Wednesday, May 16, 2012

Teach Your Children

Start ‘Em Young

There are really only three things that can be done with money, and all three are important. If you teach your children nothing else about money, teach them this:

Money is to spend, save, and give away.

My daughter Noelle is four years old. She understands that money can be exchanged for goods and services that she likes, such as carousel rides and popcorn. Demonstrating her basic understanding, she sometimes calls money “carousel cash.” She has a piggy bank, and she likes to dump out the money and play with it. We discuss what it is worth, stack it up, and put it back when we are done. She knows that we save some of it to spend “later.” She knows that we give some away. At Sunday service, we always let her put the envelope in the basket, and explain that we are giving the church some money so they can take care of the building and help people. She looks forward to this ritual. In these simple ways, she is learning to spend, save, and give away.

Money Found!

A few months ago, the family went out to eat at a local restaurant. While we were there, Noelle looked out the window and down at the ground and spotted a twenty dollar bill. “Daddy - twenty!” she said. Daddy knew it was a windy day, so he ran outside as fast as he could to try to grab that twenty. In spite of the windy day, the money did not blow away, and I was able to retrieve it. I took it back inside and handed it to Noelle. She spotted it, so it was hers. In that moment, she effectively doubled her piggy bank’s net worth.
Noelle at age 2,  spending some Carousel Cash
A few days later I asked Noelle what she would like to do with her found money. She replied that she wanted to, “Put it in the basket” at church. I thought to myself, “My kid is a better person than I am.” I wanted her to keep it. I wouldn’t give away 50% of my net worth. However, I did not try to discourage her. She had made her choice.
Being only four years old, she might not have fully understood all the implications of her decision. Still, it was heartwarming to see her choose to give the money away when she fully understood that she could just as easily have kept it or used it to buy a new toy.
The story of Noelle’s largesse spread through the family, and her generosity was rewarded. Her proud Grandpa Dave sent her a crisp new twenty dollar bill to replace the one she had given away.  That money is safely in the piggy bank.
The problem is that Noelle now thinks that if she spends all of her money, she can find some more on the ground. I explained to her that finding money on the ground is unusual, but she insists that she will look “very closely” using a “loupe.” (A loupe is a kind of magnifying glass used by jewelers, printers, dentists and collectors, among others, in case you didn’t know.) 

As Time Goes On

As time goes on, these basic lessons will lead to larger lessons. By the time Noelle is high school age, I hope I have imparted all the essentials: Work hard. Avoid debt. Save up for a car. Save for college, and then attend one that you can afford without going deeply into debt. Be suspicious of borrowing, and be aware of how much more you will have to work to pay the interest. Give generously – not only to help others, but as a sign that you trust in both God and your own ability to provide for your needs and wants. Finally, always set aside some money just for fun. 

Even Little Kids Should Have Their Own Money

A few weeks ago the family was shopping at Target. As is our habit, we let Noelle choose a toy to ride around in the cart with her while we shop. Usually, at the end of the trip we put the toy back on the shelf and say goodbye. This ritual has been working well for years. Not this time.
Noelle was holding a toy she wanted to keep, a plush, pink dinosaur. Noelle asked for the toy. We said, “No.” She did not handle this disappointment gracefully.  She had a full blown, kicking, screaming, carry-me-out-of-the-store-over-the-shoulder-while-horrified-strangers-look-on tantrum. Noelle is typically very well behaved, and this behavior is not something her mother and I have had to handle very often, and never in public. 
In our family, there is a zero-tolerance policy for tantrums. We do not reward tantrums – never. Ever. Period. Kids learn fast, and rewarding just one tantrum invites years of the same. Often, when Noelle begins to throw a tantrum we say to her, “Has this ever worked before?” This is usually enough to short-circuit the impending drama. But this time, for the first time, we wanted to give in. It is hard to explain, but this time something was different. Noelle’s cry was not a whiny, spoiled, bratty kid cry, it was a kind of mourning. She was truly sad, heart aching. Somehow, she had bonded with this toy. Lest you think I am exaggerating, she had already named it “Comfort.” She was afraid that if she put it back on the shelf, someone else would “steal it.” In her heart, it was fate, hers, meant to be. To her, someone else buying it was unthinkable.
* Sigh * 

What’s a parent to do? Our zero-tolerance policy would not allow us to buy this toy. But leaving the store without it seemed, under the circumstances, needlessly harsh. Then we remembered; she has her own money.
I said, “Noelle, Mommy and Daddy can’t buy this toy for you because of the scene you made in the store. We just can’t – but you can buy it. Would you like to use some of your own money to buy it?” 

“Yes,” sniffled Noelle. 

I continued, “If you spend your money now, you will have less for other things later. Is that OK with you?” 

“Yes,” answered Noelle. “Let’s go home and get my piggy bank.”
* Phew *
To be clear, I am not above buying a toy or treat for my children when we go to the store. I do this quite often. That said, I don’t want to set an expectation that every time we go anywhere a new toy will come home with us. So from now on, if Noelle truly wants something that I don't want to buy, she can buy it herself. This will provide teachable moments. If she can’t afford something, she will have to save up for it. When that happens, we will talk about ways that she can earn some money by helping at home. Rather than calling it an allowance, we will call it her salary. As she gets older, we will introduce a bonus and commission plan to incentivize her. Hey - just like real life! 
Teach your kids how to handle money, and start them young. Teach them the relationship between working and earning. Teach them to spend, save, and give away. Good money habits are one of the best gifts we can give our children. If they learn well, they will reap the rewards all the days of their lives. 

Thursday, May 3, 2012

The Secret Knowledge That Will Change Your Life Forever

I have unbelievable news! What if I told you that I know a proven way to build wealth, a way to get out of debt and stay out of debt forever?  Many people have paid fortunes to learn about this amazing plan. Like a magician who divulges his methods, I‘ll probably get in trouble with all the financial gurus out there if I share this incredible secret with you. But just for today, and only for the faithful readers of the moneytrip blog, I will share this fantastic secret of wealth and prosperity!
Are you ready for the secret knowledge that will change your life forever? Are you ready to set sail on a course for the debt-free life of wealth-building that you have always dreamed of? Okay, get ready and grab a pen because here it is –
Stop Borrowing Money
Yup. That’s it. 
See, this stuff is easier than it looks. 
There is no “forever” mortgage. There are no 100 year car payment options. The furniture store will not give you 3 generations to pay for that dresser, even if it is heirloom quality. All consumer debts have a finite period of repayment time built into their formula. If you stop borrowing money, you will eventually become debt free. How quickly depends on many factors, but you will get there. 
When my wife and I decided to become debt free, we were highly motivated. To me, slow progress can be painful progress. However, even slow progress is progress, and slow progress is better than no progress. If you just stop borrowing, stop swiping the Visa, stop “signing and driving” at the auto dealer, you will eventually owe no one. Imagine no payments. Imagine keeping what you earn. Wouldn’t that be something?
There is some debate about the best way to pay off debts. Some financial gurus advocate for a debt snowball approach, where you pay debts from largest to smallest. Some recommend instead paying debts from smallest to largest.  Some advise attacking debts by first going after the balances with the highest interest rates. Whatever. Just do it! My wife and I demolished our debts from smallest to largest, because this method allowed us to get some quick wins. It doesn’t really matter. All methods work – if you first stop borrowing. 
Once your debts are paid you will stop paying interest. This will save you money. Once you start saving and investing the money you were paying in payments and interest, that money will start growing. Rather than working for money, your money will be working for you. How cool would that be? 
Well, now you know the amazing secret, the proven path to a fabulous debt free life! 
(You’re welcome!) 

The reduction of debt correlates strongly with the creation of wealth, and it all begins when you stop borrowing. What you do with this powerful knowledge is up to you.