Economics Lessons You Won't Find in a Classroom!

Babysitting, Mowing Lawns, Delivering Newspapers, and even the Lemonade Stand -- These are the ways most of us started with making money. As a teenager, I tried babysitting along with my sister. Yech! But changing diapers and trying to keep fussy toddlers happy was not my cup of tea. My sister did better with it, so she made her income doing that for the neighbors. Likewise, my daughter also did well with babysitting the neighbor kids.

When my son was about 6, he and his neighbor buddy started a venture in which they took rocks out of our backyard and went door to door in the neighborhood to sell them. They actually found some nice ladies around the block who got a kick out of the kids' entrepreneurial spirit and who bought the rocks. Later, my son started cutting my wifes' flowers from the garden and tried selling those in the same manner. Again, he got some surprising results (and also got the side result of a very angry mother who didn't want her flowers raided).

Later, my son, like me when I was his age, did well with lawnmowing and yard cleanup. He liked being outdoors and "in-charge" of a machine. However, he also realized that lawnmowing was a more seasonal venture than babysitting.

My son's first "real" job was as a clerk at a bookstore. My daughter's first "real" job was also as a clerk at a bookstore. They got these first "real" jobs when they were in about the 10th or 11th grade and had already experienced the babysitting and lawnmowing aspects of earning a living.

The Barter System

Many centuries ago, the primary way folks "made a living" was by bartering after they harvested, caught, gathered, raised, shot, or built whatever it was that they did for a living. They would trade a pig for some chickens. They would trade eggs for milk. They would trade fish for bananas. They would trade wool for tools. They would trade pottery for corn. And they would trade any or all of these for the privilege of the protection of living near a castle, fort, or under the some other protection of "government". (This last bit of "bartering" was an ancient form of "taxation" and was what paid for royalty, armies, law enforcers, and so on.)

If you were skilled at creating fish nets, you might not have to go out and do the fishing yourself. You could trade nets for some fish. Or trade your skills in fixing fish nets for some fish. Once you got some fish, you might not need all of them. You might be able to trade some of the fish for some bananas or eggs.

If you weren't skilled with making or fixing nets and fishing also wasn't your cup of tea, you could offer to teach the children in exchange for eggs, fish, or corn. Likewise, if you were skilled at weaving, you could trade blankets, robes, and clothing for the wool in addition for fish, eggs, and milk. Some of these items you received you could use in exchange for the village teacher training your kids.

The warriors, soldiers, and those working with law enforcement would be paid in much the same way the net menders and teachers would be paid. Because carrying around chickens, pigs, bananas, eggs, and jugs of milk is somewhat cumbersome, certain civilizations developed easier-to-carry method of payment. At first, it consisted of bags of gold flakes or salt (This is where the expression, "He is not worth his salt." comes from.) The ancient Romans paid their soldiers this way--with bags of salt. Salt was a valuable commodity in ancient times. And salt is mentioned frequently in many ancient texts--including the Babylonian cunieform tablets, the Torah, and the Bible.

Coins (Money) for Goods and Services

Okay, bags of salt and gold were also cumbersome (but they sure beat the heck out of having to carry around a few chickens or eggs!). Using bags of gold or salt required those doing the trading to have access to a scale. And if the bag developed a small hole, or, in the case of salt, you got caught in a rain shower or got drenched when crossing a river, you'd find yourself in a financial fix. (Is this what is called a "trickle-down economy"?)

So after thinking about this problem (and perhaps to stroke their own ego), the rulers in those days (aka "the royalty" -- who were basically the "government") started to make coins out of gold, silver, bronze, and copper--they'd stamp these things (the coins) with artwork that resembled their own image and with words like "Courtesy of Julius Ceasar" or something like that (just kidding). Sure, bartering still sort of hung around--mostly in the countrysides--but in the growing towns and cities, being paid goods and services through the coins became the main method. This coinage could not only be used for goods and services (and the time it took for the work involved), but were also given back to the ruler and the government as taxes. This is how "circulation" works. If there's not many coins out there, they are worth more than if there's a whole bunch of them out there. This is also sometimes called the "law of scarcity" or the law of "supply and demand".

(When paper dollars aren't very common, they are worth more. When the government prints more and more of them and borrows from funds such as Social Security to pour more "money" into the economy to "stimulate spending" or to bail out bankers who got really stupid with poor decisions, this devalues the dollars. When dollars (or any other currency) are devalued, more are required to buy products or services. When those products and services require those additional dollars (aka "higher prices"), this is called "inflation" and it's a sign that our economy is in a "recession" or worse, a "depression".)

Trading Time for Dollars (or Pesos, Yen, Pounds, Euros, Rubles, Whatever)

Nowadays, Trading Time for Dollars is how most folks create their income. Most folks don't farm, or raise cattle or chickens or pigs, or fish (by themselves). So they work for an agreed upon rate per hour for someone else. Sure, someone has to own the farm, the factory, the fishing boat, or the business (unless you are in a communist country--then perhaps the government "owns" everything--this definition is getting fuzzier nowadays). The owners use some of the income over and above the cost of their facility (whether it be the farm, the factory, the boat, or the business) to pay their "workers" or "employees".

For the past 50 to maybe 100 years, this method of transferring income from businesses and enterprises to workers and employees and back through the government has worked reasonably well (except for a previously nasty period from around 1928 through 1933 called the "Great Depression").

Trading Time for Dollars has worked for centuries, and although new technologies and computing advances have increased productivity for office, retail, and manufacturing workers, after a while, trading time for dollars is not effective. Why?

• There's only a limited amount of time in a day (we're all limited to 24 hours/day)


• There's usually a limit that you can charge per hour (or other unit of time)

So, is it possible to get around this problem?

Well, the first idea you could get from the previous narration would be that perhaps you should own a business or some way of owning the production of something of value. This is where most folks get stumped. What to do?

Own Your Own Business

You could own your own business--the quickest and easiest way is something called (officially) a "sole proprietorship". For folks over 18, this is the government designation for someone in business to make a profit. (For kids with lemonade stands, babysitting, or lawnmowing services, this would be a term for their efforts.)

Now, some kids get pretty smart. They buy some used lawnmowers at garage sales, then rent out the lawnmowers to other kids to use when those other kids mow lawns. So, theoretically, the kid owning the lawnmowers is still in the "mowing lawns" business, however, he's "multiplying" his profits by renting out his "assets" (called "leveraging")--the assets are creating an income for him that is more than he could make if he did the mowing himself (and, most importantly, he frees himself from the "trading time for dollars" trap!).

"Residuals" or "Royalties"

Here's where the fun begins (and where the most misunderstanding happens!). The folks most familiar with this economic phenomenon are mostly musicians and singers--and some (and only some) writers, photographers, and artists. If you can create something called "intellectual property" (which means something that you created by thinking and producing those thoughts in an easily reproduce-able media), you can use the fact that you can copyright or patent this "intellectual property" and then sell the rights to own a copy of the media containing this material. Although the profit per unit may be small, such as for a $15 music CD you might get $10 profit, consider how easy it is to duplicate 10,000 copies of that CD. Check out the math on that--$10 X 10,000 = $100,000. Not bad for maybe an hour's worth of recorded songs.

I'll provide more information in some later modules--but this is a good start. If you want more information--getting a few of the books and references below will describe all these concepts way better than I can.

Homeschooling friends of ours have a daughter who had become accomplished with face painting, balloon-animal twisting-assembly, and being a clown--yup, a "professional clown". She started by being an assistant for an adult clown who worked on weekends for kids' birthday parties. Then, after being an "apprentice", she started getting gigs of her own, and eventually was even invited to work at corporate family events. She was able to make the "going-rate" for professional clowns--with the face-paint and the costume and all the accessories, it's difficult to determine the age and even experience of the clown. She was so good that she was considered to be one of the best clowns in the area--and she commanded some of the highest rates. Not bad for a 15-year-old. Now she's in her mid-20s, is a certified school teacher, and still does clowning gigs on weekends and evenings as her "side-line". This is an example of "trading time for dollars".

The daughter of another friend is an accomplished artist. She does her acrylic, oil, and watercolor paintings on mostly 8-1/2" X 11" paper/canvas. After taking many, many years of semi-private art lessons and winning many of the awards in the county fair art exhibits, she started to get pictures of her work for her portfolio--and got an idea: She would make a high-quality color photocopies of her work and she'd frame them so she could sell the copies. Using a high-resolution scanner, she scanned the art into digital images from which she made greeting cards and posters from her computer. These, too, she'd sell at Farmers' Markets and Fairs and other events. Now she's considering putting her art on CafePress in the same manner as the other youngster who did the photography of the leaves. This is an example of "creating valuable products that can be mass-produced to create a residual income."

If you want to bring more clients and customers to your business, you should check out Michael Port's book "Book Yourself Solid". If you've never been in business before, it's good to read up and learn more about what you are trying to do. And, even if you don't like selling or marketing, this book will give you a good start and a more comfortable way to bring in the paying customers!

Also, if you want to find clients for your professional services--such as writing, editing, web design, and programming, you can "hire" a firm to find the gigs for you--such as what you get when you click on the banner ad displayed below:

Financial advisors in the references listed in the above modules will all say that it isn't important how much money you make... BUT how much money you KEEP!

Well, now that we've gotten that gem of wisdom out of the way, let's assume you've decided to keep some money. Good going! (Keeping some of your money puts you in a very, very rare percentage of folks.... most folks don't keep it... in fact, they usually spend more than they make! Not a Good Thing!)

You need to know about something called the "Rule of 72"... (many of the books listed above--particularly the books by Venita Van Caspel, CFP and Charles Givens will mention this!).

It's a simple rule... that most likely more than 90% of folks out there won't know anything about it.

Here's the "rule" illustrated with an example to make it easier to understand.

The Rule of 72 states: "Take any rate of return (expressed as a percentage) and divide 72 by it--the result will be how many years it will take for a sum of money to double."

So, let's say that a 20-year-old kid gets a "present" from grandma or perhaps from soneone else (or maybe from working at babysitting or mowing lawns, eh?). And this amount of cash is $2000. The only stipulation for this "gift" is that it must be "put away" for 48 years --until the retirement age of 68.

Now, where do you assume this kid will stash the money?

Most kids, will put the money in a bank ... maybe in a CD... because that's all they know... and most likely that's all their parents know about as well.

What's the most "rate of return" you can get in a bank CD? 3%?

Let's see.... divide 72 by 3 and you'll get 24. The $2000 will double every 24 years. So, in 48 years, the $2000 will double twice. 24 years = $4000, another 24 years will be $8000. So, in 48 years, that $2000 will have "worked for you and will have turned into $8000.

If you can bump up your "rate of return" to 6%, let's see what happens. Divide 72 by 6, and you will get 12. When you divide 48 by 12, you get 4. This means that your funds will double 4 times in the 48 years allotted. So, after 12 years, the $2000 will have grown to $4000, in another 12 years, it will have grown to $8000, in another 12 years it will have grown to $16,000, and by the time 48 years have rolled by, it will be $32,000.

But the real shocker is this: If you can get yourself a "rate of return" of 12% an even more amazing thing happens. Divide 72 by 12 and you'll get 6. Six goes into 48 eight times... Let's see this happen below:

• Starting $2000


• 6 years $4000


• 12 years $8000


• 18 years $16,000


• 24 years $32,000


• 30 years $64,000


• 36 years $128,000


• 42 years $256,000


• 48 years $512,000

Well... need I say more? You can look this up and verify this information in a wide number of sources. Read the newsletters by The Motley Fool (and the books of the Motley Fool--by David and Tom Gardner -- no relation to me!)

So... the coolest thing you could do would be to put away $2000 a year for about 6 years and then you'd be free to quit... and just let the money do the work. (Remember, though... if you fool around and pull out the money too early --before it has time to work the Magic of the Rule of 72, it won't work this way--you will have "killed the goose that lays the golden egg". So, have patience and let it work for you. This will work if you have time!)

Well, you are in luck. There's a way around that. Remember up above in the section Bartering for Goods and Services, Trading Time for Dollars, Business Ownership, Residuals! The last part of that section, I mentioned "residuals"... Like the "Rule of 72, there's a bit of magic that can happen here with residuals.

You've got to look at it in sort of a reverse view:

Let's say you set up a Squidoo lens. And let's say you manage to make $50 per month from your Squidoo lens. This would be an income of $600 per year--which would resemble what you would make on $20,000 in a bank CD earning about 3% rate of return. So, even if you don't have $20,000 in a bank, this is what you could get if you DID have that much in the bank. Not a bad simulation, eh?

So, you create a bunch more Squidoo lenses and other things like CafePress "stores" and Zazzle "stores" and you write a book that produces "royalties" for you... and eventually, you are making $500 per month in "residuals". This would be equivalent to $6000 per year or having $200,000 stashed away in a bank CD making 3% rate of return.

If you work on it such that you are making $5000 per month, this is equivalent to $60,000 per year... which would simulate having $2,000,000 making about 3% rate of return...

So, from all these different modules of information, you can see that there are many amazing aspects to economics, finance, and how money works ... and you can bet that this information isn't taught in public or private schools--no matter what age of the students... and there probably aren't very many students in college getting this information---maybe in the business or accounting or economics classes. But if you are a science major, education major, history major, PE major, music major, liberal arts major, or fine arts major, it's probably a guarantee that you'll never see this stuff during your coursework.

I've touched on this subject only briefly--and I've studied all of the books that I've recommended above. I recommend very strongly that you read the above recommended books--starting with Robert Kiyosaki's books, Venita Van Caspel's books, and Charles Givens' books. Once you get started, you may start seeing things differently in the world around you--and you'll have a fighting chance to live in dignity before and after you retire.