Every one of us needs to know how the economy works

Few among us are interested in the machinations of the economy. In the same way that I believe that personal finance should be taught in high school, I believe that everyone should watch this video.

Ray Dalio, founder of the world’s biggest hedge fund firm, Bridgewater Associates, has created a simple but not at all simplistic and easy to follow animated video which answers the question, “How does the economy really work?”

Based on Dalio’s practical template for understanding the economy, which he developed over the course of his career, the video breaks down economic concepts like credit, deficits and interest rates, allowing viewers to learn the basic driving forces behind the economy, how economic policies work and why economic cycles occur.

You might feel that much of this information is over your head, uninteresting, and not important to you. I believe that everyone should invest 30 minutes and watch this. You will not only gain an understanding of how the economy works, but you will better understand how you fit into this machine and how the decisions that you make impact your finances now and in the future.

Bill Gates says:

This knowledge will help everyone as investors and citizens. Watching is a worthwhile 30 minute investment.

It’s not only informative, but it’s nicely animated as well. Give it a try.

I hope you watched the entire video. If you got bored and turned it off quickly, at least watch the segment which begins at 10:00

This is one of my favorite segments in this video; it’s about credit — good credit and bad credit.

Now don’t get me wrong, credit is necessary something bad that causes cycles. It’s bad when it finances over-consumption that can’t be paid back. However, it’s good when it efficiently allocates resources and produces income so you can pay back the debt. For example, if you borrow money to pay for a big TV, it doesn’t generate income for you to pay back the debt, but if you borrow money to say, buy a tractor, and that tractor lets you harvest more crops and make more money, then you can pay back your debt and improve your living standards.

Since most of us don’t have a farm. you might want to substitute buying rental property with borrowed money if it results in your being able to pay back the debt to the lender and having additional disposable income which could improve your living standards.

Don’t buy a TV or any other consumables with credit unless you know, with complete confidence that you can pay back this debt in its entirety when the bill comes due at the end of the month.

I hope you found this video useful. As I mentioned, live personal finance in schools, I think this should be required viewing for everyone.

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