FINANCIAL MATTER$: We don’t talk about money in this house!

by Jac M. Arbour CFP®, ChFC®
President, J.M. Arbour Wealth Management

We don’t talk about money in this house!

As a kid, did you ever hear your parents say that? In many homes across America, it was once a very common response when the topic of money was brought up.

How many classes did you take in middle school or high school that taught you about money? By the time you graduated, how many classes taught you about IRAs, 401(k)s, investments, tax deductions, renting an apartment versus buying a home, paying for a mortgage biweekly versus monthly, using credit cards and building your credit, buying investment property with no money down, leasing a car versus buying one, and so on? For many people, the answer is none. Zero. Nada. Not a single class.

So where do people get educated about money? Where does a person’s belief system about money—what it is and what it is not—come from? The answer is, it comes from our household when we are growing up. If money is not discussed in the home, financial skills usually go completely unlearned by the next generation. In turn, when these kids become adults, they are often uncomfortable or unqualified to discuss money with family members and their own children. Lack of financial literacy contributes to the mountains of college loan debt, maxed out credit cards, and negative savings rates epidemic here in our country.

We need to bring financial literacy into our schools as well as our homes.

Not long ago, I gave a talk to a class of high school juniors here in Maine. I quickly confirmed the effects of social conditioning on the group’s beliefs about money: My first question to the 17 students was, “Who here thinks a million dollars is a lot of money?” All 17 hands went up. Second question: “Who here would like to have a million dollars?” Fifteen hands went up. Third question: “Who here thinks that he or she will be worth a million dollars at some point in their lifetime?” Two hands went up. Fourth question: “Who here thinks that saving a million dollars is hard to do?” All 17 hands went up again.

Interesting.

I then shared with the students that, if an 18-year-old could save and invest $2,045 per year (an amount all 17 students agreed was reasonable) at an eight percent rate of return, they would each pass the $1 million mark at age 65. Eyebrows lifted and ears perked up. Then I asked the question again: “Who here thinks he or she will be worth a million dollars at some point in their lifetime?” Seventeen hands went up.

Is it really that easy to change a person’s belief in their own ability? Yes, with the right information. The simple scenario I shared with these students demonstrates just one form of financial literacy, but it is an important one because it plants seeds of hope in today’s youth. They can realize they already have one of the most valuable assets when it comes to investing: time, which brings with it the power of compound interest.

Consider giving the gift of financial literacy to your kids and/or grandkids. Tell them some stories from your personal experience to teach them money concepts, or introduce them to an advisor. Let’s stop leaving the next generation’s relationship with money to chance.

See you all next month.

Jac Arbour is the President of J.M. Arbour Wealth Management. He can be reached at 207-248-6767.