I shudder to think how l long it’s been since my last post. I’ve been a bad blogger. Yet, still far more consistent than my previous attempts at the art. In my defense I’d like to say, I did write a blog, but its going to be a future guest post on The Prosers (whom you can find under the blogs I follow since I’m too lazy to look up the address).
For now, I offer you something more about life and less about writing.
I’ve been learning and relearning a lot while running a business. Mostly, “if only I knew then . . . ” So I thought, maybe I should share some of those for parents whose kids might be getting to the age where they could stand to learn economics (if they have chores, they’re old enough to learn).
1. I wish I’d developed a Vision to know where I wanted to be economically by the time I moved out on my own, about a 15 year outlook. What would have helped? Inject danger into your child’s ‘ok life.’ ”What if you no longer could live here? What if your friends did outlandish things like get married and move all around the country?” By putting the status quo in jeopardy mentally, you uncover what it is you actually want. Now you can start thinking about how to get there.
2. I wish I’d learned to judge my purchasing decisions based on the Real Value to me. A child, and even most adults, do not understand what money is. Money is a form of credit for the value of your time and energy. Dad/Mom get paid $$$ because someone else buys eight hours of their day for them to do the boss’s will. When a person makes a bad financial decision, it is not paper that is consumed, it is those hours already worked. What would have helped? Put the purchase in terms of what it cost to gain that “credit”. Assuming that you’ve explained there is no allowance (welfare), there are wages (reward for labor), ask the child “Is this candy bar worth a day of chores?” Or “Is this toy truck worth a weeks chores?” Also, when they’ve made their decision, help them to see how long the value lasts to them. Do they enjoy that item for a month? A week? A day? “You spent a days wages for a candy bar, and you enjoyed it for ten minutes. Was that worth it to you?” Better yet, ask them while they’re doing the chores.
3. I wish I’d learned to think of wealth building as a skill. You do not reach your goal by chance, not even by providence alone (though certainly not without it). You do not reach that goal by those things anymore than chance and an open field make you a successful farmer. Like anything, you must engage it. You must labor over it. You must wisely consider it. Most people don’t like accounting, I don’t, but the accounting is the practice of knowing how much you have, where it is, and where it is going. I could teach a simple course on this, but basically you record your transactions. This enables you to see “Wow, I’m spending a third of my days earning groceries? Why is that?” eventually that will lead you to “Hey, I get a lot more food if I don’t buy boxed stuff with cartoon characters on the marketing.”
Accounting is a tool, that lets you look at your finances like a game, with that top down perspective looking for patterns. Then you look at the gameboard and ask “What can I do better?” For example, I used to buy tomatoes at Sam’s club. It was a decent price that could sustain the biz, but I kept buying there for two years before, I noticed that another store had them by the box. By then I bought three or more cartons per trip, which happened to equal about the cost of one of these boxes, but the box held about 11 times as much. Or, I realized I’ve been recycling my cans for two years, but wait! What’s their value in scrap? About two tanks of gas every three months!
4. I wish I’d learned a percentages way of saving to reach my goal. That’s just my own name for it. I always knew saving was good, but that was too vague for me. Things that are vague are not good motivators. That’s why I get riled when people talk about a ethereal non-physical hazy ‘heaven’, if you can’t sink your teeth in it (and you are meant to) then you will not have any lasting drive to obtain it. So, here’s how I suggest learning to save:
1. Understand how interest works, a handy equation like Future Value = Principle Value times one plus rate of return to the power of periods (years, months, days, etc . . . ), might come in handy. This equation by definition shows that a $1 saved today is worth more than a dollar in the future. What you do with your money today, is always more important than what you will do tomorrow.
2. Figure out what you would expect to spend on an ongoing basis, in the future, for your largest liability purchases. I’m using a loose definition, but liability is what you bought on credit. That would be like your house, your car, etc. . . I would throw into that all kinds of insurance as well. I can explain it more fully, but the essence is that the services for which we ‘need’ insurance cost less than the premiums, I believe the insurance industry exists basically due to the brake down of community in the same way that social security and the lack of respect/compassion for the elderly are interrelated. No disrespect meant to those who work in that industry, it fills a void in the market, its just not the best solution.
Take those payments for as many of those items as you’d like, then figure out what percentage of a future reasonable salary will be. It doesn’t matter too much about the disparity, because if you think you’re going to make 1 mil a year, you probably don’t think you’re going to live in a bare bones hole in the wall either. Just figure out the percentage of what you will plan to pay as itemized percentages of what you will make.
Remember we’re talking to a child right now, so you’ll have to do the heavy lifting.
Add in percentages for normal expenses like food, utilities, etc. Everything but luxury items. When I did this I ended up with about 50-75% expenditure. Now, teach to your child that this is the amount of every payday they should be saving.
Why so high? This should go without further explaining, but some day your child will be paying for these things, so:
1. You’re training them to live on less than they make, so when they need to it won’t hurt. And several other skills.
2. Imagine wages (misnamed allowances), early jobs, monetary gifts, etc . . . all sitting in an appropriate investment vehicle (a savings account of course, a physical liquid cache, and as they mature something like a short term bond) for fifteen years!
3. By the time they need it, they will have lots of options. Say they’ve saved 25k (no reason that should be unthinkable). That’s enough for a starter house. An investment house. More than enough for a car. Or depending on which state you live in, that could be enough to qualify for financial responsibility for minimum coverage so instead of paying auto insurance, the person could lock that chunk away in a bank, then pay himself premium payments. If he did that for 5 years (when his driver’s insurance would become ‘reasonable’ if he wanted to go that route), assuming about $600 a year for his self-premiums, his 25k could have become (through short term bonds on the premiums and an insiginificant savings return on the principle) $28,684. And that assumed that he never got a raise and that he wasn’t still allotting for other insurances.
The bottom line is that it is all about vision. That’s the main thing that I plan to teach my kids.