DISCLAIMER: By understanding history we can better prepare for and see a brighter future. If you are not into history, you might want to start reading now. This will determine your financial future.
Just as humans have evolved, money has evolved. “Money” was originally in the form of barter, such as chickens or milk, then shells and beads, then gold, silver, and copper coins. They were physical objects that were deemed to have tangible value, and thus were traded for other items of a similar value. Today, most money is paper money, an IOU
(Usually an informal document acknowledging debt. The term is derived from the opening phrase “I owe unto” and/or the pronunciation of “I owe you”) from a government, also known as a fiat currency. Paper money is worthless in and of itself. It is simply a derivative of the value of something else. In the past, the U.S. dollar was a derivative of gold; now it is a derivative of debt
, an IOU from taxpayers of a country.
Today, money is no longer a tangible object like chickens, gold or silver. Today, modern money is simply an idea backed by the faith and trust of a government. The more trustworthy the country, the more valuable the money, and vice versa. This evolution of money from a tangible object into an idea is one reason why the subject of money is so confusing. It is difficult to understand something we can no longer see, touch or feel.
A Few Important Dates in the History of Money
1903: Robert Kiyosaki
believed the U.S. education system was taken over when the General Education Board, founded by John D. Rockefeller
, decided what kids should learn. This put the influence of education in the hands of the ultra-rich, and the subject of money was not taught in school. Today, people go to school to learn to work for money, but they learn nothing about how to have money work for them.
Schools do a good job training people to be E’s (Employee) and S’s (Self-employed), but do almost nothing to train them to be B’s (Big Business Owner) or I’s (Investor). Even MBA
students are trained to be highly paid E’s working for the businesses of the rich. Some of the most famous B’s are Bill Gates
, founder of Microsoft
; Michael Dell
, founder of Dell Computers
; Henry Ford
, founder of Ford Motor Company; and Thomas Edison
, founder of General Electric
– all of whom never finished school.
1913: The Federal Reserve is formed (It is the central bank of a nation, just like our Banko Sentral ng Pilipinas and Bank of England for United Kingdom). The Federal Reserve
is not American
, not federal, has no reserves, and is not a bank. It is controlled by some of the richest and politically influential families in the world. It has the power to create money out of thin air.
Institutions like the Federal Reserve have been staunchly opposed by the designers of the US Constitution
, and by presidents such as George Washington
and Thomas Jefferson
.
1929: The Great Depression. Following the crisis of the Great Depression
, the U.S. government created many government agencies such as the Federal Deposit Insurance Corporation
(FDIC), the Federal Housing Administration 
(FHA), and Social Security
; and the government took more control over our financial lives via taxes. This led to an acceptance of increased government intervention via social programs and agencies. Many of these government programs and agencies, such as the FHA
, Fannie Mae
, and Freddie Mac, are at the eye of today’s subprime crisis. Today, unfunded government liabilities such as Social Security
and Medicare are estimated to be $50 to $60trillion time bombs that will eventually blow up and dwarf the current US subprime crisis. In other words, U.S. government efforts to solve the Great Depression
will probably cause a bigger depression in the future.
1944: The Bretton Woods Agreement
was made. This international currency agreement created the World Bank
and the International Monetary Fund
(IMF). The agreement replicated the Federal Reserve System globally (thus we have Bangko Sentral ng Pilipinas) and, in effect, installed the U.S. dollar
as the reserve currency of the world. Basically, while the world was involved in a world war, the world’s bankers were hard at work changing the world. This meant that all currencies worldwide were now essentially backed by the U.S. dollar, which was pegged to gold. As long as the U.S. dollar was backed by gold, the world economy would be stable.
1971: President Nixon
, without permission from Congress, took the U.S. dollar off the gold standard. When this happened, the U.S. dollar became a derivative of debt- not gold. After 1971, the U.S. economy could only increase by increasing debt, and that’s why the bailouts started. In the 1980s, the bailouts were in the millions; in the 1990s, they were in the billions; and today they are in the trillions and growing. This change in the rules of money, one of the biggest financial events in world history, allowed the United States to print money at will by creating more and more debt, known as U.S. bonds
. Never in the history of the world had the entire world’s money been backed by one nation’s debt, an IOU from U.S. taxpayers.
In, 1971, the U.S. dollar stopped being money and became a currency. The word currency comes from the word current, like an electrical current or an ocean current. In other words, a currency must keep moving or it loses value. To retain value, a monetary currency must move from one asset to another. After 1971, people who parked their money in a savings bank or in the stock market
lost money because their currency stopped moving. Savers became losers and debtors became winners as the U.S. government printed more and more money, increasing debt and inflation.
After 1971, the U.S. economy expanded by creating more debt. In theory, if everyone paid off his or her debt, modern money would disappear. In 2007, when U.S. subprime borrowers couldn’t pay their mortgages any longer, the expansion of debt stopped and the debt market collapsed, which led to our massive financial crisis today.
The United States
has financed its excessive spending by selling its debt to Europe
, Japan
, and China
. If these countries lose confidence in the U.S. government and stop buying U.S. debt, another financial crisis will occur. If U.S. citizens stop buying homes and stop using their credit cards
, this crisis will last longer.
Financial Education is important because we need to learn there is good debt and bad debt. Bad debt makes us poorer. Good debt makes us richer. Since modern money is debt, a strong financial education would teach people to use debt to get richer rather than become poorer.
1974: The U.S. Congress passed the Employee Retirement Income Security Act 
(ERISA), which is now known in the United States as 401(k)
. Prior to 1974, most employees had what is known as a defined benefit
(DB) pension plan
. A company’s DB pension plan provided employees a paycheck for life. After 1974, employees were moved into defined contribution
(DC) pension plans. This meant they had to save money for their retirement. The amount an employee received at retirement depended upon how much was contributed to his or her pension. If the pension ran out of money or was wiped out due to a stock crash, the retiree was out of luck and on his own.
This change from DB to DC pension plans forced millions of workers into the uncertainty of the stock market. The problem is that most employees lacked, and still do lack, the financial education needed to invest their money for retirement wisely.
Today, millions of workers throughout the world are faced with insufficient funds to retire on. Without a financial education, millions go back to the same institutions – the savings banks and stock market, the very institutions that caused much of today’s financial crisis – and attempt to save enough money to enjoy a secure retirement. These people are most affected and worried by our financial crises.
Now that we’ve reviewed a little bit of the history of modern money, you may begin to appreciate why a Financial Education is important. It really pays to know history.
Credits to The Conspiracy of the Rich
by Robert Kiyosaki
.
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