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August 29, 2008


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I'd sum up everything any kid needs to know about money in 2 steps.

1) Debt is bad. Avoid it at all costs.
2) Saving for retirement is good. Save often and start early.

I'll admit its oversimplified. But once you have those two internalized you can figure out the rest based on your own lifestyle and personality.

Actually "a" I'd have to disagree with you, saying first that if this is all you need to tell your kids even overly simplified as you said, IMHO it's not enough.

Second of all, saying that debt is bad is a very wrong thing. There is good debt and there is bad debt.

If you get into debt to the bank to buy a house and you rent that house, then I certainly believe that that debt is good debt because even if your rent doesn't cover your monthly payment to the bank you most probably cover a big part of it and at the end of your credit you get to have the house with other people's money. If' you're getting into debt to buy stuff that loses value then that's bad debt, but if you get into debt to invest in something then that's good debt.

Btw FMF I read all your links from this article and I must agree with you that the metaphor with the money being a servant or a master is the best!


I think that is short and sweet and is a great thing for your kids to learn about money. It can work for you (saving, compound interest), for others (giving), or against you (owing money, becoming greedy).

a - I think you basically said the same thing as FMF in different words. Compound interest is good when it works for you (why you should start saving early) and bad when it works against you (why you should avoid debt).

FinancialCourseBlog - I do agree that a mortgage or student loans are often necessary debt and can improve your financial position, but you should still try to pay for as much (of your house, education) as you can with cash and then take out a loan for the smallest amount practical. i.e. Don't buy a huge house or take out extra loans for living expenses just because it's called "good debt." No matter what the debt is for, you still become a slave to somebody else and they have power over you to sieze your possesions if you don't pay.

To My Kids:

1) don't ever borrow money from anyone, ever
2) Save some of your money. Blow some of it, too

don't ever listen to anyone who tells you there is such a thing as "good debt." It is a myth.

Ask yourself this:

Banking is the most profitable industry in the history of the known world.

If borrowing money from a bank and then investing it in a rental property or mutual fund or arabian horse farm or anything else for that matter were such a great investment, why doesn't the bank (remember, they know profit) invest directly in that instead of lending you the money.

The banks main objective is to return the largest reward with the least amount of risk. It isn't an accident they loan you the money and don't buy rental properties or investments with the money instead.

It is because you paying them interest historically provides them with the highest consistent levels of return with the least amount of risk.

If you think like a banker, and then act like a banker, you will stop borrowing money, and start earning it.

That is what I will tell my kids.

troy - why is it smarter to pay rent for 15 years than to take out a mortgage and buy a place?

My goal was to take FMF's metaphor and change tangible goals that people (kids starting college or their first job) could do.

I stand by "debt is bad" as the number 1 thing to learn. The first thing a kid will get is a credit card. Then probably taking out a loan for a car and various installment plans for furniture and electronics. Houses are way down the line for many people.

Here's my life rationale for those two points:

My parents instilled in me a visceral aversion to debt (other than a house) and it has been a great benefit to me. I have always paid every bill and every credit card on time and will continue to do so. Honestly, I'm in way better financial standing now than many peers because of that. I know several people 10 years my senior with basically a net savings of near zero.

My parents didn't instill retirement savings into me. The instilled "never spending." This one can be useful when you have to live like a student, but can also be a drawback. It can cause you to miss out on things you could afford comfortably. Also, like it or not, we live in a materialistic society where having some number of nice things is often required for social acceptance. Finally, "never spending" doesn't tell you what to do with all the money you aren't spending other than let it pile up in the bank for a rainy day. I think a better lesson would be something like invest at least 50% of your savings in an IRA, use the rest at your discretion.

(don't have kids, but if I did:) I'd say to make sure your money is spent in alignment with your priorities and values. That's a little vague, but it's more of a philosophy than a nuts-and-bolts kind of advice.

Start off when they are young and teach them by having 3 piggy banks, see through jars are even better. They are labeled "Saving", "Spending", and "Giving". When they have this perception of how money is to be used and can see how it will grow, they will have a good foundation.

What's the point of teaching "how to invest" and "basics of real estate" to students headed for bottom-rung futures?

What's the point of teaching "how to invest" and "basics of real estate" to students headed for bottom-rung futures?

Great question.....

I teach my kids:

1. NOT SPEND tomorrow's money today
2. Spend ONLY what you can afford to pay from your checking account (if you HAVE to buy)
3. Spend like CRAZY at DEEP clearance sales and get what you desire
4. Buy everything on Credit Card, but don't carry even $1 in debt
5. Buy a House with 12 months of coming out of college
6. Save 25% for Retirement and 10% for 1-5 year goals
7. Buy what you need, ONLY when it is on Sale; Buy what you WANT during Black Friday (once a year)
8. Put yourself on a plan to be a Millionaire (so you have a goal to hit)
9. Do NOT COPY any of your friends in America, since you will NOT WIN
10. NEVER buy an electronic product in the 1st year of it's release or updated-release (like I-Phone, as was the case with Razr phone)
11. Fall in love with MONEY and NOT PRODUCTS. Have the Money in the Bank and the Power in YOUR OWN Heart.
12. Follow all 11 rules, read them over and over and keep doing it for life.

Now, I don't just tell them to do it, I follow these rules, and have deposited over $100K in each of their names to prove the point, and told them if they ever want to spend any of it, come to me with a plan, product, need/want, benefits, and alternatives.

THE ABOVE IS A NON-STANDARD WAY OF THINKING, but that is why there is $100K sitting in each of the 2 kids names today, with no fear that they will mis-use it!!!!!!!!!!

Besides, college is already pre-paid outside of this money. Why? How? Been Thru the 12 points, Done It, Seeing the Benefits and Carry No Debt what so ever.

Good luck folks. Hope you can extract something for yourself.


Kenny -

According to your teaching, student loans are out, so how should someone pay for college?

And how on earth would someone buy a house within 12 months of coming out of college - especially when they earn $15K per year?

And how does someone earning $15K per year become a millionaire?

#1-4, I can agree with, to a greater or lesser extent.

#5:How in the bloody heck is someone just a year out of college supposed to buy a house (at least without buying a condemned crack-house by taking out a negative amortization loan from a loan shark who will break their legs if they don't make interest payments on time)?

#6: If someone can do this, and still afford basic living expenses, then I fully agree. But many people-- ESPECIALLY those just out of college, would not have anywhere near enough to live on (basic, frugal living) based on the 65% of their paycheck that leaves.

#7-10-- again, agree to a greater or lesser extent.

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