Here are a few of the things I want my kids to know about money. Many of them are concepts from my good friend, Richard Wagner, a CFP from Denver.
1. Money is a social agreement. In its simplest form, money is whatever you and I agree that it is. It can be almost anything portable: coins, sugar, tobacco, sheep, or dolphins’ teeth. In our modern world, money is what our federal government says it is: metal coins and paper bills.
2. Money isn’t good or bad, it just is. I’ve asked my kids to look at a paper bill and tell me what is good or bad about it. Always, anything good or bad about money is a projection on what can be done with the bill, not the bill itself. A paper bill doesn’t have much utility, power, or value in its physical form.
3. Money isn’t found in nature, and money skills don’t come naturally. In order to succeed in today’s world, you need to learn at least two competencies: how to operate a smart phone and basic financial skills. Why? Because money touches everything we do and every aspect of our lives.
4. There are not a lot of rich folks walking around. Only about one out of every 100 people has $2,000,000 or more in net worth. While that sounds like a lot of money, it really isn’t when we consider it will safely provide an annual lifetime income of about $60,000.
5. Most people who accumulate wealth are frugal. They live on less than they earn—often much less. They comparison shop, buy used goods without shame, and take a lot of satisfaction in saving and investing. Most millionaires don’t wear designer clothes, drive luxury cars, or live in mansions. Most millionaires wear jeans, drive used cars, and live in middle-class neighborhoods.
6. It’s not what you earn, it’s what you keep. Budgeting is important, but it doesn’t have to be difficult. Here is the way most wealthy people budget: out of every dollar they earn, they first set aside enough to pay their income taxes, fully fund their retirement and college savings plans, replenish their emergency savings account, and give to charity. Then they blow the rest. This usually means they live on 30 to 50 cents out of every dollar.
7. Talking about money is hard, especially when it’s about my money. Society says it isn’t polite to ask people how much they make or what they are worth. Most kids don’t even know what their parents make or what their net worth is, because very few families talk about these topics. When I first told my kids my monthly income, they were initially aghast. I then started ticking off the monthly expenses, which were equally shocking to them.
8. When it comes to college funding, research says kids who pay their own college expenses do better than kids whose parents pay some or all of the tab. My kids accept the research, though they do wonder if they might be the exceptions to the rule.
While I’m pleased to be able to talk comfortably with my kids about money, I don’t know whether all the talk serves to teach them these important concepts. No matter how much I say, I need to remember one thing: most of what kids learn about money comes from how they see us use it.