AAR09 - Financial Literacy in Childhood

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1:47Dave Ahern:Good to see you, ladies and gentlemen. Welcome back to Identity Rate. My name is Evan Rate, and we're here to help you make sustainable financial changes without breaking a sweat with this weekly series covering personal finance topics with the end goal of helping people improve and better understand their finances with as little effort as possible. And today, by popular demand and partially because he said he would start reading financial reports to me if I didn't bring him back on. Please welcome back Dave Ahern. Hello, Evan. And yes, I will read you the JP Morgan 10K if we don't do what we want, what we need to today.

2:18Dave Ahern:Yeah, those are deathly threats. That is not a place I'm planning to spend my evening. Not something you want it to be taken lightly. No, no, it's definitely not. I want to treat it seriously, but I don't want to treat it seriously currently. All right. So a quick question for you. What was your financial education like growing up as a child? Starting off deep. Bupkis. I didn't get any. Absolute bupkis. Okay. Okay. And how do you feel like that affected your financial growth going forward? Specifically like when you started off on your financial journey, You know, say you got your first job and that sort of stuff.

2:57It set me behind. It made it very overwhelming and challenging, especially once I got my first job and I had to figure out how to open a bank account. What balancing is older, so balancing checkbooks, writing checks, you know, the introduction of debit cards. Like all that stuff was just wildly brand new to me.

3:19Dave Ahern:It was very overwhelming. And I assume that you didn't have as many resources either to try and figure it out on your own for the most part. Obviously, there are books and I'm sure plenty of research on it, but it's not just you can, you know, to tip your fingers, access everything you possibly need to. No, you didn't. You know, we didn't have, of course, the Internet. Our Internet was encyclopedias and I'm talking before Wikipedia kind of encyclopedias, like the actual books. And so, yeah, it was you relied on your friends and coworkers and things of that nature to to give you some guidance and advice.

3:52And, you know, a lot of cases the bank. And so it was yeah, it was much, much harder to learn all that back air quote back in the day. Yeah.

4:00Dave Ahern:I mean, it's interesting you mentioned a bank because I even I feel like nowadays, even with so much information online, it can still be very useful to talk to somebody who's in the space. I mean, I'll talk about this more in a future episode, but we're currently going through the process of buying a home actually. And just speaking with the banks and listing agent and other financial advisors, well not financial advisors specifically, but people that we're dealing with for the mortgage and loan and that sort of stuff, they've all been very helpful walking through the process and being honest about things and transparent about things.

4:29So there's never anything wrong with asking for help from people that are in the space.

4:34Dave Ahern:But today we're going to be discussing financial education as a child and maybe some of the right ways to go about it, some of the wrong ways to go about it, and some of the long-term effects that it can have on somebody's entire life, frankly. It's easy to see like, okay, you screwed up your child's financial education or something. They're a child, you know, so what? But realistically, that can have ramifications for decades and decades in the future. Yeah, absolutely. And so a little bit about my financial education as a child. My parents weren't particularly transparent about finances. They would mention some stuff here or there, and they were pretty diligent about their own finances.

5:16Dave Ahern:They had some investments. They monitored those investments. They actually had an advisor as well. They still have an advisor that they lean on for some help along the way. But it's funny, even when your parents try to help you with some stuff, I remember my dad trying to teach me what dividends were and try to explain to me, just leave them in there, just let them compound. But to a young brain, that's free cash. That is just cash flow to take out that you want to immediately touch and go use to spend on something. And so no matter how hard your parents can sometimes try, you can still just have very short-term vision.

5:52Dave Ahern:But I'm still thankful for everything that they tried to teach me and educate me on. but sometimes you can only do so much for a kid. Yeah, for sure. So here I have some questions about your kind of upbringing. So when did you open your first bank account, either a savings account or checking account? That's a really good question. I, that's kind of a two part answer to a degree in that I was thankful enough that my parents started a custodial account for me when I was a child. And so when I turned 18, I gained access to that. You could see that as my first account technically, but the first account that I actually went out and opened myself would have been around 18 years old because I would have started my first job at around 17 or 18 years old.

6:42Dave Ahern:So that would have been my first time. Yeah. My first job I got was when I was 14. And so I, that was when I got my first account was when I turned for a turn. I remember my parents taking me to the bank and opening the account, but I was totally bewildered by the whole thing. I do remember the banker trying to show me in my checkbook how to kind of balance the checkbook and to keep track of the money as it was coming in and going out. Keep in mind I wasn't bringing in a lot of money, but it was very educational, but it was also completely overwhelming because they just didn't understand it. Yeah, it's daunting for adults, frankly, to handle their finances a lot, especially when you start getting in the weeds of things.

7:24Dave Ahern:So it's beyond daunting for kids just getting started on things, just trying to understand algebra at school or whatever. Maybe that's too early to say. I don't know what great kids are taught what anymore. But regardless, that's just far too much to expect them to lean on. But I also see a couple of kind of general stigmas on how kids are expected to handle their finances based on their upbringing. I mean, people kind of assume that if you have wealthy parents, for example, then you must have a great financial education because your parents are super wealthy. When in reality, they might have a ton of income and they just blow a ton of it, but they've got so much income that it still just covers everything.

8:03Dave Ahern:or maybe they make great decisions themselves. They're very smart financially, but they see it as taboo to talk to their kids about it. And that's one of the big things that we're trying to break here with at any rate and just with investing for beginners in general is there's nothing wrong with discussing that kind of stuff. There's nothing wrong with discussing finances with kids, friends, your own parents, siblings, whatever, being open and transparent about those things to help other people learn and allow them to teach you. And it goes the same way around where if you grew up struggling financially, your family struggling financially, that also doesn't necessarily mean that you're careful with your finances.

8:41Dave Ahern:You know, maybe people were in that position because they made poor choices going there and that got passed down to you. Or maybe they're in that place outside of their own control, but they still didn't necessarily know the right steps to get out of it or they were figuring it out. But they, again, never relayed that information to you because of the taboos. Yeah. Yeah. And as a parent, the thing that I have discovered is that, and I think I already knew this, but it became more apparent once I had our daughter, was that they are sponges and they absorb everything. And even though you may not be saying anything, they are picking up what you're putting down as far as your behavior, your attitudes, the emotions that you feel about different things.

9:25When you make comments like, I'm too broke to go do this, or we can't afford that, or that's too expensive. Those are all things that the kids pick up on and they will react to. And they can understand far more than we think they can. We may think, oh, this is way over their heads. But I think if you take the time to explain to them what you're trying to do, how this impacts things. Why can't I get the latest Nintendo Switch? Well, because that's more expensive than we can afford right now because we have these bills that we have to pay. But if we save our money, then maybe we can afford this for you four months from now.

10:05The kind of thing. If you take the time to explain that to them, they'll get it. They may not like it, but they will certainly understand it. And I think those kinds of things could go a long, long ways to helping. But yeah, you're absolutely right. Just because you have money doesn't mean that you have superior financial education. Likewise, because maybe you don't have as much money, it doesn't mean that you're also devoid of any financial literacy whatsoever. So the stereotypes are there, but it doesn't mean that that's where people will sit.

10:36Dave Ahern:Yeah, and some of those right ways that you spoke about to go about discussing these kinds of topics with your children, what kind of long-term effects do you think that has on a kid past the short term of saying, you know okay I kind of understand where my family sits and maybe why I can't get the new Nintendo Switch even though it looks so sick what kind of long-term effects far in the future do you see because of that I think it depends on I think it depends on the kid in the upbringing so my family when I was younger my dad went through some very hard financial times and we had there's three of us, three kids, myself and my two younger sisters.

11:17And we all reacted differently to those. And those patterns have carried on throughout our life. So I became uber conservative, like saving every penny, didn't want to spend money, super frugal. You know, I will spend it on my family or my daughter or other people way before I will spend it on myself. My middle sister kind of went the complete opposite and was like, if she has a dollar, she's spending$1.50. Money ran through her fingers like water. And then my little sister kind of as a happy medium between the two of us. And that was a reaction to what was going on in our family. And that has continued throughout their life.

11:57And we have all evolved a little bit, but the different levels of frugality have basically remained the same since that time. And I don't think that's probably that unusual. I'm not going to lie. Running a small business has been stressful lately, swamped in paperwork, different state agencies, and got all these expenses to track and everything. And it's hard to have visibility on these things. But I've stumbled on a better solution, kind of like a one-stop shop for my bookkeeping, my expenses, my P &L, my banking, my contractor payments, all of the messy pieces. It's called Found. It's for business owners like you and I.

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14:44Dave Ahern:Join a function health.com slash beginners and use gift code beginners 25. five what's the best way to get started in the market download my ebook for free at stockmarket pdf.com okay that's that's incredibly interesting me me as an only child i haven't had that kind of visibility to how it would affect different kids differently even affect each other did you when you were younger and then even now how financially open are you with your sisters how much communication is there about you know different situations or preferences or whatever You know, as we've gotten older, it's gotten more open.

15:20We're all in our 50s now, so we're older. And as you get older, there's a certain level of I don't care anymore comes into effect. So we're a lot more open about it now than we were when we were in our 20s, for sure. And it's kind of evolved over the years. When we were in our 20s, we didn't talk about it at all. But as we've gotten older, we're much more open about where we are, what we're struggling with, what we're doing well with, and how we're trying to pass it on to those of us who have kids.

15:54Dave Ahern:Okay. Yeah, that's incredibly interesting and very, very valuable. But I wanted to cover a couple things that I feel like I would have significantly benefited from if they were covered to me kind of more directly as a kid. Again, this is all assuming that I took the time to absorb it myself. I'm not going to place 100 % blame on everybody else. But the biggest thing to me that we discuss a lot on this podcast is budgeting. Budgeting is the foundation for absolutely everything. It's the foundation for how much you can save, how much you can invest, how much you're able to spend on your needs and wants.

16:27Dave Ahern:It's where everything builds up from. And I feel like with my parents, again, I'm sure they were doing their own budgeting because they were in a decent enough financial situation that they must have been handling their finances on the back end. But I never got visibility of any kind to, okay, well, how much money in general is coming? And, oh, well, you know, we spend, let's say, a third on housing payments or something like that. I never got any visibility to that. And I definitely think it would have helped a ton to have some kind of a rubric other than just things I find online or whatever, having a rubric from my parents to understand maybe what was normal.

17:04Dave Ahern:You know, is it normal to spend 80 % of your money on a housing payment? You know, if you're never told, you might not never know that that's not something that's okay necessarily. Along the lines of budgeting, I'm actually really excited to say that we've released a free tool for people who want to get started with budgeting. And this follows along with a lot of the topics that we discussed previously with budgeting, general ratios, what to go into which bucket, and how you want to balance it, maybe grow that balancing over time and stuff. So if you head to einvestingforbeginners.com slash budget or slash budgeting, then that'll take you to the forum.

17:38Dave Ahern:It's a very nice spreadsheet where you can copy it over for yourself and then fill it out as you go. And as I discussed before, I would absolutely recommend redoing that on a periodic basis, especially anytime there's a big change in your income or spending either way around. Another thing that wasn't really covered to me is why retirement accounts are important. I definitely heard, we've all heard of a 401k at some point. We've probably all heard of an IRA or a Roth IRA at some point. But if you're never taught from your parents why it's so important to look that far in the future, I guarantee you myself and most everybody I knew that was my age was not caring about that at most we were caring about maybe next five years you know let's see how to handle getting through college and then be right out of college and like that's kind of the timeline that you can maybe think in if you're lucky but thinking that far in the future that far in advance was just impossible and so I would have felt like it was it would have been important to instill a little bit of that long-term viewpoint.

18:39Dave Ahern:Again, as much as they could have or as much as I would absorb. And then the last one is how to handle raises and bonuses. And by this, I don't mean some massive amount of money, not some 60 % raise. That's not what I'm talking about. Even a 2%, 3 % raise. How do you go about handling that in your finances? How do you handle adjusting your budget accordingly? Where does that money go? Where should it go? Where could it go? Where did they put it? you know, when, when, when they got that opportunity. Um, but without that visibility, especially nowadays with social media, you see people treat their raises or bonuses and just free money, you know, Oh, I got my bonuses here and I was able to go do this, this fantastic vacation.

19:21Dave Ahern:And again, if you have the spare money to do that, no shame in anybody spending on a vacation, but you don't get the visibility to how they're actually budgeting to get to that point. And I would have loved some of that, uh, some of that upfront learning. Um, you Dave, What do you feel like you could have been educated on as a kid that you would think would have specifically helped you in your early financial journey? I think two things. Number one, the whole idea of the B word just would have been life changing. Like just the basic concept of that you bring in this much money, you can only spend that much money.

19:58Like this is all you have kind of thing. And so if you're bringing in just easy numbers, if you bring in$1 ,000, the most you can spend is$1 ,000. And so just that idea. Then the next idea, that would have been uber, uber helpful. The other idea that would have been very helpful was, like you mentioned, with retirement accounts. Having the idea of saving money and saving money for your future. And if I had learned that at a much, much younger age, I would have been in a much, much better position now. It was something I had to pick up along the way. And it wasn't anything that was taught in our schools.

20:35And my parents really didn't adhere to those ideas. And so it wasn't anything that I really picked up until long after I was out of college. and so it was I think it wasn't until I air cool got my first real job that I started like oh hey this is what is this uh this is something you know I need to probably start paying attention to but then I started coming across the ideas of if you save a hundred dollars a month you know that kind of idea that it'll compound and the whole idea of compounding and everything if I had been able to learn those ideas earlier in my journey it would have definitely put me in a different position because my, my general mindset towards money is to be more on the frugal side anyway.

21:19And so if I had had those ground rules, the, Hey, do these things. Okay. I would have done them and I probably would have really embraced it. Uh, the fire thing would have probably been something I would have been all about when I was, you know, 27 years old. So So those are two things I wish I had learned much earlier.

21:40Dave Ahern:Yeah, that would have been amazing. And I specifically like a point that you mentioned about if you have$1 ,000 coming in, that's all the money you have. Because so many people nowadays, especially younger people for the most part, tend to see, okay, well, I have a credit card now with this balance or this max balance on there, this amount of credit I have access to. That now becomes my budget almost. That's the amount of money that I have available to spend. That's the money that's almost sitting in my bank account ready and available for me to spend. And having the education prior to that to know that's not the number that matters at all.

22:16Dave Ahern:I mean, it matters if you want to keep your balance load, help your credit score, and all that sort of separate credit conversation. But in terms of your finances, that number is completely insignificant. What matters is, just like you said, the X amount of money that you have coming in is the money that you have to use for everything. There's no free money sitting out there that's being gifted to you by a bank. Those are tools that you can use in certain ways, but you need to treat whatever money is coming into you from an income as all you have access to. That's incredibly vital. And do you want to give a quick rundown on what the FIRE movement is for people who may not be aware?

22:53Yeah, it means financially independent, retire early. And it's a movement that started, truthfully, I'm not sure when it started, but I became aware of it when I got into kind of the investing community. And it's really, there's different levels of it. It's evolved into a myriad of different levels. The basic gist is that you save and try to be frugal, try to figure out other ways to raise income and try to set yourself up to be financially independent at a younger age so that you can retire early and enjoy more of your life instead of working until you're 70 and then retiring and then having hopefully 10, 15, 20 years to live after that.