What to Tell our kids about money

One of the greatest joys in life these days is the opportunity to enjoy a lively meal with one or more of my five millennial kids.  Three of them are married and the family has grown with three grandchildren so far. It’s great when they all gather and the conversation exudes the energy and visions of motivated youth.

Frequently the conversation turns to money in one way or another.  Where’s the best place to put money?  Should we refinance our house at these rates? Is it better to put money in a Roth IRA or a Health Savings Account?  In those teachable moments, what are the most valuable lessons we can pass on?

Here’s my top 11 list of concepts I hope my children learn about money:

1. Money and marriage. Country music lyrics have a lot to say about the regrets of getting into a bad relationship.  Dierks Bentley has a great line of remorse, “I know what I was feeling, but what was I thinkin?”  Or another favorite of mine is Eric Church’s line, “She was heaven on the eyes, but boy she’s hell on the heart.” These singers can probably relate to the writer of Proverbs who asked, “A wife of noble character, who can find her?”

In the extreme, the money math of a bad choice for a spouse is very simple. Take what you’ve been able to save.  Now multiply it by 50% to find the cost of making a poor choice in who you marry.  We’d be devastated if we had an investment that lost 50% of it’s value, but that’s what a divorce does. On the other hand, there is no limit to the upside of a good marriage with partners that work hard, practice frugal living and invest wisely. This is the marriage talk about money we all need to have with our kids.

2. Give your kids the book, “The Richest Man in Babylon.” This book is almost 100 years old and still in print. It is not about complex finance theories or tax laws.  It’s an enjoyable read that uses parables about a poor kid named Arkad who lived in Babylon and learned of the seven cures for a lean purse. I have friends who say it’s the only personal finance book they’ve ever read, but it’s full of great wisdom our children will grasp. My favorite is the lesson Arkad learns about saving one coin out of every ten that he makes.

Here’s a quote from the first lesson: “For every ten coins thou placest within thy purse take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul”.

3. Teach your children to always ask salespeople, “How much commission will you get if I buy this?” Everyday there are new life insurance agents and financial advisors born. And some of them know our kids and are convinced that their whole life product, or their expensive investment products are just what they need. It’s important to encourage our family members to always ask what the incentive is their friend has in selling them this particular product and what cheaper alternatives there might be.

4.Happiness and money are related, but it’s more complicated than we expect. The happiness that comes from the purchase of a new possession is momentary. Happiness from a raise is also fleeting, but indulging in envy over someone else’s success brings misery. Earning enough money to bring us out of poverty will bring great happiness, but happiness tends to peak beyond a certain level of income. Developing a consciousness about money decisions is a lifetime discipline that will guard us from non-satisfying decisions and add a bit of joy to life when thoughtfully done.

5. Recognizing that we are stewards and not owners of our wealth is the key to avoiding the spiritually disabling problems of greed and avarice. Mindless accumulation of more and more wealth has crushed the souls of many misers. However, the generosity of those who control wealth, but who don’t grasp it tightly as their own, can be inspiring. Giving generously to the less fortunate because of a deeply held belief that we are merely being good stewards of what we have been given is deeply satisfying and a way to change the world for the better.

6. Investing in yourself is where you will likely earn the greatest return on investment. To become the best that we can be in performing our calling in life will far outweigh any stock market investment in financial returns.

7.Consumer debt is what keeps the poor from becoming wealthy. What Madison Avenue and advertising really produce are discontent. Consumer debt is the first cousin of Madison avenue discontent with its deceptive offer to finance immediate gratification and happiness.

8. Charitable giving of 10% of what we bring home should become a habit before we begin making the big bucks. One aspect of my heritage I value is how my dad helped me count out 10% of what I earned each week on my paper route and lawn mowing business to give to the church each week. Learning that discipline early made it a nonevent to significantly increase my giving when I started making more.

9.Stocks are going to probably be the best investment over the long run (other than the investments in our calling). Stock investing should be seen as owning a business, not symbols on a computer screen. As an owner of Berkshire Hathaway for example, I like to remind my wife that they own Dairy Queen. Then when we walk into a Dairy Queen to buy a sundae, I reflect on how great it is to own a piece of this little store.

However, we should teach our children that stocks are only for long term investing. Money they might need in the next five years does not belong in the stock market. We should prepare them that the value of our stock investment can go down 50% at any time before it rebounds. We should teach that if we are in the market for the long run, a decline in stocks is not a disaster, but it is an opportunity to buy good businesses on sale. Learning that living with the volatility is the cost of getting the above average gains over the long term is a valuable lesson.

10.Don’t necessarily follow your passion early in life. Everything is exciting in your 20’s and 30’s. Maximize your income in that season of life and enjoy what you are called to do. Life in your 40’s and beyond are a time when you may lose the excitement of your early career. If you build wealth early, you have more freedom to follow a new passion later in life instead of staying chained to a job you have grown to hate.

11. Remember life is full of risk. Manage those risks. When you are young, you think you are indestructible. Things can and do go wrong. Have a six-month emergency fund in liquid assets, get a long-term disability policy and enough life insurance to pay off your debts and give your spouse several years of living expenses without your salary.

And let me add one final suggestion: Don’t forget to call and visit your mom and dad every chance you get!

I’d love to know what you think of this list and what you would add or change!

Joe Kesler

Founder,  Smart Money with Purpose