When I was just 8 years old, my best friend’s parents bought him a new bicycle and he was the envy of the neighborhood. Naturally, I wanted one too. When I approached my mother about getting me a new bicycle, she explained that my friend’s parents had more money than we did. She said she couldn’t afford to buy me a bicycle. It was what she said after that that taught me a lesson that I’ve carried with me my entire life. She said, “If you really want a bicycle, you’ll find a way to get one.” She didn’t tell me to go ask anyone else for money; she challenged me to use my own resourcefulness to find a way to earn one.

At that young age, my mother’s empowering words encouraged me to seek out numerous ways to earn money. I really wanted a new bicycle. Instead of sitting around and feeling sorry for myself and being jealous of my friend, I started looking for ways to earn money. It took months, but I kept at it until I figured out a way to get that new bike. In the process, I learned what my mother meant when she said if I wanted one badly enough I would find a way to get it. Today, she is over 90 years old, but her wisdom is still with me. I’ve often wondered what I would have learned if she had been financially able to go out and buy me a new bike so I could have one like my friend.

When I reminisce about that story, I can’t help but wonder why more parents don’t teach their children these kinds of lessons today. Just look around. How many spend thousands of dollars to make sure their children have the latest gadgets, designer clothes and other trappings so they can “fit in.” They are often the same ones who save nothing to help with a college education. Without realizing it, they are teaching their children that things which come easy don’t have much value. Why don’t they teach them the value of ingenuity and hard work.

During my early adult years, there were many times when I could have qualified to receive welfare payments, but pride wouldn’t let me. I would rather have gone hungry than admit I couldn’t take care of myself. I’ve had many days when I left home knowing that I needed to earn some money that day or I wouldn’t be able to put food on the table that night. That wasn’t easy, but it brought out the resourcefulness we humans possess when faced with problems; especially ones that threaten our survival. Those are the type experiences that build character and self reliance. They are also the kind of experiences that our elected officials seem to feel that we need to be ”protected” from having.

Each month, in this space, I try to give readers tips for financial success. Sometimes the tips are easy to follow, but other weeks they may be like unpleasant but much needed medicine. This is one of the latter. As Newton’s third law is plainly stated, “To every action, there is an equal and opposite reaction.” I firmly believe that this law is also applicable to people’s ability to cope with life’s difficulties. Easy times produce soft people. Chinese philosopher Lau Tzo said, “Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime.”

I believe that all the bailouts, handouts, and other promises will hurt us more than help us; especially knowing that they will have to be funded with borrowed money? Will they empower people or will they make them more dependent? Will bailouts and handouts teach people to take care of themselves or will they just create economic cripples? Will they encourage entrepreneurial thinking or destroy initiative?

If you believe all the negative advertising you’ll see and hear in the coming election cycle, you wouldn’t want to vote for any of the candidates. However, if you listen carefully to what they are saying, you will be able to determine which ones are for bigger government and which want citizens to assume more personal responsibility. For years I have been writing about saving and investing. Although it may be fun and exciting to temporarily live on borrowed money, it is impossible to borrow your way to wealth.

Here’s a tip! When you go to the polls this November, before casting your vote, ask yourself how the candidate you’re about to vote for will affect our future? Will your vote be one for instant gratification or one for long term economic prosperity? We became the greatest country the world has ever known through ingunity and hard work, not because of government subsidies.

If you are outside the US, this will be 1:00 AM Greenwich Mean Time (GMT), September 14, 2010. Also, here is a link to a world timezone clock to help you determine the time in your area.

http://www.worldtimezone.com/

Just for fun, let’s go back to an ancient time when things were rosy and there was no such thing as consumer debt. John and Bill were neighbors who worked in the same industry and had identical salaries. Bill thought he must be doing better than John until he discovered that John was saving a substantial portion of his income. In fact, when he learned that John had several thousand dollars in cash, he approached him about borrowing some money to buy one of those newfangled contraptions called a television.

John, being a good neighbor, loaned Bill $1,000 and Bill agreed to pay him 10 percent interest on the money. Bill used the money to buy a television and became the envy of the neighborhood. Everyone who came to watch Bill’s television wanted to know how he could afford it. When Bill explained that John had loaned him the money to buy it, suddenly others started asking John for a loan so they could get one too. It wasn’t long before John had so many neighbors making payments to him that he was able to buy his own television with just the interest he had received.

As time passed, more people came to John for loans so they could buy the latest gadgets that everyone else was getting. Eventually John became the banker for his entire community and his original meager savings grew to become millions. The problem was, everything wasn’t rosy anymore. Now, people who had been his friends called him a fat cat and resented having to make payments to him each month. They said it wasn’t fair that he had so much money and they didn’t. Sound familiar?

I know that’s a simple scenario, but imagine situations like this playing out in communities all across the country. Gradually the few people who saved, invested and earned interest grew increasingly wealthy and those living on debt found it progressively more difficult to maintain their standard of living. Those who used debt to live above their means gradually grew poorer and the rich got richer. The reason is simple; money is borrowed from the rich, not the poor. Interest is a transfer of wealth. The borrowers pay interest. The rich receive interest. Interest paid buys nothing but time, but interest received can be used to purchase anything the lender wants.

This is an over simplification of what our nation has been experiencing for decades. Sub-prime loans, mortgage backed securities, and derivatives are just a few of the complicated ways lenders have found to raise and loan money to a society living above its means. The problem may have started with small loans to people with good credit, but gradually, as borrowers became addicted to the higher standard of living that debt brought, it evolved into a frenzy of lending without regard to the borrower’s ability to repay.

Individuals, companies, cities, states and the federal government have all been borrowing. Total debt is in the trillions. Almost everyone has been living above their means and it has created a house of cards that is on the verge of collapse. I fear that government’s attempt to solve the problem with more debt may be like throwing gasoline on a fire.

Warning bells have been sounding for years, but we keep borrowing. We are in a financial crisis today because credit has become more difficult to obtain. That may not be all bad since we have already spent our children’s inheritance and robbed them of the lifestyle we have enjoyed. When are we going to start repaying debt instead of piling on more?

If you’re wondering who is at fault for the current problems, answer this question. Are you using part of your paycheck to make payments, other than a reasonable mortgage payment? If the answer is yes, you’re part of the problem! It means you’ve been living above your means and taking part of today’s income to pay for yesterday’s spending.

Here’s a tip! We’re never going to get out of this mess if we continue to borrow. Years ago, if a child got sick, he and all his siblings got a good dose of Castor Oil. It tasted terrible, but it worked. What our country needs today is a good dose of economic Castor Oil. Forcing people to pay off debt and live within their means won’t be pleasant, but unless we do it, we’re never going to break the debt addiction.

The problem is that most people confuse income and wealth. They aren’t the same things. Wealth is not the big house in which you live. It’s not the expensive car you drive. It’s not the fancy clothes you wear. It’s not your country club membership or you boat or plane. All of these things may be an indicator that you have a good income, but that doesn’t mean you are wealthy. Wealth is measured by how long you can maintain your standard of living if you suddenly are no longer able to work and earn.

Wealth is an income stream; a source of passive income that doesn’t require you to trade your time for money. Passive income comes from interest, dividends, royalties or other instruments in which you have invested prior earnings or expertise. Rental income from investment real estate is also passive income and possibly the best way to build wealth.

Real estate is the world’s greatest wealth builder. It’s the only investment I know of that ordinary working people can purchase using a small amount of their earned income, yet it can produce enough revenue to pay for itself and provide a return on the cash used to leverage the purchases. Stocks and bonds can only be leveraged 50 percent, but real estate is frequently leveraged 100 percent and more. That means that under the right circumstances you can buy properties with no money down and finance the full purchase.

The biggest problem with this ability to highly leverage real estate is that it attracts speculators who have no intention of holding the properties for the income. These speculators acquire real estate to sell to others. This works fine as long as there are buyers who will pay enough to give the speculators a profit, but when the market goes cold and buyers aren’t there, it can be disastrous. That’s what’s happening right now!

Have you ever played the board game Monopoly? If so, you know that the way to win is to buy as many properties as possible, put houses and hotels on them as soon as possible, then sit back and collect the rents. Gradually, the players who were afraid to take risks and chose not to buy properties early in the game, are forced out because paying rent to those who did takes all their money. The interesting thing about playing Monopoly is that the winner is nearly always strapped for cash early in the game. He is always investing his earnings and often mortgaging properties he already owns in order to buy more.

The game is about as close to reality as it gets. The winner in Monopoly has little cash early in the game because he invests all he can. The winners in life do the same thing. Those who in their youth and spend everything they make on motorcycles, boats, big screen HD televisions, designer clothes and other things that go down in value, never enjoy life as much as those who invest. While they may initially appear to be more successful, people with this “look-at-me” lifestyle usually find themselves in an increasing struggle to keep up with the lifestyle of those who sacrifice in the beginning so they can invest for the future.

The losers at Monopoly will sit at the board with a pile of cash and pass up buying opportunities because they don’t want to risk running low on money. As a result, other players buy the properties and eventually force them out of the game. Without investments, their only income is to pass GO and collect $200. In real life, leveraged real estate has an income stream that will barely break even in the beginning. This is not exciting or stimulating unless you look at the impact of owning it over the long term. While initially it may take all of the income generated to pay expenses and mortgage payments, over time rents go up and the mortgages pay down. This produces a cash flow that starts as a trickle and grows as long as you own the properties.

The present crash has forced speculators out of the real estate market and falling prices are making it increasingly more attractive for long term investors. Granted, if you’ve never invested in real estate, it can be scary. I sat in the closing with sweaty palms and butterflies in my stomach when I bought my first investment property. Like many first time investors; I saw the mortgage payment coming from my earned income. Although I hoped the property would produce enough to make the payments, I wasn’t totally sure.

Here’s a tip! Now is the best time I’ve seen in my lifetime to start investing. Real estate is the name, wealth building is the game. Think of it as playing Monopoly for keeps. The more you learn and the longer you play the better you will get and the more comfortable you will become. I strongly recommend my Weekend Millionaire book series as a way to get started investing in real estate. You will not only find step-by-step guidance on how to make sensible investments, you will also learn what not to do as what to do, as well. Happy investing! Get started now!

I’ve had numerous discussions with teachers on this topic and consistently I hear the same thing; they teach to prepare students for the tests that determine their school’s overall performance and whether or not they get bonuses. Can you blame them? I don’t! I blame the politicians who have created a system that fails to teach our children what they are going to need to function in the real world.

What concerns me the most is the long-term affect this failure is having on our country. Over the last three decades the gap between the rich and poor has widened, the middle class has been shrinking and the poor have been hit the hardest. According to the US Census Bureau, the top quintile, the wealthiest 20 percent of Americans, those who own homes, stocks, bonds and other investments control a larger percentage of the nation’s wealth today than they did a decade ago. Those in all other quintiles own less than they did a decade ago. Although it’s difficult to trace this trend to its root causes, I believe much of it can be blamed on a failure to teach the financial skills needed to create wealth.

Students are prepared to enter adulthood, get a job and earn money. They aren’t prepared to get the money they earn to work for them. Fresh out of high school, young people are bombarded with credit card offers, yet they receive no training nor are they cautioned about the devastating effect consumer debt can have on their lives. This lack of knowledge is what allows the wealthy to take advantage of the poor. Without understanding the consequences, less affluent people often borrow in an attempt to have some of what they see the rich enjoying. Unfortunately, that’s not how it works.

When rich people deposit money into banks and the banks loan that money to credit card holders, the interest the card holders pays becomes a transfer of wealth from the borrower to the investor. A portion of the interest paid by the card holder is paid as interest to the investors who get wealthier. It buys the borrowers nothing and reduces their wealth. Like it or not, that’s how economics work. Why aren’t we teaching this concept to our children when they are in middle and high school? Why are we letting them graduate thinking they can borrow their way to prosperity only to become entangled in a web of debt from which many never recover?

As a nation, we have become addicted to debt, both public and private. I wonder if politicians are afraid to teach young people about the negative consequences of debt for fear they will be tossed out of office for the reckless government spending they approve. I also wonder if powerful lobbying by lending institutions has led to economics 101 being dropped from school curriculums. Has consumer lending become so lucrative that exposing its dark side is no longer acceptable? Whatever the reasons, until a major focus is placed on teaching young people how to manage their finances, I think we will continue seeing the gap between the rich and poor widen.

Little Johnny or Mary should never be allowed to graduate high school until they can demonstrate their ability to write a check, balance a checking account, reconcile a credit card account, and understand the difference in cost between saving for big purchases and financing them. They should also be able to prepare a meaningful household budget that takes into consideration expenses that are paid annually or semi-annually. They should be able to calculate the future value of regular savings at various rates of return. They should understand how the combination of price and terms is what determines the value of long-term investments like real estate. These are just a few of the skills every high school graduate needs in order to function in the real world.

Here’s a tip! We’re never going to see these changes made if we continue to accept the status quo in education. Until we demand that consumer economics become a critical part of basic education, we’re going to continue to flood the workplace with financially illiterate young people. There should be a major focus on teaching youngsters skills they are going to need whether they become ditch diggers or doctors.

The current school year is almost over, so there’s not much that can be done for this year, but if enough people call or write their legislators about this major flaw in our educational system, it might make a difference for coming years. Send them the message that not only should basic consumer economics be on the tests, it should carry extra weight. These skills are something every student will need in adulthood.