Photo by Spirit-Fire via flickr
In honor of Financial Literacy Month, The Dime bloggers took a walk down memory lane to reflect on the financial lessons they took away from their parents. Here are a few of the lessons that stuck with them (and maybe helped them write a blog or two).
My father turned 21 in October 1929, which was the start of the Great Depression, the most severe economic downturn in modern American history. Although the financial markets had some ups and downs in the following years, most experts peg the end of the depression with America’s entry into World War II in 1941, when my father was age 33.
I had never calculated the exact details of that timing until I started working on this post, and it explained a lot. You see, the second most important financial lesson I learned from my father was the downside of being too risk-averse. Given the foreclosures, bank failures, and economic chaos he witnessed as he reached adulthood, my father never wanted to borrow money because he didn’t want to be encumbered or beholden to anyone. It was a risky proposition.
But that meant that we never owned a home. He farmed the same small acreage of land for over 30 years, but he never purchased that land. The only loans he incurred throughout his life were through agricultural organizations that would advance the cash needed to plant a crop; the loans were repaid when the crop was harvested. In retrospect, it seems that throughout his life my father’s financial decisions were emotionally driven, and the predominant emotion was fear. If he thought about the opportunities he gave up by being so conservative, he accepted those trade-offs. I’ve tried to learn from his experience and take a more balanced approach, without giving in to overly-optimistic euphoria.
But if this lesson about risk and opportunity is second on my list of family money lessons, what’s at the top? Despite having far less material wealth than the overwhelming majority of his acquaintances and extended family members, no one had more friends than my father. He was liked and respected by a wide range of people, everyone from the big-money farmers who owned thousands of acres to the hired laborers who helped those farmers work all that land. He had a long happy marriage, and his kids, who were crazy about him, turned out OK. So the most important lesson my father taught me is that you don’t need monetary wealth to have a rich life.
According to my parents, the general rule with money is to only buy what you need and to save as much as possible. My parents were not much into materialistic “things.” They owned a small business and were always cognizant of the fact that they worked hard to make their money and they were not willing to spend it frivolously. Using them as a model, I have very much adopted their approach to saving and spending.
I also remember that, although my parents were certainly frugal and saved money religiously, they were willing to spend good money if it meant spending time with family. Whether it be a nice dinner out or a nice trip, if it meant spending time with the family my parents were willing to fork over the cash. I find myself trying to emulate that approach. I certainly try to save as much money as possible, but I also love to spend what I consider good money on fostering relationships with my friends and family.
I am fortunate to have parents who have a solid grasp on their finances. While my parents never sat down with me to explain the dos and don’ts of money, their values were apparent in every day decisions and had an impact on my development. First and foremost, I learned that if it’s not on sale, then you don’t buy it. My parents always tried to find the best value in everything they purchased. To this day, I have a really hard time rationalizing buying something at full-price.
The other thing I was taught was to save, save, and save some more. My mom set up a savings account for me when I was in elementary school and it quickly became a game of “see how much I can save.” I was determined to build up a large balance and never spend any of it. I would dip into it here and there for things like Christmas gifts or to eventually pay for car insurance, but this would motivate me to replace the withdrawn funds as quickly as I could.
Finally, I learned that the fastest way to build up my savings was to get a job. So, as soon as I turned 15, I began part-time work and have been working ever since. I never expect hand-outs and know that if I need money, I must earn it.
Like most kids who grew up in the 1960s, both of my parents worked. My mom was an elementary school teacher and my dad worked for the federal government. We had a family budget and sometimes it was really tight.
Looking back, my sister and I were afforded opportunities to participate in extracurricular activities, so those expenses (like music lessons and school-sponsored ski trips) were included in the family budget. We didn’t live in a huge house and I didn’t have a car until I was well into college. We camped a lot and took “stay-cations” rather than going to places like Disneyland or the Grand Canyon.
When we did travel out of state, we visited relatives. My sister and I had summer jobs when we turned 16 and we worked to pay our way through college. We had dinner at a restaurant once a week and very rarely were we allowed to have fast food, candy, or pop.
Sounds pretty frugal, doesn’t it? Well, here’s what I learned:
- Create a monthly budget and stick to it.
- Pay your bills on time so that you’ll have good credit.
- Stay away from credit unless it’s for a major purchase like a car or house (something that will last longer than you are making payments).
- Avoid college loan debt if you can.
- Buying something used can be better than buying new, but paradoxically, sometimes you get what you pay for.
- Have some savings just in case the unexpected happens.
- Kids are expensive, so plan on sacrificing.
- Having a defined benefit retirement plan like both my parents have will reduce your dependency on your children when you grow old (and your children will thank you for that).
- It’s OK to reward yourself once in a while and buy something you really want, but “things” usually have to be dusted.
My parents modeled two very, very important financial lessons for me as a child. They were savers and investors. They were regular savers and often talked at the dinner table about the need to do. Saving was not done simply for saving, however. Saving was the tool for funding “Christmas” and family vacations.
I can recall, as a second grader, that I had a savings account into which I was expected to sock away some of my hard earned allowance every single week. More importantly, my parents taught me that savings were the ticket to investing in the stock market. I watched them live well in retirement as a result. What a great “dollar cost averaging” lesson to see my Dad regularly make stock purchases. The lesson didn’t stop being taught with me, I have tried to pass the same values along to my children. It feels like paying it forward!
What financial lessons did you learn from your parents? Share them in the comments section!
The post Financial Literacy Month: What Our Parents Taught Us About Finances appeared first on The Dime | Cents & Sensibility.