Financial Lessons of America’s Founding Fathers
What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation.
Here are some of the lessons, still applicable today, that can be drawn from these historic financial lives.
Have a Back-up Plan
Alexander Hamilton may have been the greatest financial visionary in American history.
After the Revolutionary War, as Washington’s Treasury Secretary, Hamilton steered the fledgling nation out of economic turmoil, ensured the U.S. could pay back its debts, established a national bank, and set the country on a healthy economic path.
But it turned out that he was far better at managing the country’s finances than his own.
When Hamilton was killed in a duel with vice president Aaron Burr, his relatives found they were broke without his government salary. Willard Sterne Randall, biographer of multiple founding fathers, recounts that Hamilton’s wife was forced to take up a collection at his funeral in order to pay for a proper burial.
What went wrong? Hamilton’s law practice had made him wealthy and a government salary paid the bills once he moved to Washington, but he also had seven children and two mistresses to support. Those expenses, in addition to his spendthrift ways, left Hamilton living from paycheck to paycheck.
The take-away: Don’t stake your family’s financial future on your current salary. The Amicable Society pioneered the first life insurance policy in 1706, well before Hamilton’s demise in 1804, andterm life insurance remains an excellent way to provide for loved ones in the event of an untimely death. Also, don’t get into duels. Life insurance usually doesn’t cover those.
Diversify Your Assets
Conventional wisdom holds that investors shouldn’t put all their eggs in one basket, and our nation’s first president prospered by following this truism.
During the early 18th century, Virginia’s landed gentry became rich selling fine tobacco to European buyers.
Times were so good for so long that few thought to change their strategy when the bottom fell out of the market in the 1760s, and Jefferson in particular continued to throw good money after bad as prices plummeted. George W. wasn’t as foolish.
“Washington was the first to figure out that you had to diversify,” explains Randall. “Only Washington figured out that you couldn’t rely on a single crop.”
After determining tobacco to be a poor investment, Washington switched to wheat. He shipped his finest grain overseas and sold the lower quality product to his Virginia neighbors (who, historians believe, used it to feed their slaves).
As land lost its value, Washington stopped acquiring new property and started renting out what he owned. He also fished on the Chesapeake and charged local businessmen for the use of his docks.
The president was so focussed on revenues that at times he could even be heartless: When a group of revolutionary war veterans became delinquent on rent, they found themselves evicted from the Washington estate by their former commander.
Invest in What You Know
Warren Buffett’s famous piece of investing wisdom is also a major lesson of Benjamin Franklin’s path to success. After running away from home, the young Franklin started a print shop in Boston and started publishing Poor Richard’s Almanac. When Poor Richard’s became a success, Franklin reinvested in publishing.
“What he did that was smart was that he created America’s first media empire,” says Walter Isaacson, former editor of TIME magazine and author of Benjamin Franklin: An American Life.
Franklin franchised his printing business to relatives and apprentices and spread them all the way from Pennsylvania to the Carolinas. He also founded the Pennsylvania Gazette, the colonies’ most popular newspaper, and published it on his own presses.
In line with his principle of “doing well by doing good,” Franklin used his position as postmaster general to create the first truly national mail service. The new postal network not only provided the country with a means of communication, but also allowed Franklin wider distribution for his various print products.
Isaacson says Franklin even provided his publishing affiliates with privileged mail service before ultimately giving all citizens equal access.
Franklin’s domination of the print industry paid off big time. He became America’s first self-made millionaire and was able to retire at age 42.
Don’t Try to Keep Up With the Joneses
Everyone wants to impress their friends, even America’s founders. Alexander Hamilton blew through his fortune trying to match the lifestyle of a colonial gentleman. He worked himself to the bone as a New York lawyer to still-not-quite afford the expenses incurred by Virginia aristocrats.
Similarly, Thomas Jefferson’s dedication to impressing guests with fine wines, not to mention his compulsive nest feathering (his plantation, Monticello, was in an almost constant state of renovation), made him a life-long debtor.
Once again, it was Ben Franklin who set the positive example: Franklin biographer Henry Wilson Brands, professor of history at the University of Austin, believes the inventor’s relative maturity made him immune to the type of one-upmanship that was common amongst the upper classes.
By the time he entered politics in earnest, he was hardly threatened by a group of colleagues young enough to be his children. Franklin’s hard work on the way to wealth also deterred him from excessive conspicuous consumption.
“Franklin, like many people who earned their money the hard way, was very careful with it,” says Brands. “He worked hard to earn his money and he wasn’t going to squander it.”
Not Good With Money? Get Some Help
In addition to being boring and generally unlikeable, John Adams was not very good with money. Luckily for him, his wife Abigail was something of a financial genius. While John was intent on increasing the size of his estate, Abigail knew that property was a rookie investment.
“He had this emotional attachment to land,” recounts Woody Holton, author of an acclaimed Abigail Adams biography. “She told him ‘Thats all well and good, but you’re making 1% on your land and I can get you 25%.'”
She lived up to her word. During the war, Abigail managed the manufacturing of gunpowder and other military supplies while her husband was away.
After John ventured to France on business, she instructed him to ship her goods in place of money so she could sell supplies to stores beleaguered by the British blockade. Showing an acute understanding of risk and reward, she even reassured her worried spouse after a few shipments were intercepted by British authorities.
“If one in three arrives, I should be a gainer,” explained Abigail in one correspondence. When she finally rejoined John in Europe, the future first lady had put them on the road to wealth. “Financially, the best thing John Adams did for his family was to leave it for 10 years,” says Holton.
As good as her wartime performance was, Abigail’s masterstroke would take place after the revolution. Lacking hard currency, the Continental Congress had been forced to pay soldiers with then-worthless government bonds. Abigail bought bundles of the securities for pennies on the dollar and earned massive sums when the country’s finances stabilized.
Despite Abigail’s talent, John continued to pursue his own bumbling financial strategies. Abigail had to be eternally vigilant, and frequently stepped in at the last minute to stop a particularly ill-conceived venture.
After spending the first half of one letter instructing his financial manager to purchase nearby property, John abruptly contradicted the order after an intervention by Abigail. “Shewing [showing] what I had written to Madam she has made me sick of purchasing Veseys Place,” wrote Adams. Instead, at his wife’s urging, he told the manager to purchase more bonds.
Make A Budget… And Stick To It
From a financial perspective, Thomas Jefferson was one giant cautionary tale. He spent too much, saved too little, and had no understanding of how to make money from agriculture. As Barnard history professor Herbert Sloan succinctly puts it, Jefferson “had the remarkable ability to always make the wrong decision.”
To make matters worse, Jefferson’s major holdings were in land. Large estates had previously brought in considerable profits, but during his later years farmland became extremely difficult to sell. Jefferson was so destitute during one trip that he borrowed money from one of his slaves.
Yet, despite his dismal economic abilities, Jefferson also kept meticulous financial records. Year after year, he dutifully logged his earnings and expenditures. The problem? He never balanced them. When Jefferson died, his estate was essentially liquidated to pay his creditors.
Were the Founding Fathers good with money?
Benjamin Franklin was famous for his frugality, but some of his colleagues were big spenders who were plagued by debt.
By MSN Money partner Mon 5:03 PM Credit.com on MSN Money
This post comes from Kali Geldis at partner site Credit.com.
They may have written the most fundamental document for our nation, but some of the Founding Fathers weren't all that great with basic personal finance.
We talked to the experts about what the Founding Fathers' financial flubs and successes can teach you about minding your money.
Jefferson's famous financial flaw was his large debt load.
Susan Kern, visiting associate professor at the College of William & Mary and the author of "The Jeffersons at Shadwell," says Thomas Jefferson was the victim of a lavish lifestyle and a declining business.
The third president of the United States was never one to pinch pennies, Kern says.
"His financial records are this amazing trove of details and a tool for historians that give us a very exact notation of things -- where he was buying, what he was buying -- but one wonders if he ever stopped to total the bottom line," she says.
Jefferson would reportedly spend $800 a day (in today's dollars) on groceries while he was in the White House, according to Ted Connolly, a bankruptcy lawyer for Looney & Grossman, who researched the Founding Fathers for a book he wrote. A large portion of that was on wine.
However, Jefferson was also a proponent of taking responsibility for your debts. As a tobacco farmer, Jefferson was habitually using credit to make purchases, since he would not find out how much money he had made on his exports until months after he shipped the goods. This was a common practice for farmers at the time, but one that caused major problems after the Revolutionary War.
"Following the American Revolution, there was still a lot of debt outstanding to creditors in Great Britain," Kern says. "There were a fair number of Americans who did not want to pay them, and Jefferson was not one of them. He wanted to pay them. He was very personally responsible for what he owed." (Post continues below.)
Of all the Founding Fathers, Benjamin Franklin was the most widely known for his frugality.
Franklin published "Poor Richard's Almanack" for almost two decades and during that time had some choice quotes about money that still apply today. Here are a few:
"If you'd know the value of money, go and borrow some."
"Beware of little expenses: A small leak will sink a great ship."
"Patience in market is worth pounds in a year."
Connolly says Franklin's humble beginnings contributed to his frugality. He was one of 17 children, and he had to start his own businesses and build up his own wealth. Franklin died a wealthy man, and his businesses were successful.
"He would be the Warren Buffett of our time," Connolly says. "He'd be the one making the tough decisions."
The fifth president of the United States was, like Jefferson, not the most financially responsible architect of freedom.
Monroe has sizable debt as he reached the end of his life due to the decline of his plantation. Like many tobacco farmers -- Jefferson included -- Monroe's business suffered from the lower price tobacco brought.
Connolly says that Monroe even experienced a deed in lieu of foreclosure over a $25,000 debt, which in today's terms would be somewhere in the area of $750,000 to $1 million.
Monroe also had to ask the federal government for what Connolly calls "a bailout" of sorts. Having racked up some debts while traveling on behalf of the government, Monroe requested that Congress reimburse him for the expenses to the tune of $30,000. Congress eventually granted him the money.
Image: One Dollar Bill (© Deborah Harrison/Photographer)Washington was known as one of America's wealthiest presidents, and this is due in part to his land ownership.
Connolly says both George and his wife, Martha, had large holdings of land, but the key to his wealth was his good sense for money.
"His salary as president was 2% of the U.S. budget, which was pretty big at the time," he says. For reference, Connolly says 2% of last year's federal budget was $76 billion, though the budget is obviously much larger today.
Washington was also known as a diligent note-taker. Though he didn't take a salary from the Continental Army, he did make sure he was reimbursed for every expense he incurred, including mutton and a "chariot."