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Financial Planning > Behavioral Finance

Helping your clients move beyond economic misrepresentations

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We are in a time of tremendous financial danger, but our government and Wall Street are declaring that we are in an economic recovery.

I deal with many prospects and clients who have been led to believe this. And they are initially resistant to the idea that they need to take action as soon as possible to protect themselves from the coming financial crisis.

I want to be clear: Any assertion that we are in an economic recovery is a misrepresentation.

For example, people frequently ask me, “If everything is so bad, then why is there an enormous amount of building happening in our area?” My hometown of Milwaukee, Wisconsin is about to get its first Nordstrom.

Whole Foods, Costco, Wal-Mart, hotels, airports, and more are all expanding. Why would they do that if the economy is turning downward?

The answer is simple: If you could borrow money at zero percent interest, then you would borrow as much as possible. That is what these companies are doing, because they have no risk!

They use other people’s money and if the venture fails, then there is no risk to their core business. It can even be argued that companies that do not avail themselves of this opportunity are poorly managed.

Of course, this is paid for by regular Americans who make almost no interest on their savings accounts and have not done so for over a decade. We must help these people while they still have something to preserve.

Another misrepresentation

People often think that the economy is improving because the annual deficit is going down. Over the past four years, the annual deficit was over $1 trillion annually.

This year, it will be $500 billion. And it is projected to fall to $200 billion by 2018.

Both parties have taken credit for the reduction, and they will even use the reduction to increase spending. It will be a horrific mistake.

That is because this reduction is only temporary, and it is caused by demographics, not politics. Lower birth rates mean that there will be smaller numbers of retirees until 2018. But then, because of the increase in the birth rate from 1954 to 1964, there will be dramatically larger numbers of retirees from 2018 until 2029. The retiring multitudes of baby boomers are still ahead of us.

The Congressional Budget Office itself makes an astonishing prediction about this. The CBO forecasts that our national debt will increase by $40 trillion over the next 20 years. If added to the $17 trillion debt we already have, our country would need to service $57 trillion of debt by 2034.

At only 5 percent interest, that is nearly $3 trillion of interest per year. In other words, that is 80 percent of our current budget! Where will we get the money to pay for this?

It is so important that we talk to people about these misrepresentations. Then, we must ask whether they want to be dependent on institutions to take care of them. Or would they rather take control of their financial futures, so they do not have to worry about blunders that might be made by government or Wall Street?

Remember, this information is not “doom and gloom.” Understanding the situation can actually be beneficial if planned for; it is only devastating if people are not prepared.

Allow your prospects and clients to make a choice about what they want to do. At this point, the inspiration to take action is usually overwhelming.

Next month, I will share several more economic misrepresentations with you. Use them to inspire Americans to take control of their financial futures.


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