This guest post is from Sumitha who blogs at A Fine Parent, a unique personal development blog exclusively for parents.
Can parents really protect their children from making big money mistakes?
There's no straightforward answer to this question. Consider our own story, for instance. Both my husband and I come from financially conservative families where debt is frowned upon. And still, during our first two years in the U.S., we raked up a sizable chunk of debt.
It wasn't that we failed our parents or that our parents had failed us. It just so happened that we were not sufficiently prepared for the plastic economy of the West. Credit cards were not found in either of our families' wallets (or in any middle-class wallet in India during the time we were raised), and so we simply did not associate credit cards with debt.
When you are a cash-strapped student, if a large, credible company offers you a card and says, “Go ahead, use it. You can pay us back later. That's what everyone here does.” Well, you take the card. And then another. And another. And before you know it, you are up to your eyeballs in debt.
It took us two years to realize what a deep hole we were in. After a few expletives that I can't repeat here, we went on a total take-no-prisoners rampage on debt. Within a few years, we paid back all the debt. In a few more years, we saved up enough for the down payment on a modest home. And a few more years down the line we paid back the mortgage and were completely debt-free.
So, I think the answer to the question is of course not. Parents can't always protect their children from making nasty money mistakes. What they can do, however, is provide a good internal compass, so that if the kids do stray off path, they can eventually get themselves quickly back on track.
What kind of money lessons should parents teach their children?
I've been thinking about questions like these, among others, a lot more seriously now as I ponder about ways to raise my own child. Here is the list of money lessons that I've come up with so far.
- It's OK to talk about money. This is the first thing I personally want to teach my daughter. In our family, we never really talked about money — we just learned by observation. Consequently, we had the sense that debt is bad, but not enough sense to associate the credit cards with debt.
- Own your money — don't let it own you. While you need to stay away from debt, it is equally important not to turn into a Scrooge. If you let your money own you either way, your life will be pretty darned miserable.
- Don't take where you get your money from for granted. Watch out for the entitlement trap. Respect your source of income, but do not rely on it entirely. Create multiple sources of income. Save enough for the rainy day.
- Money can buy you a lot of things but not everything. Money can buy you a house, not a home; medicine, but not health; education, but not wisdom; a bed, but not sleep. My evil plan is to repeat these clichés often until my daughter eventually gets it.
- All the money in the world will do you no good in the prison. Not all money is created equal; there's ethical money, dirty/blood money and everything else in between. Hopefully, her moral compass will make it easy to impart this one.
- There's more to money than just spending or saving. Most people think about money in terms of either “spend it” or “save it.” I want to teach her that there's more to money than that. Use it to serve, share and create opportunities for the less fortunate.
- No matter what the circumstances, you can always make some money. Earning money is as much about attitude as aptitude. No matter what, as long as you have the right attitude, believe in the dignity of labor and don't shy away from elbow grease, you can find a way to make some.
- Once you have some money, it's easier to make more. While attitude and hard work are necessary, there are some doors that only money can open. Make some money (and gain some experience) first, and then put that money to good use to get to places which are only money can get you an entry.
- No matter how much money you have, there will always be someone with more. And less. It's relative. Look up to those who have more money as role models and mentors. And help those who have less. If you remember this, you will never be unhappy. If you don't, you can never be happy.
- Having enough money is a choice. As long as you can cover your basic needs and save some for the rainy day, you are doing well. Anything more is a good bonus, but think carefully of the trade-offs you make for this bonus.
- Money can make — and break — relationships. You can love a person all you want, but unless you both are in-sync with your values about money, there'll be trouble. Choose your life partner carefully!
- Money can buy you time. Contrary to popular belief, money can buy you time. If you pay a cleaning service for a couple of hours to clean the house, then you've just bought two hours of time to spend with your family. Outsource the tedious tasks in your business and you've just bought time to invest on innovation or other creative endeavors!
- Understand the power of compounding and inflation. The earlier you can put money to work for you, the more it can make for you. The more the time that passes, the larger the chunk corroded away by inflation. Learn to be a good steward of your money.
- Money is just the means to an end. In the end, it is important to remember that making more money can't be your only goal. There is much more to life than a blind quest for money; there has to be a better ROI for the time you spend.
- Money is an important part of your life. That said, money is important. You can't go chasing your passions without knowing where the money to pay your next bill comes from. Nothing can suck the life out of your passions like constant money worries.
What money lessons did your parents get right? What did they miss? And what will you most certainly teach your kids?