Children Learn What They Live

Children learn what they experience. A parent may not realize what is being taught at any given moment; however, a lesson is occurring and that parent's belief associated with that action may not be effectively communicated.

I am discussing three issues here: personal philosophy, parenting and money
management. These three issues seem intangible most days, but must be effectively-verbally, visually and viscerally ( 4. characterized by or proceeding from instinct rather than intellect, Webster’s Dictionary, 2001)-taught by parents.

Taking the time to distill into words what is believed about the philosophy of personal finance and net worth may be the key to the most vital door of successful parenting. If you think about it, money management appears to be the key to healthy living. Parents decide to devote financial resources to good food, health care visits, education and other necessities based on their personal beliefs. If a certain belief is not present, spending for that area does not take place. The basic economic equation allows for children to see and experience directly what their parents believe. It is an extremely harsh, unforgiving truth. Spending decisions are decisions with consequences. Once the money is spent, it cannot be spent again. Children experience (feel deeply) consequences of parent's spending decisions.

Children are taught early this basic equation by example- that families spend according to personal beliefs. Unfortunately, though, finances are tricky. But the truth is, without appropriate discussion, if spending for dental care does not occur, a child learns dental care is not important. (That may not be what a parent wants to teach!) The key is discussion. Budgeting for expenses becomes easier in light of these truths. We tell our children it should be done and we show our children it is done by spending for it. Children believe when action occurs.

Parents may teach their children best by talking about net worth building (in age appropriate terms), showing children consequences associated with spending decisions (discussing costs associated with owning items) and discussing possible future outcomes.

If managing our finances is important to us, we must realize each spending decision we make-whether eating out, life insurance, tickets to a ball game, whatever-conveys a proof of belief to our children. What our children may never see or understand is our long term goal. It takes discussion-we may want to have a pool in the yard but the money is pledged to retirement funding. The child may want to go on a trip, but the money is pledged to college savings.

For instance, if we spend for meals out each day, we teach our children that we believe it is a good thing to pay people what we earn to cook our meals for us-unless we state the reason for eating out all the time. If a child isn't specifically taught wage earners must pay for expenses before deciding to eat out often, a parent may complain about teenagers believing 'money grows on trees.' The truth may be the child was raised eating out quite frequently and that child was never shown the cost, never knew what wage rate the parent(s) earned and never informed as to the cost to net worth. If a child is raised eating out all the time, (s)he learns to eat out all the time. Period.

If parents do not teach the philosophy of money management, children are left to fend for themselves in a rather overwhelming, consumer-oriented environment. Financial illiteracy may spell disaster for our children's future if they are not informed how contracts or laws affect spending decisions, how incidental spending is budgeted or how reasons for spending affect the family budget.

I wrote Finance Matters! Exploring Your Assets and Securing Your Future as a means to talk about one's personal philosophy of money management with children. I encourage parents to visit with children appropriately about purchasing decisions and how net worth is being built at each opportunity.

Financial misnomers

While on vacation recently, I visited with a person about Finance Matters! Exploring Your Assets and Securing Your Future. The subject of investments came up, and the discussion turned to housing. I was amazed the tone of the conversation changed dramatically when I mentioned personal housing is an expense, not an investment.


The point of this particular blog, then, is to state there is a difference between an asset and an investment. Expenses occur when we spend money, whether for an asset or an investment.

Investments occur when we spend money on an item, real or hypothetical, that has a decent chance of increasing in value, thus, increasing our net worth. Investing involves risk, belief and other emotional considerations.

Assets may be articles purchased as expenses, such as the house we live in or a frying pan. We may purchase, rather than rent, a dwelling. We list the value of our house on our financial statement.

We list the liability, if any, regarding the item, along with our other assets, investments and liabilities, do the math and hopefully end up with a positive balance (net worth) that grows each quarter of the year.

(I want to state here clearly- I am not against owning a home. I do know how quickly property values go up ( and down). I understand real estate appraisals and loan values. Just so you know, I am trying to make sure we all mean the same thing when we use the same words. Financial education is my passion! If we miss the finer points of what investing means, we can easily be misled.)

My point today is, when I buy a frying pan, it is not an investment. It is an asset I use in order to lower other expenses (eating out each evening, perhaps). While the fry pan may lower my expenses and thus, raise my net worth, it does not earn money on its own.

In the same way, a mortgage may 'lower' my cost of living (less than rent) if the insurance and taxes are not too extraordinary. The house may increase in value on paper. But if I do have that mortgage and if I live in it, while I may benefit from the sale of that house, I must subtract what I have paid in interest, taxes, upkeep and insurance before I find out if I made the right call and benefited financially from owning the home. In other words, I may realize a profit from selling an asset I own.

Please do not confuse the term asset with the term investment. They are not interchangeable.

Think about it and let me know what you think-

Thanks!

Thanks to all the organizers for the lovely OWFI meeting I attended in Oklahoma City last weekend. I had a blast visiting with folks and sharing ideas and concepts. I also need to give a special thanks to the volunteers. I had so many questions and they graciously answered them all and gave encouragement to me along the way. I thoroughly enjoyed each session I attended and I learned a lot, not only from the speakers but also from fellow attendees.