As my colleague Bill Mann pointed out, it takes a special kind of stupid to destroy the world's financial system -- it takes Harvard stupid. It takes people who are book- and model-smart when it comes to finances, but who completely lack common sense when it comes to the way the world and money work.

Even so, not even Harvard-stupid people could destroy the world's financial system on their own. For them to succeed, they needed to operate in an environment where nearly everyone else viewed money and finance as being too complicated to entrust to ordinary people. In other words, it took Harvard-stupid oversight, on top of Harvard-stupid activities, to lead us to the mess we find ourselves in today.

You can do better!
In reality, the most important rules of successful financial management are simple enough for anyone with a high school education to grasp:

  • Spend less than you earn.
  • Keep some money socked away for a rainy day.
  • Borrow sparingly, at reasonable terms, and only for things that will retain value once the debt has been repaid.
  • Invest with a long-term time horizon in mind.

Those rules hold true whether you're trying to manage your family's household budget, or whether you're leading a multibillion-dollar investment company. Had either the whiz kids running the trading desks at those investment banks, or their asleep-at-the-switch financiers, followed those rules, this mess would not have gotten out of control.

After all, it took more than a few borrowers defaulting on their subprime mortgages to cause the entire financial system to collapse. It took entire companies that borrowed to bet more than they had, on the presumption that housing prices wouldn't fall before they flipped the loans, to cause that level of catastrophe. The entire industry spent more than it had to buy worthless assets for a quick turnaround, and it didn't have enough socked away to cover the bill when it came due.

The consequences are just beginning
Thanks to the meltdown they've precipitated, we're rapidly heading toward a world where virtually nobody can get a loan for any purpose or any amount of collateral. Even cash flow-positive companies with proven track records and real assets are having difficulty rolling over existing loans, much less getting capital to expand.

If this keeps up, the only companies with a chance of surviving are the ones like these, which have tons of cash, carry no significant debt, and are already seriously profitable:

Company

Cash & Equivalents
(in Millions)

Trailing-12-Month Profits
(in Millions)

Google (NASDAQ:GOOG)

$8,370.5

$5,050.9

SAP (NYSE:SAP)

$2,091.3

$2,519.2

Stryker (NYSE:SYK)

$668.0

$1,146.2

Forest Laboratories (NYSE:FRX)

$1,069.8

$961.5

Texas Instruments (NYSE:TXN)

$1,715.0

$2,568.0

eBay (NASDAQ:EBAY)

$3,342.7

$1,943.2

T Rowe Price (NASDAQ:TROW)

$852.7

$657.2

Source: Capital IQ, a division of Standard and Poor's.

Not long ago, Google and eBay were themselves cash-hungry startup companies. The world is arguably a better place thanks to the services they provide. Yet without a functioning capital market to support and reward such disruptive innovations, where will the next generation of Googles and eBays come from?

To have long-run economic growth and prosperity, we need healthy capital markets. To have healthy capital markets, we need people with financial common sense minding those markets.

Prevent the next generation's tragedy
If common-sense financial education were the general rule, the overcredentialed, book-smart buffoons would never have gotten complete control in the first place. And even if they had, their complex weapons of mass financial destruction would never have passed the sniff test on the scale needed to take down the global economy.

That's why this year's Foolanthropy partner DonorsChoose.org is so important. Through this charity, The Motley Fool community is sponsoring programs aimed directly at teaching critical, basic financial literacy to at-risk school children around the country. Even better, you can pick the specific project you deem worthy of your cash and donate directly to it. That way, you can be sure the money you contribute is being used for exactly the program you want to see funded.

To get started, click here to see the projects currently falling under the Foolanthropy umbrella. Whatever little bit you can give today will go a long way toward preparing the leaders of tomorrow to successfully battle the type of Harvard stupid that can destroy an entire economy. Isn't that worth the few bucks you can donate now?

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. Google is a Motley Fool Rule Breakers selection. eBay is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Stryker. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy graduated with honors from the School of Hard Knocks.