By Robert L. Moshman, Esq.
In difficult financial times like these some pithy words of wisdom make more sense than ever.
The Great Bard on Money
"Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry."
So said Polonius in Hamlet by William Shakespeare. In Shakespeare's time, borrowing by the upper class had reached epidemic proportions. He may have experienced debt first hand, by some accounts.
If you owe money you pay a tremendous amount of interest in addition to the principal. The more you owe, the harder it is to catch up or get ahead. That's the rationale behind the Truth In Lending Statement that borrowers must be shown--to make them aware of the huge expense of interest over the course of the loan.
Being a debtor in a bad economy can be dangerous. A borrower who becomes unemployed may default on a loan. A borrower with an adjustable-rate mortgage may face higher rates later as a result of too much deficit spending now.
Being a lender is no picnic either. Shakespeare probably never foresaw structural macroeconomic debt overhang but in hard times, lenders end up with worthless IOUs.
Poor Richard's Wisdom
"Creditors have better memories than debtors."
Benjamin Franklin wrote this in 1758. He had that exactly right as well. He also said, "If you would know the value of money, go try to borrow some; for he that goes a-borrowing goes a-sorrowing."
Okay, this one didn't quite catch on like Shakespeare's line and is a bit corny by Franklin's own standards, but the message is similar. Debt has many significant downsides.
In addition to writing Poor Richard's Almanac, another famous quote came from one of Franklin's personal letters:
"But in this world nothing can be said to be certain, except death and taxes."
Judging from the 220 years since that statement, the facts appear to bear Franklin out; both institutions appear to be going strong.
Franklin's Will
In addition to his legacy of wise aphorisms, Benjamin Franklin set an example reflecting on the time value of money and the use of trusts. In his Will, Franklin left a small amount of money to be held in trust for 200 years to help the citizens of Boston and Philadelphia.
He asked that the funds be loaned out at interest to certain qualified young artisans and apprentices and calculated how the funds would grow to provide these cities with 100,000 pounds silver after 100 years with the rest growing to 4,060,000 pounds sterling. He left instructions for the use of the funds after 100- and 200-year intervals.
Franklin died in 1790 when 1,000 pounds sterling was worth about $4,400. That amount grew and sizable distributions took place in 1890. As of 1990, the remaining funds in Philadelphia had grown to $2 million, while Boston's bequest had grown to $5 million and was used to found the Franklin Institute of Boston.
The difference in growth has been attributed to the level of risk incurred. Philadelphia honored Franklin's intent of providing loans to individuals. But both bequests prove is how dramatic growth can be if assets are protected in a trust and permitted to grow over time.
In difficult financial times like these some pithy words of wisdom make more sense than ever.
The Great Bard on Money
"Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry."
So said Polonius in Hamlet by William Shakespeare. In Shakespeare's time, borrowing by the upper class had reached epidemic proportions. He may have experienced debt first hand, by some accounts.
If you owe money you pay a tremendous amount of interest in addition to the principal. The more you owe, the harder it is to catch up or get ahead. That's the rationale behind the Truth In Lending Statement that borrowers must be shown--to make them aware of the huge expense of interest over the course of the loan.
Being a debtor in a bad economy can be dangerous. A borrower who becomes unemployed may default on a loan. A borrower with an adjustable-rate mortgage may face higher rates later as a result of too much deficit spending now.
Being a lender is no picnic either. Shakespeare probably never foresaw structural macroeconomic debt overhang but in hard times, lenders end up with worthless IOUs.
Poor Richard's Wisdom
"Creditors have better memories than debtors."
Benjamin Franklin wrote this in 1758. He had that exactly right as well. He also said, "If you would know the value of money, go try to borrow some; for he that goes a-borrowing goes a-sorrowing."
Okay, this one didn't quite catch on like Shakespeare's line and is a bit corny by Franklin's own standards, but the message is similar. Debt has many significant downsides.
In addition to writing Poor Richard's Almanac, another famous quote came from one of Franklin's personal letters:
"But in this world nothing can be said to be certain, except death and taxes."
Judging from the 220 years since that statement, the facts appear to bear Franklin out; both institutions appear to be going strong.
Franklin's Will
In addition to his legacy of wise aphorisms, Benjamin Franklin set an example reflecting on the time value of money and the use of trusts. In his Will, Franklin left a small amount of money to be held in trust for 200 years to help the citizens of Boston and Philadelphia. He asked that the funds be loaned out at interest to certain qualified young artisans and apprentices and calculated how the funds would grow to provide these cities with 100,000 pounds silver after 100 years with the rest growing to 4,060,000 pounds sterling. He left instructions for the use of the funds after 100- and 200-year intervals.
Franklin died in 1790 when 1,000 pounds sterling was worth about $4,400. That amount grew and sizable distributions took place in 1890. As of 1990, the remaining funds in Philadelphia had grown to $2 million, while Boston's bequest had grown to $5 million and was used to found the Franklin Institute of Boston.
The difference in growth has been attributed to the level of risk incurred. Philadelphia honored Franklin's intent of providing loans to individuals. But both bequests prove is how dramatic growth can be if assets are protected in a trust and permitted to grow over time.
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