Money Minded Families. Stephanie W. Mackara
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and a positive relationship with money, are the key ingredients to your personal (and your child's) financial wellness and future retirement.
There is a movement that started that you may have heard of called FIRE. It stands for Financially Independent Retire Early. This movement was led by a Canadian named Peter Adeney, whose pseudonym, Mr. Money Moustache, has a cult-like following. He retired at the age of 30 and shares his wisdom with others to help them do the same. There are lots of naysayers about the FIRE movement. The two biggest gripes I have heard is that the group tends to make work sound bad and the sooner you can stop working the better, and that it’s practices require extreme frugality. Though participants within the FIRE movement tend to be more frugal than most, the group is made up of all different kinds of people in many different circumstances and in fact, though Mr. MM started the trend, there are now many different factions. And, about the “not working” concept—this isn't at all what the movement is about; it's about being financially independent. Financial independence doesn't mean the end of a working career. In the words of Mr. Money Moustache himself, it means “complete freedom to be the best, most powerful, energetic, happiest, and most generous version of You that you can possibly be.”
This movement isn't for everyone; in fact many find it to be too constricting in terms of spending. I am lucky enough to be in a few groups with people who are part of the FIRE movement and what I most enjoy about them is they all come from different backgrounds, with different experiences, but they are all very curious and active when it comes to making smart financial decisions and they are always, always willing to share and support and celebrate each other. Being frugal used to be labeled as depriving yourself; this group has turned being thrifty into liberation. Though not for everyone, its mere existence is evidence that we as a society are taking the bull by the horns and developing strategies to make sure one can be financially independent and not rely on a government or a corporation to dictate when and what our retirement will look like. Though my lifestyle isn't perfectly aligned with the FIRE movement, the message it sends is one I can get behind. We control our financial destiny and as a result must be a mindful, active participant.
So, what will the big R look like for our children? Will we return to the preindustrial age where retirement didn't even exist or will only be available to the 1% as a luxury? Or will we find new and different ways to earn money, spend money, and save money? Will there be new ways to age, new algorithms to better plan for retirement, new government or social supports to fund our lifestyle once we stop working? Will we change the way we work, searching for purpose instead of a paycheck? Will there be stages to our “end of working years”? All of this is unknown, but what we do know is that technology will surely make it easier to continue to earn money in ways we haven't even considered today—in ways that may incur less stress or physical burden on our bodies, much of the reason people stop working today. Will the idea of retirement change completely? Perhaps, but no matter the changes, our children will still need a strong financial foundation in order to help them live their best lives.
We are facing a great burden for our children, one that none of us have experience with, but one that we must prepare for. I have great hope that educating our children on matters of both financial wellness and financial literacy while preparing them for the burden that lies ahead will allow them to change the tenor of their future and of future generations. There is so much to fix, but it is fixable. There is much work to be done and we as parents are privileged to help our children get it done.
3 Financial Socialization: Creating Spending, Budgeting, and Saving Habits
How will our children learn to navigate these treacherous new waters without an experienced guide? Just like traveling in a new city, they will figure it out, preferably with your help. There may be a few twists and wrong turns, but ultimately, with focus and presence of mind, our children will find their way to being financially well—if not, they will be forever lost. Consider our children's spending habits today.
Do you remember when Amazon only sold books? I sure do! On August 5, 1998, “Amazon.com Is Expanding Beyond Books” was a New York Times headline. The article reported that “Amazon.com has grown to be the most successful merchant on the Internet, with 3.1 million customers.” Today Amazon has more than 310 million active customers and sells more than 12 million products, not including books (Source: Number of Active Amazon Customer Accounts Worldwide, Statista, and How Many Products Does Amazon Carry?, Retail Touchpoints).
Amazon and a seemingly infinite number of online shopping sites have given us unprecedented access to goods and services—and ways to spend money. Subsequently, that access has helped us create a culture of instant gratification and excess. Increased consumption and a stable labor market have led to greater spending in the United States, which may be a good sign for our economy, but this type of access to goods has both changed the way we spend and created a culture of excess. The technology behind consumerism is evolving at such a fast rate that it is difficult to fathom what will be next. While these changes to consumerism did not come with an instruction manual, it is clear that instant access and excess are not conducive to helping us become financially well. It is a whole new world, but we must meet our children where they are and understand the daily challenges they face.
The Consumer Financial Health Study (Center for Financial Services Innovation, March 2015, https://s3.amazonaws.com/cfsi-innovation-files/wp-content/uploads/2017/01/24183123/Understanding-and-Improving-Consumer-Financial-Health-in-America.pdf) finds that not only are 57% of Americans “financially unhealthy,” but 26% say their finances cause them significant stress, 43% struggle to keep up with bills, and 36% are not confident they could come up with $2,000 in the next month if an emergency arose. So, we are now entirely responsible for our financial resources in retirement, but the majority of Americans are struggling to keep up with their daily finances, even before they can consider saving for retirement. This, too, is a new challenge.
As Americans we must become more conscious of our financial journey before, during, and after retirement. We must work toward living a life of financial mindfulness and wellbeing in order to better enjoy our present lives as well as our future retirements. The words of Arthur Ashe echo in my mind: “Success is a journey, not a destination. The doing is often more important than the outcome.”
Now comes the good news. Financial wellbeing can be learned and practiced, like any other life skill. Spending, managing cash flow and credit, and saving and investing practices all influence financial wellbeing—for better or for worse. So how do we create spending, saving, and investment practices that have a positive effect on our financial wellbeing?
Consider that 30 to 40% of retirement wealth inequality can be accounted for by “financial knowledge” (Source: “Optimal Financial Knowledge and Wealth Inequality,” Annamaria Lusardi, Pierre-Carl Michaud, and Olivia S. Mitchell, 2017, Journal of Political Economy, vol. 125(2), University of Chicago Press, pp. 431–477). That 30 to 40% can make the difference between living on a fixed budget versus enjoying the life of leisure, meaning, and purpose that each of us has always dreamed about.
So, what is the best way to acquire this financial knowledge? For our children, it's positive “financial socialization.” Financial socialization is the process by which young people acquire the standards, values, norms, skills, knowledge, and attitudes needed to become functioning consumers in the marketplace (Source: Journal of Financial Counseling and Planning, 2013). It is a learned process of acquiring knowledge about money and developing skills such as banking, budgeting, saving, spending, investing, and using credit cards.
Financial socialization is the way most people learn how to handle their financial affairs. Who do you think are their primary teachers? You got it: parents. Every hour of every day, parents are “teaching” their children about finances, among many other things, with their own behavior. If you make a habit of spending unconsciously or irresponsibly, you run