Why So Many Adults Are Lost With Money

How is it that we work to ”make that paper”, but never make sure that it works for us?

Fuck. If you work full time that is 40 hours a week. Over a year, that is a shit ton of time. We do it to make money. To be able to live. But we lack a very important skill, the skill to take care of that money we work so hard for.

Lots of adults lack an emergency fund. They don’t invest money besides what they employer might invest for them. They borrow money as if it’s free. They are unbothered and uninterested.

My question is why?

Because the thing is, while wealth isn’t everything in life, having a bit of it gives you options. You have a sense of freedom you otherwise would not have. Grasping personal finance is empowering. It helps you build freedom capital.

If it’s that important, how the hell do we fix it? The answer starts earlier than most people think.

Financial Knowledge Is Freedom Capital

I believe my own journey is common. I come from a home where this topic wasn’t talked about. My parents are part of the uninterested crowd. They save money in a bank account. Do not invest anything. They have zero debt and have never had a credit card.

When I was 17, I started to think about personal finance. I wanted to know how to take care of myself from that kind of perspective. I viewed knowledge in personal finance as building freedom capital. When you live paycheck to paycheck, you’re not free. If you never build a cushion in your finances with an emergency fund, you’re not free. If your money goes to everything but investing for your future-self, you’re not free. Freedom capital is about building a little bit of wealth that gives you options in life.

Understanding personal finance helps you do that because it’s harder to make bad decisions when you know the consequences. I’m turning 35 this year. And while I don’t know it all, my knowledge has grown a lot through the years. It did change my life. I want to pass on that knowledge to my kids so they can benefit too.

Build it before you teach it

I have two kids of my own. A 4 year old and a newborn. I have a niece that is 9. I want to teach all of them this topic. Everything that I learned through the years to help them feel empowered.

If you have young kids, don’t let that be an excuse to not take action. Start investing when they are young. As they grow older, start talking about the topic. While it will be a while until I can teach my newborn, money is invested for him each month. He, together with his sister, are the sole beneficiaries. We invest because we want to give them a great start in their financial life. But we also do it just as much, if not more, because their own portfolio will create teaching moments.

It’s easy to believe you cannot do anything when you have a newborn. But let me be clear, that is a lie you’re telling yourself. It’s pure procrastination on something very important. You can set up a portfolio today. You can learn more today. Use the time before you can start their education to build the foundation.

Spread the knowledge, empower your kids

How do we actually talk about money with kids? Will they understand? Heck yeah, we can and should. They will understand a lot more than you think.

You need to know your crowd. A 6 year old doesn’t need to know or understand interest. But they should and can grasp the concept of saving money. At the same time, teaching a 17 year old about interest is a good move.

One thing that we need to remember is that we are parents, not teachers. We don’t give lectures, we pass on knowledge. Use your time, with your kid, in the real world, to teach them. When you’re buying food, fixing a broken phone, planning a vacation or something else that is tied to the real world.

Kids watch us. They act as we do. Want them to show respect to others? Show them. Do you want them to use words instead of their fists? Show them. Do you want them to have their personal finance in check? Show them.

Our kids deserve to have good examples to take after. Be that for them. You can’t expect them to listen to what you say if your actions tell them something else.

Be Honest With Your Kids About Money

As our kids grow up, be honest about the financial situation. Not to burden, but to make them understand. It prepares them for the real world. Everything isn’t always easy. If you’re in a tough place, say so. Kids pick up these things. It can help them understand. And it can help avoid resentment building up towards you on their part.

When I was growing up, my friends took trips to far away lands. My parents explained to me that, while they would love for us to do the same, it simply wasn’t in the cards. Looking back, that was a wise move. Kids can get all sorts of things stuck in their head. A friend gets a flashy present, but they don’t. It must be because the friend’s parents love them more. An insane thought, but I can absolutely see that happening. Being honest is a source of strength. It can bring you together as a family. Parents can’t shield their kids from everything - nor should they. Hard times happen. It’s a part of life. There’s no sense in hiding it.

Plant the seed

With my four year old, I have started to introduce the concept of money.

She knows we set aside a small amount for her each month. This is for her. She controls how it’s spent (within reason). Many times, it goes towards some type of toy. But she’s bought some clothing also.

The point we’re trying to teach her is the difference between wanting something and needing it. She might be young, but if you say it will be paid by taking from her money, she thinks about it. It becomes a decision. Something more than an impulse.

We live in one of the most digital countries on Earth. Sweden if you’re wondering. For a long time, using physical money has been rare here. Which is a negative when it comes to learning the value of money. It’s harder to understand when money is drawn from a digital account rather than handing over a physical bill. We give our daughter coins or bills sometimes. Just to make it easier for her to understand.

A four year old can’t be expected to master the money game. But they can start to build their instinct. I want her to learn that money is real. It’s a limited resource, which means her decisions on how to use it matter.

Three jars - Spend, save, give

As she ages, she will get more control over the money we set aside. But the money she gets will be divided into different categories. Our philosophy is that money can serve three purposes. It can be saved, spent or used to give others something they want. A balance between these jars means a balanced financial life. By balance, I don’t suggest they need to be equal. Only that they all serve a purpose. Through our lives, each ”jar” will have it’s time to shine.

Saving, when she’s this age, isn’t meant to be investing. It’s meant to be saving up for something she wants. Investing will be introduced as a concept in a couple of years.

Many people save for the sake of saving. That can become a trap because saving (or investing) becomes your identity. If that becomes your identity, that’s almost always a problem. Because you can’t see the forest for the trees.

Saving without a clear purpose is hoarding with good intentions. Saving is a tool. Not an identity. And for those who have saving as their identity, spending becomes almost impossible.

Spending isn’t to be looked down upon. You might think that is a controversial statement. But spending money isn’t a bad thing. Using other people’s money to spend, in other words, spending money you don’t have is, in general, bad. That’s an important nuance to remember.

I believe it’s important to spend money while building your wealth. I’ve seen many people being unable to sell a part of their investments to fund something they want. They’ve become attached to the wealth in an unhealthy way. My take is that they’ve ended up in that situation because they have had a laser focus on their investing.

You need to allow yourself to spend money. It’s not something you do when you have wealth. You need to do it during your building phase too. I want my kids to know this from an early age. Avoid building your own prison where you have wealth you can’t make yourself spend on something you actually want. Because investing to build wealth is not, or should not be, the end goal. Piles of money that never gets used to buy a house, freedom, or spent on someone else is wasted. You can’t bring it with you when your time is up.

Giving is the third jar, and something more of us should do. Giving others something they want or need is a privilege. It should not be underestimated. Giving doesn’t need to be in terms of money. It can be but it can also be giving your time or energy.

Making something for somebody else. Giving away a toy they rarely play with. As they grow older, the ways they can give will naturally expand. But this is just to teach them that giving can be just as rewarding as investing or saving money. That is a lesson that will serve them throughout their life.

Three jars is an easy concept to grasp. Though it is easy, one should not underestimate its power. Those who understand the lessons within this concept will have a great foundation to build upon.

Do Your Job

As they age, you introduce concepts that are more complex.

I think that introducing condition-based allowance around 10 is fairly good. It should entail chores and responsibilities. I think about what Bill Belichick’s, the famous NFL coach, mindset of Do Your Job.

That’s what I want to impart to my kids. Life is hard. You earn money by doing what’s expected of you.

A chore is obvious. Load the dishwasher. Take out the trash. Something along those lines. But what could a responsibility be?

I think it should be something that builds character but is easy enough to lay on the shoulders of a 10 year old. It could be packing their bag before school, keeping their room clean, doing homework on time.

With a creative mind, the possibilities are endless for both categories.

Our mission is to teach them the important lesson of doing your job. If you don’t, their allowance takes a hit. Create and communicate rules.

What happens if they don’t empty the dishwasher? What if they hand in their homework late? Missing chores or responsibilities should have consequences. Lose their phone privileges. Not being allowed to do something they want. If we as adults don’t do our job, it can have serious consequences. It should be the same for kids. They need to learn the value of work, following through and what happens if you don’t.

I believe kids who shoulder reasonable responsibilities from an early age become responsible adults. It teaches them an important lesson. Money is earned through effort. It’s not given away. Because of that, whatever money we do have, we need to treat that with respect. We worked hard for it. Money is to be respected, not wasted. Others do that. We don’t.

Build the blocks for long-term thinking

Everything so far has been laying the foundation. And with a sturdy foundation, we can build upwards. Teenagers are basically adults living at home. They will soon live on their own. Away from your prying eyes. It’s time for the serious concepts.

They should learn about interest. Because that is a vital part to understanding your financial situation and the financial world as a whole. Without knowing how interest works, your chances of taking for example a bad loan increases.

It’s not unusual for kids to ask for money. That is a great moment to teach them about interest. I’ve had a conversation with my niece about it. She wanted an expensive thing and asked, only half joking, if I would buy it for her. I told her that she needs to save up her money. And, when she’s close, she could borrow the rest. But that would mean interest on the loan.

She got curious and asked what interest meant. I told her that it, in simple terms, means giving back more money than you borrowed. It’s the cost of borrowing.

I watched her think. After a while, she told me that her mom doesn’t take interest. I praised her for that observation. Loan givers don’t need to take out interest. But they usually do since they are taking a risk never being paid back.

I don’t want to teach my kids or my niece that I’m (or my wife) is an ATM. After a certain age, it’s time to stop giving them money with out expecting anything in return. If they want more money than their allowance, they can borrow it. But that means interest. I don’t suggest you become a loanshark. Make it reasonable. Your aim is to teach them about interest, thinking long-term and to consider saving the entire amount themself. Valuable lessons that they will carry with them throughout life.

While my kids are a little too young to understand investing, I’ve introduced the topic more to my niece. I did so by showing her the portfolio I’ve built for her. It contains broad and cheap index funds.

Before they leave home, your kids should know about the above but also credit cards and how to pay an invoice. To me, it’s crazy young people leave home without knowing these things. A basic knowledge of taxes can also be beneficial. This knowledge will serve them for years to come.

We as parents, who are financially responsible, need to communicate that credit isn’t bad. Because it isn’t. It’s a tool and as such value neutral. Why you take the credit and your understanding of what you’re signing up for makes it good or bad.

Kids, as mentioned before, model our behavior. If we want them to be responsible, we need to be. Teach them by not taking out credit things you can’t afford.

When they are going to sign up for their first credit card or loan. Walk them through it. Ask them questions about it. Depending on their answers, you and most importantly they, will know if they understand what commitment they are making.

I use buy now, pay later loans which is a form of credit. I’ve done it for years. If you’re responsible about it, there’s no reason to fear it. For me, it’s a cashflow thing. If my paycheck is 2 weeks out, I’d rather use such a loan than pay upfront. I know that it will be paid, in full, without any issues. It’s risk free for me.

Personal finance can be as complex as you want it to be. But it doesn’t have to be complex. It can be made simple and easy by applying basic knowledge over time. That would change your financial life. There’s no need to complicate it. Invest in a cheap and broad index fund, avoid bad credit, keep an emergency fund, buy things that makes you happy and spend money on others.

I don’t know how old your kids are. And that doesn’t matter. As the saying goes, the best day to plat a tree is today. Start taking action. Depending on their age, it might mean starting an investing account. It might introducing the jars. Or explaining how a loan works. Start from where they are. Lay the foundation for their knowledge and their own freedom capital.