Monday, February 18, 2008

What I Want My Children to Know About Money

Part of my motivation for writing this blog is to pass on what I know to my children before they are on their own making financial decisions. Even though I make my choices carefully and put time into understanding how things work, I have made some financial mistakes and other people have taken advantage of me financially from time to time.

People like to say that money isn’t everything, and this is true. Relationships, fun, interesting activities, and challenging pursuits lead to a full life. Money can’t give you these things, but it can give you more freedom to pursue them.

Most of us trade our time for money by taking jobs. The jobs we have vary in how fulfilling they are, but very few of us can honestly say that we would do our jobs for nothing. Even the best jobs have unpleasant parts, and almost all of us do some fraction of our jobs only for the money. So, for most of us, to say that money isn’t important is to say that our time isn’t important, and this is wrong.

Money represents your hard work and your time. You could have spent this time with friends and family, travelling, or any of a number of other pursuits that would have been more enjoyable than your current job. Handling your money wisely will contribute to your future happiness.

Young People Have a Financial Advantage

Children tend to look at the money that adults have and think that the adults are better off. This is only superficially true. Adults usually have more money, but they have obligations that use up their money. Most adults settle into a lifestyle whose costs consume all of their incomes. Each small raise at a job is met with increased spending.

Changing careers often means at least a temporary drop in pay, and starting your own venture may mean no pay at all for a while. Most adults are unwilling or unable to change their lifestyles to accommodate such changes. These people are trapped in their jobs whether they like them or not, and losing their jobs can be traumatic. But, it’s not all doom and gloom; just a modest amount of savings can serve as a buffer allowing people to make the career changes they want.

One advantage young people have is that they are less set in their ways. They may want expensive things, but they can more easily make do with less. Taking the bus isn’t too painful if you have never owned a car. Young people can more easily choose to live frugally, build up some savings, and invest those savings for big long term gains.

The big opportunity for young people is the chance to begin their financial life by saving some money and avoiding debt. If you get into debt early, you are setting yourself up for a life of financial insecurity and limited choices. If you save and invest, you will have a secure financial base that will give you choices in how you live your life.

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