One of my father’s favorite sayings when I was growing up was, “Boy, you can twenty-dollar someone to death.”
Why did he say that? Because when I was growing up, that was typically the amount it took to fill up my car. And why did I need it? I had a job, received a regular allowance, but I was not a saver by any stretch of the imagination, and I always needed gas money.
Needs vs. wants
Although I thought I “needed” gas money, my father saw it as a want, because I couldn’t manage my money. The problem is, he gave me the money and it took me several decades to learn a fundamental principle of finance: The importance of saving money, living within or below your means, is paramount to your long-term financial viability.
One of my favorite stories that I enjoy telling, is taking my daughter to the mall when she was younger, maybe around age seven or eight. She was familiar with money, and by all accounts, a pretty good saver.
She would keep half of her birthday and Christmas money placed neatly in a small jewelry box on her dresser. The other half went to her savings account. But whenever Mom needed some time alone, my daughter would want to go shopping. And I was happy to oblige.
We would spend time looking through all the stores, multiple stops at the food court, and countless times back and forth to the restroom. There were a few stores in particular that little girls liked more than others (they will remain nameless, but let’s just say this is the place where you are able to get your ears pierced and buy more junk than any other store in the mall).
And you might even think that the lesson on the face is about “need” versus “want,” but you would be wrong. Although, that was a major point for me at the time.
An opportunity for a financial lesson
The problem was, my daughter would find that one thing that she wanted, and it was just that, a want, but she always conveniently left her money at home. Typically, I wouldn’t have a problem buying her what she wanted – she’s my daughter and I am her dad, that’s what we do. But her request took me back to my childhood and what my father said to me. More importantly, it reminded me of what he didn’t teach me.
So, my response was very simple and more effective than I would ever imagine. It went something like this, “Sweetheart, are you familiar with the words loan or interest?”
My daughter had no context of what I was talking about and probably didn’t care, she was too focused on the ask. So, I told her, “Of course I will give you the twenty dollars, but when we get home, you will owe me twenty-five dollars.”
That first time, and without hesitation, she took the twenty dollars and bought her item. We walked around a little while longer but never discussed the payment that was coming when we arrived at home.
When we did make it home, I gently reminded her of the payment, and she paid me. She didn’t question it then, but I could tell the wheels started to turn. My wife thought I was crazy and told me to stop teasing the girls. And of course, I didn’t listen.
This would become her first lesson regarding hard money loans, payday lending, and high interest rates. Whether my daughter realized it or not, I had planted a seed.
Teaching about the cost of borrowing
The next time we went shopping, we walked our usual route and ultimately ended back at the store I loathed the most. Within five minutes she asked for twenty dollars, and of course, I immediately obliged. But, I upped the ante to make my point and requested thirty dollars in return.
She looked at me in total disbelief and a little sadness, the way daughters can. I’m not going to lie, it hurt, but the lesson was far too important to me.
She thought about it for a few minutes, then put the items back on the shelf. She turned and looked at me and asked, “Daddy why would you charge me more? Did I do something wrong?”
Again, crushing me as only a daughter can. And I responded, “of course not, but you need to understand there is a cost to borrowing money.”
Hard money loans and payday lending might have a place in this world for some, but people need to understand how much they will ultimately pay for quick access to cash. Had they saved just 10% of what they had earned, chances are, they would never get caught in this trap because they saved sufficiently for future emergencies.
There are better options than these quick loans, like borrowing from family and friends, a credit union, or even using a credit card if needed. But above all else, understanding these basic concepts can make a huge difference in your life.
There’s always a new financial lesson to teach your kids
No matter what stage of life you’re in, take the time to learn the basics around money, saving, interest, credit cards, and how they can work for you or against you. If you are a parent, giving your children an allowance because they performed some simple chores around the house is not enough.
Take them to the bank and make them save half. When they are old enough, introduce them to more sophisticated topics like the stock market, compound interest, 401K’s, or even Roth IRA’s. These are life lessons that will never fail you or your children. So, if you take nothing else away from this article, take this:
Taking any opportunity to teach your children – or anyone, for that matter – about money will pay greater dividends than any other investment in the long run.