As discussed earlier, current government policies incentivise the total breakdown of individual financial resilience. People are encouraged to borrow and spend at maximum rates, going deeper and deeper into debt and saving as little as possible. This is the complete opposite of what we actually should be doing and lies at the heart of the massive financial problems we are facing today.
No, government should incentivise the building of individual financial resilience. True economic stability and prosperity, especially in the increasingly limited world we live in today, can only be achieved by building a system of financially resilient individuals. In our interconnected world, the bankruptcy of a single company can cascade out of control and cause global problems. It is this domino effect that we have two avoid at all costs.
The ultimate aim of government should be to get the majority of its citizens to the point where they have built sufficient financial resilience to achieve financial security as defined here. Such individuals will be completely impervious to unexpected change and stop any financial domino effect before it could even begin.
The primary mechanism through which this can be done is by altering tax laws. Significant tax breaks should be given as a function of the degree of financial resilience of the taxpayer. Those with no financial resilience who are living from paycheck to paycheck should pay regular tax, and all those who save and invest regularly should receive generous tax breaks according to their degree of financial resilience (measured in the number of years that their accumulated financial wealth can sustain their lifestyles). For example, a tax break of 2% for every year of financial resilience (capped at 10% for five years of financial resilience) could be implemented. This tax break will easily pay for itself by making massive investment funds available and bringing fantastic stability to the economy.
In addition, the wide array of incentives that encourage the complete destruction of financial resilience should be gradually removed. Generous tax breaks on loan interest should be done away with and interest rates should be gradually increased. In general, people should be incentivised to be financially responsible, live within their means and build for themselves an environment in which they have the security and stability needed to really make meaningful contributions to society.
It is crystal clear that our recent attempts to borrow and spend our way to prosperity have failed miserably. We really have to make a complete U-turn and start building prosperity through the blatantly obvious means of investment and production. Encouraging the building of financial resilience among individuals is the most natural way in which this can be done.
As we will see on the next page, however, this is exactly the opposite of what current western governments are doing.