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How did you learn about handling money?

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Elementary economics: Where do we learn our most lasting insights about money?

Monday, February 22, 2010

Like sex, money is one of those things we're just sort of expected to understand once we've reached a certain age. And like sex, it's a fundamental and ubiquitous part of life, but one that's rarely discussed openly in our formative years.

At least that's been my experience.

When I try to recall when and where I learned about money growing up, I draw a blank. And to be honest, I'm still learning (if not always implementing) basic lessons about money, even as I wade into middle age.

Writing a "Money Tales" column for the past couple of years has forced me to get at least a basic grasp on a broad range of financial topics, and along the way I've been schooled by both prominent economists and pre-adolescents.

Realizing what I don't know about money -- and what I failed to learn when I was younger -- got me wondering recently where and when others had learned their most lasting financial lessons, or what advice they'd received growing up (or as grown-ups) that had stuck with them.

So I spent the past couple weeks asking around, largely by posting requests for stories on the Web and via e-mail, including an invitation to readers of this column. Here are some of the stories I heard.

The power of family -- and compound interest

Not surprisingly, I discovered that family life figures prominently in many people's memories of their financial educations -- or lack thereof. The individuals I interviewed frequently cited money advice they had learned from a parent or partner -- or a poor parental role model whose financial behavior they vowed not to repeat.

For Sue Barton, a 57-year-old business manager living in San Anselmo, a lasting financial insight came in the form of the sandwiches that her father used to take to work.

When she was about 19, Barton remembers her father telling her how his fellow workers would kid him about never going out to lunch with them. He'd been bringing his lunch to the office for years as part of a plan to save enough to buy a piece of land in the Bahamas.

When he realized that goal, one of his younger co-workers asked him, "Just how many baloney sandwiches did it take to buy property in the Bahamas?!" It was a kind of tortoise-vs-hare moment -- through slow and steady behavior, Barton's father had traded dining out for tropical real estate.

Barton took the lesson in persistence and frugality to heart. She later purchased a BMW funded in part by the money she saved by packing her own lunch. And now, she and her husband have saved enough to build an off-the-grid home on the oceanfront property that her father's baloney sandwiches financed years ago.

While many of the people I spoke with recalled moments of learning about long-term thinking about money, a few had the opposite insight impressed upon them.

Jose Mauro Barron, 46, an IT analyst living in Oakland, remembers a lesson imparted by his mother when he was nine or 10 years old: Don't stress about it.

"I was becoming increasingly aware of our family's financial situation," Barro remembers. "I had many siblings, lived in government-assisted housing, and my mom usually worked two jobs in order to make ends meet. I remember her discussing various bills and acknowledging that we would be short in the next couple of weeks for some utility bills."

She didn't seem stressed or worried, but rather confident there would be a solution, Barro says: "Maybe it meant we cut back a little more, or the bills would be paid a little bit late, or if it were spring time then the whole family would spend Saturday picking boysenberries or cherries to raise the needed funds.

Somehow his family always found a way to make ends meet. "Our utilities were never turned off, our rent was always paid, there was always plenty of food," he says. "The lesson I learned was, even when money is very tight, don't let it ruin your day or outlook. It's truly not the end of the world, and if you persist you'll find a way to make it work."

Several people I spoke with mentioned having childhood epiphanies about the profound and surprising power of compound interest.

"When I was nine, my father took me down to the credit union to sign up for a savings account," says Monica Flores, 36, co-owner, with her husband Genesis Lodise, of San Francisco-based 10k Webdesign. "I remember him explaining about interest rates and showing me how my money would grow. This was a great incentive for a youngster to think about the magic of compound interest: your money grows and grows and grows."

(To see this magic at work for yourself, play around with a compound interest calculator like this one or this dramatic graph calculator showing interest accumulating during a lifetime.)

Ira Poretsky, a 68-year-old retired civil servant living in San Francisco, described a similar lesson he learned in 1951, while growing up in the greater Boston area.

When his fifth-grade class was given a research project on potential careers, Poretsky was assigned banking and finance. His parents sent him down to a local Merrill Lynch, Pierce, Fenner & Beane office to see what he could learn.

"Sure enough, a gentlemen there took great care to explain to me the world of investment," he says. "It kindled a lifelong passion and interest in money and economics."

Poretsky still remembers the main point of that mentor's advice: "For investment purposes, the most important commodity is time."

Tough love

For everyone I spoke to who credited their families with instilling an understanding of money, I heard from someone else who wished his or her parents had done more to impart such lessons.

Vickie Sims, 50, an unemployed bookkeeper living in Oakland, says, "My mother taught me nothing about money. She lived from paycheck to paycheck, paid all bills with money orders, and knew nothing about credit or checking accounts. I did the same thing with my daughter until I was 41 and she was 16."

And then Sims had a turning point.

"Divorced at 41 with two kids, and left with nothing, I had to move into a room in my sister's apartment, and started from scratch. I saw Suze Orman on TV one day, and I was hooked. She opened my eyes about being debt free, how credit cards are no good for you, and how it really does not matter how much you earn, it's what you do with it."

Sims is still struggling financially, but she feels she's on the right path: She's sticking to a strict budget, and when she is employed again, she plans to pay off her car note and student loan.

Her new mantra is, "If you can't pay cash, then you can not afford it."

Laurie Smith (not her real name), a 50-year-old executive assistant who lives and works in San Jose, echoes Sims' regrets about the lack of money-savvy role models in her family. "I never gleaned the significance of having and saving money until my early twenties, when I was no longer under the influence of my neo-hippy parents and their unofficial motto, 'Just be happy!'" Smith says.

"I started dating guys who knew how to earn and wisely spend a buck, and it made plenty of sense to me. And I'm dating a guy right now who gets into his wallet with a crowbar, and while I once would call that stingy, I now realize that it's quite prudent. Cash does not regenerate!"

For Deanna Hlebechuk, an insurance broker living in Boise, Idaho, love was also the pathway to financial prudence.

In college she applied for a Visa card, which seemed like easy money for someone on a tight budget, she says. But when she moved in with her boyfriend and the couple began co-mingling their funds, he expressed concern about the balance she was carrying over on the card each month.

"He was so committed to fiscal responsibility that he said he absolutely couldn't be in a serious relationship with someone that didn't share his feelings on money," she says. "That afternoon I wiped out the balance on my card, and IÕve never carried a balance since then."

Twenty-one years later, Hlebechuk is married to that man. "We paid for our house in cash, we have one, old, paid-for, car, no debt and enough money in the bank that we can work part-time."

Monica Flores, the San Francisco Web-design business owner, also served as a model of money management for her husband, Genesis Lodise.

Lodise says he was a "very late-bloomer, financially." His first realization about the impact of money could have on his life came after he graduated from college.

"I found that I owed tens of thousands of dollars, and that my single mom had taken out loans to supplement my loans," he says. "I faced a mountain of debt and guilt for what I was putting my mother through. It didn't help that I left college without what I would term any real practical knowledge that might assist in acquiring a job outside the service industry. That was the first time I understood that I could flush money down the drain faster than I could make it magically appear in my pocket. It was a what-in-the-hell-am-I-doing moment."

By contrast, says Lodise, "My wife accounted for all her expenses. She tracked her spending. She had data from prior years to compare with her current year. These were completely foreign to me, and I very begrudgingly accepted these practices for myself and our household."

Babysitting, paper routes, lawn mowing

Many people I spoke with said their first insights about money came through a job they had as a child or young adult.

"Everything I know about money I learned from babysitting," says Heather Salazar, a legal secretary in San Francisco.

"I had been babysitting neighborhood kids for a few years [in the 1980s], and I had simply accepted whatever the parents offered in terms of payment, usually a dollar an hour," Salazar, 38, says.

"But I started to feel like certain families were taking advantage of me, both time-wise and financially. I was complaining to my dad about it, and he suggested that I charge more. It had never occurred to me that I had a say in what I was being paid. I just assumed that the rate was set by the parents, my customers. So, the next time I got a call to baby sit, I mentioned that I had a new rate, $2.50 an hour.

"I was very nervous about mentioning it, but it didn't faze the mom a bit. She just said, 'Great, see you at 7!' It was that simple! And ultimately this had several effects: I made more money and I felt less exploited."

When Kristine Kukich, a 47-year-old education-services manager living in Portland, Ore., was about 13, her parents gave her a job managing the household: "groceries, cooking, cleaning, and all of the chores you hate to do as a kid but that somehow take on a different aura when there's payment involved," she recalls.

"The biggest shock was actually doing the grocery shopping and realizing that there might not be enough cash for the items in the cart," she says. "That's when I learned about menus and budgets and how the two were really linked together. To this day, I budget for groceries, and we stick pretty close to the budget.

Jose Barron, the IT analyst, remembers his first job -- and the money lessons it taught him -- fondly.

"I got a paper route as soon as I was 12 years old," Barron says. "Within two or three months I saved enough to buy a brand new bicycle, which at the time, 1976, cost me $120, an impossible sum. Yet there I was every day riding my new bicycle to deliver my papers."

A few months later he had sold enough newspaper subscriptions that he earned an all-expense-paid trip to Disneyland, via chartered jet, no less. "I'll never forget those lessons of hard work paying immediate rewards," he says.

The medium of exchange

Much of the money wisdom that people shared with me came down to some basic truths: pay yourself first (i.e., put away part of your paycheck in savings); don't spend more than you make; money does not grow on trees; money doesn't always buy happiness.

Such advice seems so simple, it reminds me of Father Guido Sarducci's idea for a Five Minute University.

"The idea," says Father Sarducci in his comic bit, "is that in five minutes, you learn what the average college graduate remembers five years after he or she is out of school ... Economics? 'Supply and Demand.' That's it. Business is, you buy something, and you sell it for more."

Of course, the journeys one takes to arrive at these lessons are another story. When it comes to money, it's the experience, rather than the aphorism, that seems to make the point stick.

Thinking further about my own financial education, I remember a time, shortly after graduating from college, when I didn't have enough to pay the rent. I took a $500 cash advance on my credit card. I don't remember the interest rate, but it was exorbitant, and I let the balance go unpaid for a long time.

I ended up paying more than a hundred dollars in interest in the end. I was embarrassed, and I never took a cash advance on a credit card again.

Before that incident, I'd like to think I understood the trap of high-interest credit cards, but it took a painful experience to drive home the point.

And that was the sense I got from almost everyone who told me about their most memorable learning experiences with money. The lessons may have been simple, but the contexts in which they occurred were poignant and powerful.

Our fragments of wisdom about money are often gleaned during episodes of shame, guilt or pride, learned from someone we resent or respect -- or imparted by someone we love.

Source: Sfgate
View: Elementary economics: Where do we learn our most lasting insights about money?

How did you learn about handling money?

My most memorable moment was in 2nd grade. I was given an allowance of $2.25 for daily lunch in the cafeteria. There was also things at home to make for sandwiches so that I could bring my own lunch. I was given a simple choice, I could spend the money or save the money as I chose. So I looked at the menu, circled the lunches I liked. The rest of the time, I made my lunch and brought it to school.

This is something that I do to this very day. When I want to save money, I bring my lunch and save the expense. When I can see the menu ahead of time, I will buy lunch at the cafeteria.

I learned about handling money as a young child. I never got a proper "allowance" so I learned early that I had to work for it. Video games drove me to work my ass off, as the ones I wanted were always the most expensive, and my parents wouldn't buy them for me except on my birthday or Christmas. You figure that 2 games a year wouldn't cut it so naturally I would deliver papers, teach martial arts classes, work cleaning jobs - and developed a ridiculous work ethic up until college where I was putting myself through school with 5 jobs, one of which was selling knives door to door (funny enough, I did well at that even while I was a comp sci major).

Fast forward to 2004, where a mentor took me under his wing and taught me business. All of a sudden I made more money in a month than I did in a year and I've never looked back. While I agree to a certain extent about learning about saving and what not, I think the better mentality was questioning the method of earning, and the velocity of money. 2 and a half years later I got to retire at the ripe old age of 26 with what my teachers had taught me.

I've been meaning to write up a book on some of the essentials that people don't teach these days. Thanks for the original post Cyn. It really got my wheels turning.

Oh, and if anyone wants to get started down a similar path, go and read Rich Dad Poor Dad, and The 4 Hour Work Week. Truly inspirational stories, and the 4HWW actually has examples of how to get started down the path.

I never learned from anyone. I just came to realize that shit was expensive and you never had enough money for anything really.

I couldn't tell you. I guess I just learned on my own by observing my parents. Nobody has ever had the money talk with me.

I'm not sure what money talks my parents had with me but I probably wasn't paying attention. Regardless of how much I've made, I've always lived from paycheck to paycheck. I just can't seem to save money. If it's in my account, I spend it. This goes for bonuses, tax returns, whatever.

My credit cards are maxed but I don't really care. Sure it sucks that I'm wasting money on interest but the alternative is paying the balances down more quickly and that sucks because it would eat into my available funds.

Historically, I've always had enough money to pay all my bills. In practice I've had random late payments due to forgetting to mail the payments. The result is a credit score that isn't great but I really don't care. I might be deciding to walk away from my house soon so late payments aren't going to make much of a difference on my credit score.

There are so many more important things to worry about than money.

I have plans for how much I need to pay towards my credit cards in order to get them to zero within the next couple of years and I could do it relatively pain free but I just can't get around to executing those plans and then not using that available credit once I get it on the card. Eventually I need to do it because it does frustrate me that I'm basically wasting all my money that goes towards interest.

I don't see the point of paying cash for a house though. Mortgages are usually given at a low interest rate, low enough that it isn't really worth delaying buying a house because you want to pay cash. It isn't like a car where you can delay the expense by driving a POS until you can afford a new one, you need a play to live and the difference in cost from a mortgage to rent isn't that much.

When I was a kid my grandparents and great grandparents repeatedly told me that I should save for a rainy day, and that if I wanted something I should save for it. I only got an allowance of $1.00/week as a kid. My father told me that if I wanted something that I had to earn it, and he would also drop me off in a neighborhood after any significant snowstorm so I could earn spending money.

All of that advice has paid off. I have credit cards, but only use them as debit cards and pay them in full each month, and pay no annual fee. I have had no debt for the last 15 years. I live within my income and have managed to save enough money in various investments that unemployment for an extended period of time would not be a major problem. I've also been able to enjoy vacations and buy extras when I wanted them. But rather than just spending the money as if there was no tomorrow, I tend to think carefully about whether I really want to spend the money for that purpose.

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Originally Posted by kutulu (Post 2761419)

Paying cash for a house, and paying a mortgage are two entirely different things. You do get offered a really "low interest rate" but nobody ever does the math because it's "the norm".

Average mortgage payer ends up paying TWICE the cost of the house value due to front loaded interest on mortgage payments. Paying DOUBLE for something really sucks. But what's worse is when nobody cares to look it up.

Not trying to stand on a soapbox, just pissed off that I used to be in the same position til someone told me. (they did have to beat me up a little for me to listen though).

My dad is Dutch. He is very comfortable talking about money. I have been included in conversations about family finances for a long time now, and my dad did a great job of explaining finances and money to me. Being the oldest child, I have to know where all the money is. I grew up with a savings account, and just before I turned 18, my dad took me to the credit union and we opened up my first checking account. As an adolescent, I earned an allowance for chores around the house; half of this went into savings. I was only allowed to use my savings for a few select things: my prom dress, the choir tour, spending money on big trips.

Despite being raised with a lot of knowledge and good habits, my money habits now aren't the best. They could be a lot better. I've made some mistakes in how I have handled money since being out on my own. I know what to do--I just don't do it.

I don't know that I ever had a "learn about money" moment either I just kind of figured it out as I went. Sure I could probably stand to learn more about proper investments and other ways to make my money work for me but in the end I do pretty good with old checking and savings account.

My philosophy is never spend more then I earn and always put aside some money in case I need it later. Simple but effective I suppose.

Have any of you guys ever played the boardgame "Cashflow 101"?
It actually makes learning how money works kinda fun. Like monopoly on steroids.

Teaches you some pretty advanced thinking with really basic math. So no rocket science involved. You get to see how real estate and stocks and other investments work without spending REAL money trying it out.

My parents were always 'if you can pay cash you can have it' people. The only time they borrowed was for houses and cars. They are in their sixties and have only recently (in the last 5 or 6 years) got a credit card (mostly because they started travelling a bit). Even this, they tend to front load it with cash before they go somewhere.

I'm kinda in the same mould - I just can't blow money that I don't have. I have a mortgage, but no credit card debt (I have a visa debit card and an amex charge card, which has to be paid in full each month). If I can't pay cash for it, I don't get it.

We've sent our five year old off to school today with 50c to spend at the canteen - this will be his first transaction. There are only a few things he can buy at the canteen for this and he will have to get change, so he is going to start to learn what money is for. I guess we'll see how he goes...

For me it came down to learning the hard way. When I was younger and first started working full time I'd immediately take my paycheck, go out and blow it on music (really I'd come back from the used cd shop with a trunk load of cds or on the rare occasion I'd splurge and come home with a brand new bass). Of course at the end of the month I didn't have enough money left over to pay the rent or car payment and had to burrow from my parents. As I grew older and started realizing my parents wouldn't bail me out I either had to figure out how to be responsible with my money or wind up on the streets. The rest just kind of worked itself out.