Episode #115: “America’s Biggest Money Decisions—and Their Lasting Effects”

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Transcript

Welcome And Episode Setup

SPEAKER_00 0:05

Jonathan Clee is Mr. Channel with the founder of Alchemy Wealth Management and author of your physical physical. Ryan Nelson. Tune in to gain valuable insights and practical tips as we simplify complex financial concepts into digestible lessons. From budgeting to retirement planning, this podcast is your go-to resource for mastering financial literacy.

Aaron Hoisington 0:33

Welcome everybody to this week's episode of the Fiscal Physical Podcast. Appreciate you guys joining us as always. Uh this is uh Aaron Hoysington with my co-host Ryan Nelson, the founder of Alchemy Wealth Management. And uh we are here today to uh help increase your financial knowledge and uh uh looking forward to excuse me to today's episode. And uh Ryan, what's uh what's the good word on your end, my man? Uh it's uh the the yeah, it's the good word is it's good. Yeah, is good. Yeah what about for you? Yeah, no, I I'm right there in the same boat, it's for sure. It's uh it's good. The the word is good, and we're gonna we're gonna be elevating that to great after this episode for sure. So um so today we're gonna talk, Ryan, about um now I'm really interested on this topic. I I came across and I was like, oh, I'm I don't really know like a lot of these ones, but I'm sure Ryan will have things that kind of st stand out to him. So um we're gonna talk about uh in your opinion, what are some of the most impactful financial decisions that were made over the last 100 years in the United States that still affect us today? So um obviously there's a probably a ton of different financial decisions. I mean, at this point we'd be dating back to I guess 1926 if we want to go back that far for a hundred years. But um, I'm really curious to see which, you know, two, three, four, whatever kind of works best for you of the ones that you think are the uh, you know, have the the most lasting impact and the most important ones, and um share kind of why you think that, why the data backs that up and um just overall kind of how you would you know pick out some of these for sure.

Ryan Nelson 2:06

Sure, yeah. This one's tough for me because I'm not I don't consider myself like a historian, so to speak. And um so I had to do a little research here for this one. Um and I don't consider myself an expert. I I I got three things here, but I don't consider myself an expert on any of them, but uh certainly uh uh let's let's walk through them anyways.

Defining The Big Three Changes

Aaron Hoisington 2:24

I think as you you put it like uh eloquently put it, I know just enough to be dangerous.

FDIC And Trust In Banks

Ryan Nelson 2:28

Oh yeah. Yeah. Um so yeah, so what kind of the three I said was the creation of the FDIC insurance, which we talked a little bit about last week. Uh that happened in 1933, so just sneaking in in the hundred-year barrier. Um, the US moving off the gold standard, that was in the uh 1971. Um, and then the the last one I did was the creation or kind of the rise of the 401k system. So that was in the 70s and 80s, kind of moving away from um annuities into 401ks. Um so again, all you know, the on all three of these happened before I was even born. Yeah, that's that's funny to think about. Yeah, yeah. So so it is kind of hard and um yeah, like I said, I had to do some research here. And I think these uh I don't know if they're the three most impactful events in the last hundred years from a finance uh financial system standpoint, but uh certainly there are three important ones. So let's touch on them real quick. So creation of FDIC insurance, like I said, that was in 1933. Um and so uh apparently it was created after a wave of bank failures during the Great Depression. And so then the US created this FDIC insurance to insure bank deposits, right? And basically it's created so that if a bank fails, you automatically you do not automatically lose your money that you had deposited. So if you have uh, you know, a hundred grand in your checking account, the bank fails, you don't lose your hundred grand, you get it back, right? We talked a little bit about this last week. Um, but so I think why it's important is it creates it helps create trust in the banking system. Sure. So even last week we talked a little bit about um some of the banking fiascos that are more recent in Silicon Valley, and you know, that could have in theory created this panic through the system where one bank fails. Imagine if those people didn't get their money back, then everybody would be scared. You could imagine a world in which then people start pulling their money out of other banks, causing them to fail, encouraging people to pull their money out of the other banks that are left, causing them to fail, right? And it's this causal downward cycle. And so the beauty of this FDIC is like again, not in the very recent future, we've seen a bank fail, and the repercussions were relatively modest, right? It was a small point of punk of panic, um, for s especially for some individuals. Um, but the reality was from a uh banking institution um countrywide, largely we didn't lose our trust in the institution of banking. Sure. We all kept our money in our bank, those people were made full, and that's what allowed us to continue to have confidence that cool, my money's safe being where it is. So it's a a a nice kind of timely example or reminder of what this um kind of confidence in the system can entail. Um so yeah, I I thought that was uh pretty impactful. You still see it today. Um people are, I think for the most part, pretty comfortable with their money in banks. Um, and I think largely that is due to the creation of FDI's insurance back uh like what is that 90 years ago, 90 plus years ago. So almost a hundred years ago.

Aaron Hoisington 5:32

It's interesting that somebody had the the foresight on that too, to be like, hey, you know what? Like this would be actually, you know, we're no one trusts us right now.

Ryan Nelson 5:40

Yeah, well, the funny thing is I don't know that they did have the foresight, it's it's it they did it retroactively after the Great Depression. Yeah, yeah. So um I think this was in response to bank failures uh and their being runs on banks. Yeah. Um, so obviously the Great Depression is like the greatest financial collapse our country has seen to date. And so this, you know, I think this largely was a uh in some ways a response to pieces of that. Okay.

Aaron Hoisington 6:07

And it's interesting, it's held up over like it ended up like working to where we still use it today, you know, you know, 90 years later that it still kind of creates that sense of peace. And it's kind of, you know, sometimes you're like, wow, that really served its purpose, and it still continues to, I think is always interesting to see like how many things that are 90 years old or whatever were come up with like still hold true like today. It's probably not too many, right?

Gold Standard Exit: Flexibility Vs Inflation

Ryan Nelson 6:30

Yeah, and it seems to it seems to, you know, at least as far as I can tell, accomplish its job pretty well. Yeah, I would do so. Yeah. So um number two that I talked about or that I want to talk about is the US moving off of the gold standard. So again, that was in 1971. This one's interesting to me. Um it's it's kind of a controversial topic. Some people swear that this is um was amazing for our country, some people swear that this was terrible for our country. And these can be really smart people that disagree on this. Really? Okay. Um so it's kind of interesting. I don't know that I I don't think it is good or bad. I think it like most things, it just had pros and had cons. Um so something kind of interesting to think about. But so basically, yeah, you know, before the 70s, um the there would be a direct tie between dollars created in the US and our gold reserves. And so if we wanted to create more dollars, we'd have to get more gold into our reserves. Um after this, it became what's known as a fiat currency, which is common for most currencies now, but so it's not tied to the set amount of gold. And so what that means is it it gives the US more flexibility to manage the economy and potentially respond. So if you think about the Federal Reserve, you know, people sometimes um talk about like the Federal Reserve printing money or doing certain taking certain steps, right? Um and the Federal Reserve wouldn't necessarily have that level of flexibility if it was still tied to gold, if we were still beholden to the gold standard. Um so now the Federal Reserve has more flexibility. Again, some people think that's a good thing, some people think that's a bad thing, right? And and it's too complex, I think, probably for any of us to really know what all the implications are. Um, again, I think there's both good and bad that comes of this. Um, but again, I think it's interesting that now there may be some recessions that the, you know, I think largely um in hindsight, um there's probably been some instances in our country that the Fed was able to take action to help either mitigate us going into a recession or substantially reduce the depth of that recession. And they may not have been able to do that if we were still tied to the gold standard. Sure. Now, that being said, uh Devil's Advocate would be now we can print sort of as much money as we want when we want. Um, you could blame that, you could, you know, that that is going to be a driver of inflation. If there's more dollars out there for the same goods, so there's more supply with the same goods, this or sorry, there's more demand effectively now, since there's more dollars out there for the same supply of goods, that's gonna drive the price of everything up. Um, so you can see how there's two sides to this coin, or right? Oh, definitely. Um, so again, both pros and cons. Um, but so I find this one to be interesting just because such smart people can have such different opinions on it. Um, so it certainly it's got to be impactful, and and just allowing like the Fed kind of the power to have that monetary control is powerful. Again, whether it's good or bad, I don't know. I'll leave that up to each listener, I suppose, to decide kind of what their what their view is on it. Um but one practical kind of takeaway from this is that now like hoarding cash, so to speak, sure isn't as valuable. So, so like I I I like to give this example. I've I've done it before on the podcast, but um, you know, one one thing I'll ask if I have a client that's in their you know like late 80s, early 90s, I'll oftentimes ask them what they paid for their first house. Oh, yeah, right? And so usually they will at that if they were if they're that of that age, they will have typically paid somewhere in the neighborhood of 10 or 15 grand for their first house. Then I'll ask them how much they paid for their car to drive here in, and they will have paid, you know, forty, fifty, sixty, seventy thousand dollars for this car. Sure. So it's like in one person's lifetime, the prime of their life where they could they were young enough or they're old enough to buy a car. I mean, sorry, old enough to buy a house right back then, yet still young enough to drive to my office. Like over that period of time, they went to being from being able to buy a house for 10, 15 grand to now you can't even really buy a new car for 10 or 15 grand, right? And so that just goes to show you again, if you had a hundred thousand dollars back then and you just left it in, you know, if you if you took that hundred thousand dollars and you put it in a coffee can and put it under your bed, today you would still have a hundred thousand dollars when you pull out that coffee can, right? Right. The problem is back then you would have been wealthy enough with that hundred thousand, it could have bought you six houses or something, right? Absolutely. Five houses. Now it that$100,000 can't even buy you a single house, probably. Maybe it could buy you two cars. So you went from having enough wealth, even though your hundred thousand dollars is still a hundred thousand dollars, your wealth or purchasing power went from being able to buy five, six houses to being able to buy two cars, right? So your purchasing power was eroded. And so I think one implication of moving off the gold standard is it's probably more evident that um purchasing power of holding cash will get eroded. And so, you know, saving your way to retirement is probably a fool's errand. If you're just putting a hundred dollar bills under your mattress, yeah, you're still gonna have the hundred dollar bills, but it's gonna be really, really hard to save your way to a retirement. And almost, you know, almost the only way to accomplish it now that in my mind is to invest your way to retirement. Yep.

Aaron Hoisington 12:05

Um, so yeah, interesting. Yeah, very interesting to think about that. That's a really funny. Like an now, like you think about like the the oh, I bought my first house for you know fifteen thousand dollars, but I spent you know thirty thousand dollars on this car that I'm driving. Like that's just that's a just think about time and age and like how things have changed if you go there too.

Ryan Nelson 12:24

So and what so what's interesting is like now you start to apply this to your world to our worlds. So it's like, man, let's say I bought my first house for$300,000,$350,000 or something, right? Now you start to think like, oh, what will the price of cars be when I'm in my 90s? Sure. Yeah. Well, would it be unreasonable to think that the cars might cost more than 350, 400, 500? Could it be a million dollars for a car at that point in time? You know, our minds can't really wrap around that. It'd be like, no, there's no way cars are gonna cost a million dollars when we're in our 90s. It's like, I don't know. Yeah, another 60 years worth of inflation, depending on what inflation rates are, like it could be. Sure, I don't know that it will be, but it could be. So kind of interesting. Um, kind of interesting just to think about. And it's so hard for us to wrap our minds around compounding, both when it comes to compounding interest and really inflation is just an example of compounding interest. Um, but the third and final um thing that I wanted to bring up was the rise of the 401k system. So this one is a little closer to home. This was, like I said, in the 70s and 80s, one I'm personally a little more familiar with. Um, but kind of these two things, the rise of 401k system kind of goes hands in hand with the fall of pensions, right?

Aaron Hoisington 13:35

Yeah, which we've covered on previous episodes too, which I almost I think those are super interesting just in general.

Ryan Nelson 13:39

Yep. Me too. And so it kind of changed the way that US citizens retire. It went away from us relying on our companies to be responsible for retiring us to us now individually being responsible for our own retirement. Um so, like fundamentally, I mean, that's a huge change in impact on just m the way our financial system, right? Right. Um, so this one is probably at least I don't know. I think it might be the biggest have the biggest implication. Um, but just that shift from the being reliant on the company to being reliant on us. And so what that means is, you know, now we have to be more prudent. You know, somebody else isn't taking care of this for us. We have to take care of this for ourselves. So we have to be more prudent. You know, when we started working at a company before, they would start basically kind of withholding some of our pay from our very first paycheck, whether we were 18, 19, 20 years old. Now nobody's doing that for you automatically. You have to take your own self-discipline to do it yourself. Right. Now the cool thing is you get to choose exactly how much you save, how you invest it, right? You have more control. So I think it's actually a net positive for the consumer, but only if they have the discipline and the knowledge to make to make the right decisions, right? Um, so again, either way, just a huge uh difference. Um but I think as long as you're making smart decisions, if you're if you're the type of person that listens to a financial podcast like this call through your physical physical or the fiscal physical podcast, then um you're probably in the demographic of people who having a 401k is actually better for you. Right, right. Um but we also probably probably can all relate to somebody else who is not taking the right or appropriate steps. And it's like, man, if they had a pension, kind of the forced savings, right, they'd be in a better spot. Um, but yeah, so I think overall, um, for me, the FDIC, um, FDIC, the creation of FDIC insurance, leaving the gold standard in that shift um from pensions to 401ks were sort of um uh my top three. I'm sure there's plenty of others I didn't think about or know about, or my research didn't uh kind of um uh didn't didn't cross the the table during my research session, but these are three impactful ones.

Aaron Hoisington 15:56

I I think so. And it's interesting to think about like the the last two that you mentioned, like the uh the the Rise of the 401k move away from the gold standards. How those are kind of like debated on like was this good? Was this like and you could probably like said go either way on those things. But like I I feel like at least from my limited knowledge of this with last week's podcast and now this one here too, I feel like the the FDIC insurance is pretty well like established that that was a relatively good thing that we're like that I don't I don't know if there's a lot of debate on like oh that's a terrible thing, we should get rid of that. I haven't heard that myself, like of like we need to get rid of FDIC insurance. Like, I don't know, as though that's a topic that gets bring up brought up a lot, but um it is interesting that the the I I love the way you put it, like it's not necessarily a good thing, not necessarily a bad thing, like when it comes to these things. You can see both sides of each coin, it just kind of depends on what you want to do, whether it be the the 401k or you know, do you having the Fed have more power? Is that good? I don't know, right? But um it is it is always uh it's always unique. Whenever there's two sides, and you can people smart people people smarter than us can make like those those arguments, like it's always it's a very it that's what makes a topic interesting to me, I think, for sure. So yeah.

Ryan Nelson 17:08

Yeah. Um as far as FTIC insurance goes, I just did a quick Google on this as well, and uh it made me think of something else with so so like we when I did this, so it says FDIC insurance negative center on the moral hazard it creates. Um, which interesting enough, there's a lot of talk around moral hazard and stuff around 2008 and the 2008 housing crash and stuff. And and um it that reminded me of when the topics came up a couple of years ago around the um San Francisco bank failing. Um there was some talk around moral hazard. And um I guess I suppose one negative of FDIC insurance would be that these banks are on the hook for the funds if they go under. And so the it allows them to take maybe risks that they shouldn't be taking. Um, but if they do, the FDIC is steps in, kind of makes it whole. And so now the kind of the the the right the the government is taking the risk for these individual corporations, but the government doesn't get the returns. Sure. So this bank can step in, take all this risk, get all this return. If it backfires on them, they're not on the hook for the risk. The FDIC is.

Aaron Hoisington 18:20

So I guess it does pose some ethical dilemmas there, yeah.

Ryan Nelson 18:23

I suppose I I guess um I I largely agree with you. I think like in general, I don't hear too many people complaining about FDIC insurance. Largely, I think it's done a really good job of creating that trust in our banking system. So I think it does a pretty good job, but um, I I do think like you're to emphasize your point, you know, even all of these things I think have both pros and cons. Um, and I'm sure there's somebody out there who thinks FDIC insurance is the worst thing for you know our country because of things like moral hazard, and they probably have some really good points. Um there's just yeah, different pros and cons to all of this stuff.

Aaron Hoisington 18:59

Makes sense. Makes sense. Two sides of every coin, if you will. So awesome, Ryan. Well, I learned something today for sure, and we're gonna go ahead and uh take a quick pause. We'll be back on the other side of this. Was the some uh personal section, and uh everybody hang tight.

SPEAKER_00 19:12

And now to put the personal in personal finance.

Aaron Hoisington 19:20

Welcome back, everybody, this side of the physical physical podcast. Uh Ryan Nelson, I got a question for you. And this is, you know, I I'm really interested to hear your answer on this because I I consider you a pretty organized fellow just in general. Um, and I think that's always a a goal for myself or with my family of trying to figure out cool, how do we become more organized? Just because organization is awesome. Like when you can get something organized, you can get a routine, you can figure out you have these areas in place for planning. Like it just I mean, you're you're in the financial planning industry, some might say. So I think it makes things easier. But I'm curious like, do you use more of like a a physical, like a book planner, or do you Use more of like a a digital planner, like uh for your kind of organization.

Purchasing Power And Compounding

Ryan Nelson 20:04

Yeah, I've moved almost well not almost. I I've moved like base not basically, I've moved entirely digital. Um and yeah, I find that's easier for me just being able to have you know the same calendar on my laptop on my cell phone. Sure. Um I like the fact that you know my so my self my laptop, for instance, is very secure. Um if if I was to lose my laptop or drop it in a river or lake or somehow it got whatever, ran over by a car, I could go get another laptop tomorrow, be up and running, have my calendar, I wouldn't have lost anything. Right, right. Yeah, that's a big thing. The device is just a way to access the calendar as opposed to being the calendar. Whereas if you have like a physical calendar, a hard copy calendar and you lose it, you've just lost it. Um that being said, like all through college and stuff, I always used a physical calendar. Uh obviously, I guess probably digital didn't wasn't as useful. Wasn't as like advanced at that point, but um but yeah, everything I do now is is digital. Um I like the redundancy of it and how I can access it anywhere, anytime, sure. Um, however I need to. Um Yeah, so that's yeah, that's that's my my organization method. What about you?

Aaron Hoisington 21:16

Yeah, no, it's it's a you make a really good point because I think about like growing up like like in high school and stuff too. Like I had like a planner, like a course or a class planner, and I'd write my stuff in it, and it was all purely physical with that too. But I'm almost the same way. I I've pretty much moved like exclusively like digital. The only thing is like so we my wife and I we plan out our meals every week. Oh yeah. And uh we we put it on our fridge. We have like a calendar that's on there, like a special thing that we has the days of the week, and so we put what we're gonna eat and like on there, and for some reason, because I I work from home, it makes it easier to like connect and like I can just go out on my break. I'm like, oh yeah, we're doing pizza tonight, like cool, we're doing this. And so it's like up front versus I have to like maybe open an app or something like that to like go in. So I think there's a little bit, plus I'm also like you know, with a a visual I I if I can write something down a lot of times, like I can remember it better just in my head. Like I'm like, okay, if I write this down, that like my notes are, you know, okay, this Wednesday my son has swim lessons. I write it down on the calendar, I'm much more apt to remember that versus I type it in and like send it off to something I might pull up, like what am I doing today kind of thing, too. So I think that that's that's the only we have our fridge calendar that's like a physical one. Everything else is digital, if that makes sense. Yeah.

Ryan Nelson 22:31

I I and I think that's a good like analogy that that we could all probably benefit from. And it seems to me like the fridge calendar being physical isn't the efficiency. Or like it would probably still be more efficient for that to be in a digital form. The beautiful thing is that it's like in front of the cow, in front of the it's like on it's it's where you need it. Yep, exactly. Yeah, so like you don't need to know what your what your fridge calendar is like in the bathroom or at work. Um so it's like in the place you need it, it's is really accessible to you in the place you need it. Um and so you've created a system that gives you the information you need when you need it, um, which makes a ton of sense to me.

Aaron Hoisington 23:11

Exactly. Yep. So I think there's a little bit of balance in between those two.

Ryan Nelson 23:14

But now you just gotta get the uh you've seen those like smart fridges, right?

Aaron Hoisington 23:18

They have like computer screens on there. Yeah, yeah, yeah. Oh yeah, definitely. I think that there's there's a whole bunch of different options of like, oh, do we just like invest in this? And I'm like, all right, like let's uh no no, I got some other things I gotta do first before I drop a few bones on those. So um awesome. But I'm really curious to see those listeners out there, what are your what do you guys use for your organizational planning? Do you find comfort in actually having something physical and writing it down? Um, or do you, you know, you want to check something off like physically? There's a piece of like, you know, that's accomplishment when you get to do that as well. So uh, but yeah, let us know. Um email us at podcast at alchemywealth.com if you guys have any topics as well that you want us to cover. We're always on the hunt for new topics that would be engaging for our listeners. And uh um, as always, thank you guys for tuning in. We really appreciate it. If we couldn't do it, uh couldn't do it, uh we wouldn't have as wide range of a reach without you guys out there. So um thank you so much. And uh, Ryan, I'll let you uh polish us off here, my man. As always, stay the course.

SPEAKER_00 24:18

Thank you for joining us for the Fiscal Physical Podcast. Until next time, happy listening. And as always, stay the course. If you have a question or topic suggestions, please email us at podcast at alchemywealth.com. If you enjoyed today's discussion, subscribe to the podcast to ensure you never miss an episode. And consider leaving us a rating and review on your favorite platform. This helps other listeners like you find the show. For more resources, you can visit Alchemy Wealth Management's website at www.alchemywealth.com or find your fiscal physical, the book on Amazon. We'd be remiss if we didn't mention that personal finances just that. Personal, please don't take anything we say as advised. The pre-titting content is for informational and entertainment purposes only. It's not an offer or a solicitation, nor should it be construed or relied upon for tax, legal, or investment advice. It doesn't consider your personal financial situation or objectives and may not be suitable for you.