I do not currently have children, but I have not ruled out starting a family some day. If and when I do have children, I hope I will be able to help them become smart and capable adults over time. I believe this is what my parents have done for me, and I’d like to believe I’m in a position to pass on good attitudes about money.
Here are a few concepts I’d like to teach these future children about money as they become old enough to understand them.
I intend to teach as much by example as by conversation with the understanding that no person is perfect.
1. Money is neither good nor evil. Money is simply a tool, with no quality that defines it as good or evil. It can, however, be used to do good things or evil things. Money does help reveal the nature of a person. There is nothing inherently bad about not having little wealth or having great wealth. The value of a person is not defined by how much money he or she has, so you cannot judge a person by looking at the bank account statements.
2. Money is not a goal. There is no point in wanting to have one million dollars, or any sum of wealth that might make a good milestone, if it servers no purpose other than to sit in a bank account or at the bottom of a balance sheet. Focus on real goals, not net worth. Don’t be the boy who, when asked what he wants to be when he grows up, answers, “Rich.” It’s not the number that counts, it’s what you do with it.
3. Money will not make you happy. Money is not correlated to happiness. Rich people aren’t necessarily happier than poor people. In fact, wealthy people are more stressed. The happiest people are those who are satisfied with what they have; if you always want more, you will always be struggling. Now, there will be people who will tell you that you must constantly strive for more in order to be successful, but these are people who equate success with things like job title, wealth, and seeing their name on seminar advertisement posters. They’re probably not happy. It’s okay not to settle, but only if your goals are worthwhile.
4. Don’t be jealous of other people’s money. There will always be people who have more money than you, but there will always be many more people who have less. If you learn to handle your money properly, you will find that you’re more financially secure than others who try hard to flaunt their wealth; those with fancy cars and houses may owe money to other people and to banks. Jealousy is a distracting emotion, so it’s better for your own sanity to worry about yourself than it is to look at other people, especially when you can only see what they are showing on the surface.
5. If you are in a position to help, you have an obligation to help. As I mentioned above, at any one time it is more likely you’ll be in a better financial position than most of the other people who live on this planet. You are lucky to be born in a rich country in a very prosperous time. Though it is no fault of your own, these circumstances present the responsibility of helping to make this world a better place in whatever way you see fit.
6. Companies want your money. Corporations spend lots of their own money trying to develop ways to get you to give your money to them. Don’t believe what you see in commercials, on television shows, in movies, on the internet, or even on the news. Everyone has an angle and that angle is often to try to get you to part with your money. It’s a cynical view of media and of the world, but turn off the commercials and think for yourself. Increase the signal-to-noise ratio.
7. Pay attention to your money. Once you start receiving an allowance, create a budget. Save part of the money and spend the rest as you see fit, but write out a budget and track everything you buy. This is a good habit to start early. If you’re paying attention, you’ll soon realize that the only situation that results in building your wealth is spending less than you have.
8. Don’t expect a free lunch. I will do everything in my power to ensure that lots of opportunities are available to you, but our culture within the “middle class” is defined by trading your time and effort for money. In other words, you get paid for working and you get paid better for working harder. You’re not a Bush, so you won’t get to be President of the United States because it runs in our family. There is no trust fund.
9. Save as much as you can for later. Even though Albert Einstein never really said that compound interest is the strongest force in the universe, he probably would suggest saving as much money as possible. It is true that the sooner you can control your actions to delay gratification, the better you can plan for the future. But it is also true that spending money shouldn’t always illicit a feeling of gratification. Feel good about saving, then you can feel gratified when you put money in the bank, not when you take it out.
10. Avoid borrowing money. Just like money is inherently neither good nor evil, owing money to other people is inherently neither good nor evil. Borrowing money has its drawbacks. Any purchase you finance with interest will end up costing more than it should. However, within the “middle class,” it will be difficult to avoid some borrowing. Not all debt has to be bad. You may need a loan for college and you almost definitely will need a mortgage to buy a house. Make smart choices about these purchases and you’ll be in a good position even if you do have debt.
11 (bonus). It’s not about the money. While money gives you flexibility and eventually independence, don’t spend too much of your time focusing on it. Realize that money should not be the sole driver for your decisions. Many smart people will tell you about “return on investment” (ROI), but sometimes you can’t measure the validity of a decision by how much money you receive. Think about all factors when making decisions. Some decisions, like those pertaining to investments, should be based on financial considerations as much as possible. But for other decisions pertaining to your life, money should be only one consideration of many.
Do you disagree with any of the above lessons? What do or will you teach your children about money? Is there anything else you wish your parents had taught you?
Updated February 27, 2010 and originally published September 28, 2009.