurricanes Katrina and Rita. Why is the US economy so resilient?

Samuelson: Cheap imports from low-wage workers abroad, who can be educated to imitate the advanced technologies of North America and Western Europe, have wiped out US trade union power. Therefore, with a cowed labor force, America, unlike France, Germany and Italy, has tamed substantially (but not completely) the historically violent business cycles of past capitalistic history.

Yong Tang: It seems that the weak dollar is no longer weak in 2005. The dollar is climbing up all the time. What is the reason for this? Is the strong dollar policy of American government really dead?

Samuelson: In the short run the dollar appreciates relative to the Euro and Yen. That can last for as long as those countries recycle eagerly their trade surpluses with the US into holding dollar assets (Such as low-yielding American Treasury bonds). Be not misled. So strong and irreversible are America?s balance of payments deficits, we must accept that at some future date there will be a run against the dollar. Probably the kind of disorderly run that precipitates a global financial crisis.

President Bush is a reckless economist, leading a reckless crew of subordinates. Spending on a hopeless imperialist caper in Iraq, plus Bush's giving away to the rich much of America's tax base, will eventually depreciate the American dollar. Those abroad who now gladly hold dollar assets will then reap the capital losses that they are not now expecting.

Yong Tang: The real estate industry in America is cooling down after ten year of steady growth. Given the important role the real estate sector plays in American economy, how will this cooling down affect American and even the global economy?

Samuelson: Every speculative up-bubble, big or little, ends in a down-bubble. But no one knows when. The next collapse in home and office prices will be unlikely to cause mass bankruptcies. Why not? It is because banks and other lenders have shifted their loans onto the shoulders of pension funds and risk-taking investors.
The real and genuine future toll from our current real estate binge will fall on the millions of homeowners who were tempted by low interest rates to enlarge their mortgages and to spend on current consumption the proceeds from that enlargement. As baby-boomers now of age 50 to 60, just when they ought to have been saving mightily to support their retirement years, they were actually dis-saving mightily. Who?s to blame? Mostly the team of President Bush which reversed the prudent financial policies of President William Clinton's team.

Yong Tang: The current cycle of economic growth in America has lasted about four years. When will this cycle of growth be over? When will the recession come again?

Samuelson: NO one can predict future business cycles. Probably until Bush retires to his Texas ranch in 2008, America will not yet have experienced a drastic recession. Before the French Revolution of 1789, King Louis XV could say, Apres moi, le deluge. That may be cold comfort for George Bush when he reads in future economic history books how unmeritorious were his 2001-2008 policy programs.

(Hudson uses this phrase "After me, the deluge" in connection with Greenspan.)

Yong Tang: What China could learn from America in its approach to economic growth and vice versa?

Samuelson: America still has a lot to learn about striking the right balance between free markets and public government. The US political shift to the right since President Ronald Reagan's 1980 presidential victory, went too far in corporate deregulation. Zero government regulation would be pathological. In the optimal Mixed Economy there is an Aristotelian Golden Mean to aim for.

For China, Economics can be a fragile flower that wilts in the absence of uncorrupt courts and limited bureaucratic interferences.

[Andreuccio]

Re: 'investor literacy' = a big hoax

However, everyone can understand one thing about planning for their future...the incredible power of time. The one thing that would benefit large numbers of citizens would be to have the school system early on teach compounding - the constructive power of compounding by starting to save just a little bit early in ones working life, and the destructive power of interest compounding from borrowing more and more.

So true. Every time I see a student walk by with one of those $3 lattes from Starbucks I pull them aside and run through the numbers with them. $3/day, 20-30 days per month, = $60-$90 per month. Then I show them an online financial calculator and how much that's worth over time, at various rates of return, given their age. They're usually shocked. I don't know how much it actually changes their behavior, but it gets them thinking. (BTW, these are inner city kids. What are their parents thinking lettting them spend that much on coffee?)

It needs to be more than just me on an ad hoc basis, though. You're right: this should be something taught to every student nationwide, from a young age. (I've already got my 6 yr old son saving most of his allowance. I offer to match anything he decides to save. We'll get to compound interest as soon as he's ready for the math. )

[Spartacus]

Re: 'investor literacy' = a big hoax

This calculation is usually presented without inflation, which makes it look a lot better than it is.

Because you never beat inflation in safe investments, that first dollar you save in high school plus all its accruals will have lost a hefty fraction of their value when you retire.

Better than nothing, but not as good as it looks purely from the non-inflation-adjusted numbers

I prefer presenting the idea as an emergency preparedness technique, which, if you never need it, can be used for your retirement.

I would like to add just one thing to Jeff's post. Not everyone has the talent, skill, insight, perseverance, knowledge, opportunities, luck, whatever, to accomplish what Jeff has.

However, everyone can understand one thing about planning for their future...the incredible power of time. The one thing that would benefit large numbers of citizens would be to have the school system early on teach compounding - the constructive power of compounding by starting to save just a little bit early in ones working life, and the destructive power of interest compounding from borrowing more and more.

A couple of decades ago a Canadian author had a hit book called "The Wealthy Barber". It simply advocated setting aside 10% of each paycheque, starting with your first, and spending the other 90% any way you wanted. No budgets, no complicated investment advice, no spreadsheets. Now I appreciate this may be a tad oversimplified, but surveying the wreckage around you in the USA today, seems to me this would have been a pretty good start for a lot of families in credit trouble today, non?

[medved]

Re: 'investor literacy' = a big hoax

2) The other source of household finance were religious principles, especially of Christianity, that taught savings and frugality and avoidance of debt.

In the American version of Christianity it also taught self-reliance and separation of church and state. However, starting from the 1930's the state became a major part of the new religion.

As the US became more secular, these ideas receded under an onslaught of consumerist ideology from Madison Ave via TV, newspapers, and magazines. The new religion was consumerism.

The real name of the new religion is socialism. It started in the 19th century in Europe and by the 1930's spread to America. FDR's Second Bill of Rights is much more powerful expression of the new religious credo, than anything concocted by the media. And, actually, MSM did quite a lot to propagate this new faith.

The SBR introduced "economic rights". So, now everybody was entitled to happiness, not only pursuit of it. Comparing SBR with this document

http://en.wikipedia.org/wiki/1977_Soviet_Constitution

we can see, that "economic rights" are a major point in both of them. Except, of course, Brezhnev constitution was much more consistent. It is pretty clear, that economic rights require "socialist property" as opposed to "private property".

I am not religious, but I do care about societal and economic consequences of the dominant religion in a society. Religion is supposed to be irrational, just like most human beings are. However, socialism as a practical religion is not even irrational, it is ridiculous.

I don't care about the nonsense Christans believe. I just know, the Protestant beliefs and traditions sustained and improved American society and economy, while Socialist faith will destroy it, just like it destroyed Russia.

I am no anti-government fanatic. I agree, that government has a very important role to play in the modern society. If the Founding Fathers allowed the gov't to run the Post Office, they would, definitely, accept the government participation in many infrastructural activities including energy, communications, education, insurance etc. (it's just, there was no power grid and Internet back then).

However, the common socialist belief, that gov't can and must solve all the problems in life, is absolutely destructive and ridiculous.

[Andreuccio]

Re: 'investor literacy' = a big hoax

This calculation is usually presented without inflation, which makes it look a lot better than it is.

Because you never beat inflation in safe investments, that first dollar you save in high school plus all its accruals will have lost a hefty fraction of their value when you retire.

Better than nothing, but not as good as it looks purely from the non-inflation-adjusted numbers

I prefer presenting the idea as an emergency preparedness technique, which, if you never need it, can be used for your retirement.

Even at a modest rate of return, the equation will get a young student's attention. For example, $90/month = $1080/year. Assume 7% nominal return, with 3% inflation, yielding about 4% real return. (You could argue that even that is too optimistic, I suppose.) If the student is 15, and plans to retire at 65, that gives you a 50 year term. Plug those numbers into a financial calculator and you get $171,475.67. Not a bad reward for foregoing lattes.

[c1ue]

Re: 'Investor literacy' = Big hoax

One major item you are leaving out:

In 1997, I had been working all of 2 years.

I did not have the resources then to even bother attempting serious investments, although I had been buying and selling stocks for nearly 10 years.

10 lbs of gold @ $250/oz is still over $40K liquid.

One reason why many of the young people I sometimes hang out with don't save is that it is pointless from their view, and that is not entirely wrong.

When homes in the Bay Area average $500K, and their pay is $35K, I can see why they don't bother.

[Thailandnotes]

Re: 'investor literacy' = a big hoax

In doing research for my book, one of the questions I seek to answer is how Americans got so lousy at household finance.

Students from middle class families routinely graduate from college 20 to 40 thousand dollars in debt. When and how did that become acceptable?

[GRG55]

Re: 'investor literacy' = a big hoax

Students from middle class families routinely graduate from college 20 to 40 thousand dollars in debt. When and how did that become acceptable?

Probably when the biz schools at Wharton, Harvard et al become the farm teams for the FIRE economy finance houses. That's when they started to move their programs to a blatantly P&L basis, competing for "rock stars" to join their faculties, gaming the system to make the top scores on the hokey national comparison surveys, and hiking, hiking, hiking their tuition fees. Talk to the registrar of any top rated biz school today and you'll find they are so flush with cash they don't know what to do with it (I have very recent data points on a number of eastern US and Canadian universities from a close friend). After all, what's a $40k debt when you can get a job with private equity, as a bond trader, or doing structured finance (Daddy, I wanna be an investment banker when I grow up...).

I do not have any data on this, but I have a strong suspicion that one would have to work awfully hard to graduate from any decent undergraduate engineering or geology program with $40k of debt. Hopefully a few prospective students notice that.

[Andreuccio]

Re: 'Investor literacy' = Big hoax

One major item you are leaving out:

In 1997, I had been working all of 2 years.

I did not have the resources then to even bother attempting serious investments, although I had been buying and selling stocks for nearly 10 years.

10 lbs of gold @ $250/oz is still over $40K liquid.

One reason why many of the young people I sometimes hang out with don't save is that it is pointless from their view, and that is not entirely wrong.

When homes in the Bay Area average $500K, and their pay is $35K, I can see why they don't bother.

LOL. C1ue, I love you, man.

My point is you don't have to start out with "serious" investments. All you have to do is start. Compound interest will turn small investments into serious ones, given enough time. Your friends don't have to buy 10 lbs of gold. (BTW, nice one, Jeff!) A few ounces a year would make a great start.

Let's take the example of your young friends. If they can put away 10% of their income, they'd be saving a little over $2900 per year. Assuming they're 25, if they make only 4% after inflation they would have $287,000 when they reached 65. Maybe that won't buy them a condo in SF, but it's a large home in many parts of the country, and it's $287,000 more than they would have had without saving.

I agree that at 25 it's hard to see the value in that. Still, I wish somebody had talked me into putting away $100 per month when I was 15, or $300 when I was 25.