Teach Your Children Well

A recent study by Harris Poll/TD Ameritrade showed that the most significant influence on the way millennials handle their finances is “the way [their] parents handled their money,” followed up closely by the “financial state of [their] household when they grew up.” This is a conclusion that promotes teaching financial literacy to children.

The tacit implication in the article is that there’s a positive correlation between our childhood exposure and how we act as adults. The way growing children view finances becomes their “normal,” and that “normal” is what they will tend to revert to as adults. In other words:

• Frugal parents tend to lead to frugal children
• Households that save lead to children who save
• Households in debt lead to children who take on debt
• Households that scramble to pay the bills lead to children who will scramble just the same
• Etc, etc.  

While I’m sure plenty of people experience a negative correlation (“My parents were terrible with money; I’m going to learn my lesson and be good with my money.”), this poll suggests that’s an uncommon result.

So, what does that mean for us moving forward? I see two big takeaways–queue the Crosby, Stills, Nash & Young music:

1. Learn from others. It’s how we’re wired.
2. Set a good example for others. They will benefit!

We humans are curious learners. We seek patterns, we seek reason, and we model our own actions on what we see around us. With that in mind, think about the people in your life. Think about some of the financial decisions you see them make. If you’re comfortable enough, ask them some questions. When did they start thinking about retirement? How do they handle finances in their marriage? What purchases have they loved…or regretted? The more you learn about other people, the more information you have to make your own decisions. Some of the biggest decisions I’ve made in the past few years have been the direct result of knowledge I’ve learned from others. For example:

• How’d I feel comfortable buying my house rather than continuing renting?
• Why do I have multiple “retirement accounts:” a 401(k), and a Roth IRA, and an HSA? And how do I divide up the money that goes into those accounts?
• Why did I open an savings account with Ally Bank last month?

All of these decisions were based on ideas that I learned from others. For example, the “Bogleheads Guide to Investing” taught me multiple investing ideals that I immediately put into practice. After realizing that I was only get a 0.2% interest rate at my long-time bank, I asked a family member where he kept his savings. The next week, I opened my own Ally Bank account (at 2.2% interest rate!). I can comfortably admit that everything I know, I learned from others.   

So it seems to me that we can also be examples for others. Perhaps that “other” is your children, present or future. Or perhaps it’s a friend, a sibling, a partner. Good habits rub off on other people. My girlfriend, for example, has started to get me into the habit of—drum roll—making my bed. I know, I know. Honestly, I’ve never quite understood why it’s so necessary—what’s the big deal? But I have to agree with her; a made bed looks better, and it’s nice to climb into at night. In much the same light, we all have the potential to spread good financial habits to those close to us.

But unlike the made bed, financial habits significantly impact our lives (sorry!). Setting a good example for another can create a huge net positive in that person’s life. Across enough people, it can create a huge net positive for society. Personal finance celebrities—think Dave Ramsey, Clark Howard, etc—have influenced thousands of people. Assuming that the vast majority of their advice is good, then they’ve positively impacted thousands and thousands of lives. We won’t all achieve the level of reach that they have, but we can reach our own circle of family, friends, etc. It’s a worthwhile pursuit. It’s certainly an impetus of this blog.