The Money Letter That Every Parent Should Write(nytimes.com)
nytimes.com
The Money Letter That Every Parent Should Write
http://www.nytimes.com/2016/06/18/your-money/the-money-letter-that-every-parent-should-write.html?ref=business&_r=0
17 comments
I'm mixed on your views, I agree with your math problem analogy, but I think there is general advice - just as there are general properties of numbers - that can always lead to better financial outcomes if people abide by it.
For instance, what I've always done and it has worked very well for me is the following:
1. Maintain constant revenue stream, even if work is part-time or all you have is just an investment paying dividends.
2. Never purchase anything you can't pay for in cash at that moment.
3. Try to save 10% of your income every month - even in low income months.
4. Don't be wasteful and don't blow money on "small crap" you don't need. i.e. junk food, fast food, trinkets, taking unnecessary trips or riding first class, leaving devices/lights on in your house, gym/any memberships or monthly recurring fees you don't absolutely need.
5. Finally, don't purchase things on a whim.
I've tried to live by these rules my whole life, learned them from my Dad, and they've worked very well for me. I spend money, but usually only for high quality things I research into for a long time before purchasing, like a piano, a plot of land, tools, etc.
I have zero knowledge of actual research into personal or home finance so this example is just my gut intuition based on personal experience, so just view it as a biased anecdotal opinion :)
For instance, what I've always done and it has worked very well for me is the following:
1. Maintain constant revenue stream, even if work is part-time or all you have is just an investment paying dividends.
2. Never purchase anything you can't pay for in cash at that moment.
3. Try to save 10% of your income every month - even in low income months.
4. Don't be wasteful and don't blow money on "small crap" you don't need. i.e. junk food, fast food, trinkets, taking unnecessary trips or riding first class, leaving devices/lights on in your house, gym/any memberships or monthly recurring fees you don't absolutely need.
5. Finally, don't purchase things on a whim.
I've tried to live by these rules my whole life, learned them from my Dad, and they've worked very well for me. I spend money, but usually only for high quality things I research into for a long time before purchasing, like a piano, a plot of land, tools, etc.
I have zero knowledge of actual research into personal or home finance so this example is just my gut intuition based on personal experience, so just view it as a biased anecdotal opinion :)
Anecdotal opinions don't bother me :), but in the case of personal finance, the rules can easily be followed up with math.
Your general rules are fine and make sense, but sometimes when you do break them, it becomes difficult to see the effect or know when to stop. If you didn't save 10% this month, without the math you don't get any immediate negative feedback. So then maybe a 2nd month with no saving is OK. In fact, with credit cards the feedback will be positive!
I've had a corporate finance career for 10+ years and here's my "math". I take the amount in my accounts today, then add and subtract my expected income and expenses out daily until I'm 80. Tada! Addition and subtraction. Nothing a basic spreadsheet can't handle. I know what my balance will be when I'm 40, 50 or on June 19, 2017. Anybody's well intention advice can be inputted and evaluated.
It's not a budget per se because I don't restrict myself like a budget. It's also a longer term look in detail, instead of just monthly numbers out a few years. I see what my daily overpriced coffee will do to me and I can decide if it's OK. (The daily walk to the coffee shop with the cute baristas is well worth it haha.)
"Dad or Mom advice" does have its spot, but I think it should stay values-based. Many years ago I got a lot of criticism when I bought my expensive new car. Everyone threw out these general rules to me, but I knew it was fine and I really enjoy driving it. I've had it for 9 years now. When it hits 10 years I planned to hand over the keys to my nephew (free). The "Dad advice" kicked in appropriately here when my brother said no way to giving my 16 year old nephew the car with its horse power and tinted windows etc.
So I understand family should teach you the appropriate values and such, but with all the mis-information in the personal finance industry, I wish people would do the math instead of following rules.
Your general rules are fine and make sense, but sometimes when you do break them, it becomes difficult to see the effect or know when to stop. If you didn't save 10% this month, without the math you don't get any immediate negative feedback. So then maybe a 2nd month with no saving is OK. In fact, with credit cards the feedback will be positive!
I've had a corporate finance career for 10+ years and here's my "math". I take the amount in my accounts today, then add and subtract my expected income and expenses out daily until I'm 80. Tada! Addition and subtraction. Nothing a basic spreadsheet can't handle. I know what my balance will be when I'm 40, 50 or on June 19, 2017. Anybody's well intention advice can be inputted and evaluated.
It's not a budget per se because I don't restrict myself like a budget. It's also a longer term look in detail, instead of just monthly numbers out a few years. I see what my daily overpriced coffee will do to me and I can decide if it's OK. (The daily walk to the coffee shop with the cute baristas is well worth it haha.)
"Dad or Mom advice" does have its spot, but I think it should stay values-based. Many years ago I got a lot of criticism when I bought my expensive new car. Everyone threw out these general rules to me, but I knew it was fine and I really enjoy driving it. I've had it for 9 years now. When it hits 10 years I planned to hand over the keys to my nephew (free). The "Dad advice" kicked in appropriately here when my brother said no way to giving my 16 year old nephew the car with its horse power and tinted windows etc.
So I understand family should teach you the appropriate values and such, but with all the mis-information in the personal finance industry, I wish people would do the math instead of following rules.
It's also more than just math, there's the psychological side of money & investing. When even taxi drivers start giving out stock tips, how obvious it is that it's time to sell? ;)
Some of the other examples from those letters gave advice (paraphrasing here) like:
- If you can't understand what you're investing in, don't.
- If Alan Greenspan or other experts are not explaining economic concepts clearly, there's probably an ulterior motive.
One bit of advice that I think is pretty critical, that most people are missing is:
Don't live beyond or even at your means. For each dollar you make, you don't need to spend that dollar. Consider a 50% savings rate, or if you can't do that, then 20%.
Some of the other examples from those letters gave advice (paraphrasing here) like:
- If you can't understand what you're investing in, don't.
- If Alan Greenspan or other experts are not explaining economic concepts clearly, there's probably an ulterior motive.
One bit of advice that I think is pretty critical, that most people are missing is:
Don't live beyond or even at your means. For each dollar you make, you don't need to spend that dollar. Consider a 50% savings rate, or if you can't do that, then 20%.
> You can very easily see if credit card interest of 20% will help or hurt you achieve your goals/lifestyle if you do the math.
Is there any scenario where paying 20% interest on credit card debt (or, rather, getting into a scenario that requires that) would help you achieve your financial goals?
Is there any scenario where paying 20% interest on credit card debt (or, rather, getting into a scenario that requires that) would help you achieve your financial goals?
Don't know about "financial goals", but goals: If your utility gain from the 20% interest is lower than the utility gain from the instant availability of that money.
I can think of various situations where, if there were no better products available, this might end up making sense.
I can think of various situations where, if there were no better products available, this might end up making sense.
Short term bridging of a company (or real estate portfolio). It's not so much the 20% APR that kills you; it's the length of time that you pay it.
A good letter if you are a middle-class household without any real problems. But that american dream isn't applicable to everyone.
I'd write a very different letter for a family struggling with one or more dependant/disabled family members. There, conventional saving can be difficult but also dangerous. A big pile of money or other assets can too easily be attached or lost to a horrible situation.
I'd also write a very different letter for wealthy families. For them, asset protection is far more important than savings. They often spend more energy dissociating themselves from their wealth via trusts and other tax-efficient games than they do actually building savings.
I'd write a very different letter for a family struggling with one or more dependant/disabled family members. There, conventional saving can be difficult but also dangerous. A big pile of money or other assets can too easily be attached or lost to a horrible situation.
I'd also write a very different letter for wealthy families. For them, asset protection is far more important than savings. They often spend more energy dissociating themselves from their wealth via trusts and other tax-efficient games than they do actually building savings.
>I'd also write a very different letter for wealthy families. For them, asset protection is far more important than savings. They often spend more energy dissociating themselves from their wealth via trusts and other tax-efficient games than they do actually building savings.
I've always found it weird that so many rich people think this way. They should be less risk averse then other people. If you're rich then you should make yourself a safety net and chase a high risk-reward strategy with the rest of your money.
I've always found it weird that so many rich people think this way. They should be less risk averse then other people. If you're rich then you should make yourself a safety net and chase a high risk-reward strategy with the rest of your money.
> If you're rich then you should make yourself a safety net and chase a high risk-reward strategy with the rest of your money.
If you're rich you don't need to chase rewards, certainly not risky ones; you've already won and can relax and do whatever you want without worrying about whether it rewards or not. That is the point of being rich, getting to do what you want rather than what other people want.
If you're rich you don't need to chase rewards, certainly not risky ones; you've already won and can relax and do whatever you want without worrying about whether it rewards or not. That is the point of being rich, getting to do what you want rather than what other people want.
I don't think it is so much not trying to earn, but being rich allows you to take advantage of investments that normal people wouldn't or couldn't consider. If you are not rich then you need ready access to your investments. You might need the money one day. A rich person can instead invest in less liquid concepts such as private equity or offshore havens.
That you have that advantage isn't all that interesting. In the end it's not your income that matters, it's your happiness and these two things don't have a proportional relationship.
If you're rich, you don't gain more happiness as you gain more income. So the only thing you really care about in regards to your income, is that it doesn't drop low enough to affect your happiness.
If you're rich, you don't gain more happiness as you gain more income. So the only thing you really care about in regards to your income, is that it doesn't drop low enough to affect your happiness.
Many of the rich care about power and influence, so aren't likely to take their foot off the gas and coast, content to merely protect a high passive income.
Like many of us, I'm a 2-3 percenter. I care about building wealth for my family, giving my kids a solid financial footing, etc. If I had $10MM in assets (enough to passively generate a 99th percentile income), I don't think I'd only be worried about protecting income.
Like many of us, I'm a 2-3 percenter. I care about building wealth for my family, giving my kids a solid financial footing, etc. If I had $10MM in assets (enough to passively generate a 99th percentile income), I don't think I'd only be worried about protecting income.
> Many of the rich care about power and influence
I'd wager most don't. Sure, some do, but they're a minority.
> If I had $10MM in assets (enough to passively generate a 99th percentile income), I don't think I'd only be worried about protecting income.
But you won't know until you do, anything you say now is merely a guess that's likely wrong. Once you have a work free income, odds are your evaluation of its value will change drastically and you will become very protective of it due to the freedom it provides.
I'd wager most don't. Sure, some do, but they're a minority.
> If I had $10MM in assets (enough to passively generate a 99th percentile income), I don't think I'd only be worried about protecting income.
But you won't know until you do, anything you say now is merely a guess that's likely wrong. Once you have a work free income, odds are your evaluation of its value will change drastically and you will become very protective of it due to the freedom it provides.
If you're winning at the casino, the right response isn't to create a safety net and play riskier games. It's to leave the casino.
Bad analogy, because you should always leave a casino.
If you can get higher expected returns with an increase in risk, you should probably go for it with the money you can spare, as long as you can spread the risk around multiple fields.
If you can get higher expected returns with an increase in risk, you should probably go for it with the money you can spare, as long as you can spread the risk around multiple fields.
It's actually a very good analogy.
> If you can get higher expected returns with an increase in risk
That's not how risk works. You always get higher expected returns with higher risk. That's the point or people wouldn't even consider it. You also get a higher probability of losing everything.
> as long as you can spread the risk around multiple fields.
Diversification is a strategy for reducing risk. It's irrelevant to this discussion.
High risk as a strategy is sound when you have little to lose. Like when you're young and poor. When you're old and wealthy, it is profoundly stupid regardless of what strategy you employ. It is exactly like being in a casino. You have a ton of cash in your pocket, why would you engage in investments where the probability of losing your shirt is high?
> If you can get higher expected returns with an increase in risk
That's not how risk works. You always get higher expected returns with higher risk. That's the point or people wouldn't even consider it. You also get a higher probability of losing everything.
> as long as you can spread the risk around multiple fields.
Diversification is a strategy for reducing risk. It's irrelevant to this discussion.
High risk as a strategy is sound when you have little to lose. Like when you're young and poor. When you're old and wealthy, it is profoundly stupid regardless of what strategy you employ. It is exactly like being in a casino. You have a ton of cash in your pocket, why would you engage in investments where the probability of losing your shirt is high?
> That's not how risk works. You always get higher expected returns with higher risk.
You make investment choices sound like a law of nature. There are risky bets without high returns, and they have a hard time attracting investors.
> Diversification is a strategy for reducing risk. It's irrelevant to this discussion.
The more money you have to spare, the more you can diversify. Having more money means risky bets are less risky to you.
> High risk as a strategy is sound when you have little to lose. Like when you're young and poor. When you're old and wealthy, it is profoundly stupid regardless of what strategy you employ.
This isn't about age. If we talk about 38 and poor vs. 38 and wealthy, I strongly disagree with your argument. Risky betting with half your money when you're poor could make you go hungry for a week. Risky betting with half your money when you have a moderate amount could ruin your ability to have a carefree retirement. Risky betting with half your money when you're wealthy will barely impact your standard of living.
> It is exactly like being in a casino.
But it's not a good analogy unless there is an analogue to the poor person that you say should be engaging in risky investments. Are you saying a poor person should bet their money in a casino?
> the probability of losing your shirt
Oh, there's a bit of a disconnect. The rich person should not be betting all of their money. The reason it's easy for them to invest is that they can spare a big fraction of their money and even if it catches fire they won't lose their shirt.
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I can put it an entirely different way. When you don't have enough money to be comfortable, the happiness/dollar graph is closer to linear. Once you have more money than that, it's closer to a log graph. Someone in the first group has a lot more negative consequences from losing half their money. They should go with somewhat-safe bets and the moderate gains will help them a lot. Someone in the second group isn't impacted much if they lose half their money. But they need huge returns if they really want to improve their state of life. They are a much better fit to the risky high-value investment.
You make investment choices sound like a law of nature. There are risky bets without high returns, and they have a hard time attracting investors.
> Diversification is a strategy for reducing risk. It's irrelevant to this discussion.
The more money you have to spare, the more you can diversify. Having more money means risky bets are less risky to you.
> High risk as a strategy is sound when you have little to lose. Like when you're young and poor. When you're old and wealthy, it is profoundly stupid regardless of what strategy you employ.
This isn't about age. If we talk about 38 and poor vs. 38 and wealthy, I strongly disagree with your argument. Risky betting with half your money when you're poor could make you go hungry for a week. Risky betting with half your money when you have a moderate amount could ruin your ability to have a carefree retirement. Risky betting with half your money when you're wealthy will barely impact your standard of living.
> It is exactly like being in a casino.
But it's not a good analogy unless there is an analogue to the poor person that you say should be engaging in risky investments. Are you saying a poor person should bet their money in a casino?
> the probability of losing your shirt
Oh, there's a bit of a disconnect. The rich person should not be betting all of their money. The reason it's easy for them to invest is that they can spare a big fraction of their money and even if it catches fire they won't lose their shirt.
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I can put it an entirely different way. When you don't have enough money to be comfortable, the happiness/dollar graph is closer to linear. Once you have more money than that, it's closer to a log graph. Someone in the first group has a lot more negative consequences from losing half their money. They should go with somewhat-safe bets and the moderate gains will help them a lot. Someone in the second group isn't impacted much if they lose half their money. But they need huge returns if they really want to improve their state of life. They are a much better fit to the risky high-value investment.
> The reason it's easy for them to invest is that they can spare a big fraction of their money and even if it catches fire they won't lose their shirt.
Let's do an experiment!
Take $2K out of your savings account. Put $1K in one pocket and $1K in the other pocket. Your left pocket is your safety net and your right pocket is your "get rich" fund. Now go to a casino. Play a little. After that, let me know what you think about rich people "investing" their money, my analogy, and how they should really do it.
Let's do an experiment!
Take $2K out of your savings account. Put $1K in one pocket and $1K in the other pocket. Your left pocket is your safety net and your right pocket is your "get rich" fund. Now go to a casino. Play a little. After that, let me know what you think about rich people "investing" their money, my analogy, and how they should really do it.
I don't understand where you're going with this at all. The decision-making I outlined depends on net worth, and you didn't specify whether I'm rich or poor. The decision-making I outlined says to never try to make money at a casino, because the expected returns are negative.
But if I assume I'm rich, and I spend my $1K at the casino... well I probably have some alcohol and have fun, so great? I still have tons of money left?? I'm really not sure what this is supposed to demonstrate.
If I'm poor then I lose it all and I'm sad because I needed that money.
The very fact that you call it a "get rich" fund is totally against my argument. I said you should not use risky bets to try to get rich. Only risk your money if you can spare the money. (And only risk your money on things with high expected returns, duh.)
But if I assume I'm rich, and I spend my $1K at the casino... well I probably have some alcohol and have fun, so great? I still have tons of money left?? I'm really not sure what this is supposed to demonstrate.
If I'm poor then I lose it all and I'm sad because I needed that money.
The very fact that you call it a "get rich" fund is totally against my argument. I said you should not use risky bets to try to get rich. Only risk your money if you can spare the money. (And only risk your money on things with high expected returns, duh.)
> I don't understand where you're going with this at all.
Because you've never been to a casino. Because you've never gambled and won. Because you don't understand human nature. Because you're trying to rationalize your way to the answer through logic, but people don't invest or live that way.
If you try what I asked you to do, you'll understand. You'll also understand why those who are wealthy invest the way they do and why I said what I did.
I'll repeat what I said. It makes perfect sense for those who are wealthy to invest conservatively. If you find yourself with lots of money at the casino, the best course of action is to leave.
Because you've never been to a casino. Because you've never gambled and won. Because you don't understand human nature. Because you're trying to rationalize your way to the answer through logic, but people don't invest or live that way.
If you try what I asked you to do, you'll understand. You'll also understand why those who are wealthy invest the way they do and why I said what I did.
I'll repeat what I said. It makes perfect sense for those who are wealthy to invest conservatively. If you find yourself with lots of money at the casino, the best course of action is to leave.
> If you find yourself with lots of money at the casino, the best course of action is to leave.
And if you find yourself with not much money at a casino, the best course of action is to leave. The casino provides no insight into who should bet on investments with positive expected returns.
I'm talking about how people should invest anyway. Actual behavior is largely irrelevant to that.
> If you try what I asked you to do, you'll understand.
Physically going to a casino and winning or losing fifty dollars is not going to explain anything.
> I'll repeat what I said. It makes perfect sense for those who are wealthy to invest conservatively.
Sure, it's a fine strategy. But it's even better for poor people to invest conservatively, in my book. How about you explain why you think it's a bad strategy for poor people?
I'll put that again, to make sure nothing is misunderstood: I think investing conservatively is an okay strategy for everyone. But I think the wealthy should be more inclined than the poor to pick up risky bets with high potential rewards, with part of their money.
And if you find yourself with not much money at a casino, the best course of action is to leave. The casino provides no insight into who should bet on investments with positive expected returns.
I'm talking about how people should invest anyway. Actual behavior is largely irrelevant to that.
> If you try what I asked you to do, you'll understand.
Physically going to a casino and winning or losing fifty dollars is not going to explain anything.
> I'll repeat what I said. It makes perfect sense for those who are wealthy to invest conservatively.
Sure, it's a fine strategy. But it's even better for poor people to invest conservatively, in my book. How about you explain why you think it's a bad strategy for poor people?
I'll put that again, to make sure nothing is misunderstood: I think investing conservatively is an okay strategy for everyone. But I think the wealthy should be more inclined than the poor to pick up risky bets with high potential rewards, with part of their money.
make yourself a safety net and chase a high risk-reward strategy with the rest of your money
Not sure why someone voted you down for that.
A long time ago, Venrock[1] invested in a startup I was part of. They're a "venture" capital firm established by the "Rockefellers". Hence the name. Clearly they agree with your advice, which is to pursue some "high risk" investments.
[1] https://en.wikipedia.org/wiki/Venrock
Not sure why someone voted you down for that.
A long time ago, Venrock[1] invested in a startup I was part of. They're a "venture" capital firm established by the "Rockefellers". Hence the name. Clearly they agree with your advice, which is to pursue some "high risk" investments.
[1] https://en.wikipedia.org/wiki/Venrock
Since most of these seem to be parents or grandparents letters to their children or grandchildren, they're not supposed to be all-weather advice. If you have kids, you understand the morals and priorities that you attempted to raise them with, therefore you will speak to that shared understanding.
If you're trying to say "different people in different situations have different requirements"...
Yes, we know that. And?
If you're trying to say "different people in different situations have different requirements"...
Yes, we know that. And?
The title says "every parent". Explaining why the advice needs to drastically change for certain situations is quite helpful. You should not be so dismissive.
If you read the template they link to you would see that it's really a blank slate - more a placeholder for the conversation every parent needs to have with their children around money, relevant to that families reality.
I think it's less about providing bulletproof advice and about reflecting on your own experiences.
The children would have experienced the outcomes most of what the letter describes, it's just filling in the blanks.
Most people see their own upbringing as an ideal to follow so this is giving a rule book on how to do that.
The children would have experienced the outcomes most of what the letter describes, it's just filling in the blanks.
Most people see their own upbringing as an ideal to follow so this is giving a rule book on how to do that.
I think more than anything right now, the advice to give is how to avoid debt. Savings is certainly important, but increasingly a luxury, as friends still have school debt even as they contemplate having kids. And then think it's normal their kids will have school debt too.
School debt is not normal. That used to be for only the classic professions: teacher, lawyer, doctor. College was either paid for by family, by grants, or you worked your ass off but had no debt after the undergraduate degree. Now everyone thinks debt is sane.
If I were a parent, I'd plot with the kid how bankruptcy is part of their normal college education. Not debt.
School debt is not normal. That used to be for only the classic professions: teacher, lawyer, doctor. College was either paid for by family, by grants, or you worked your ass off but had no debt after the undergraduate degree. Now everyone thinks debt is sane.
If I were a parent, I'd plot with the kid how bankruptcy is part of their normal college education. Not debt.
We gave our kids the same amount of money toward school. One went to community college, graduated basically debt free. The other went to a brand name private school and has taken on a painful amount of debt.
The difficult advice I would offer is this: If you are not a top X% student, and the only way for you to pay for your education is to take on debt, you are making a mistake. Full stop. Find a cheaper school. Find another way, work part time and go to school part time. See if your church/mosque/community group/etc will give you even $500/semester toward school. Live at home or with a relative. If you still get gifts for Christmas, ask for money instead and put that toward books for Spring semester. Stop eating out, learn to make your own food, the meals on campus are too expensive. Find something that you can buy in bulk and sell one at a time on ebay. And of course, the best choice is to go back in time and be born into a wealthy family.
You can make it work, but you have to be willing to set aside whatever vision you have about how college should be. Take what is available and make it your own.
The difficult advice I would offer is this: If you are not a top X% student, and the only way for you to pay for your education is to take on debt, you are making a mistake. Full stop. Find a cheaper school. Find another way, work part time and go to school part time. See if your church/mosque/community group/etc will give you even $500/semester toward school. Live at home or with a relative. If you still get gifts for Christmas, ask for money instead and put that toward books for Spring semester. Stop eating out, learn to make your own food, the meals on campus are too expensive. Find something that you can buy in bulk and sell one at a time on ebay. And of course, the best choice is to go back in time and be born into a wealthy family.
You can make it work, but you have to be willing to set aside whatever vision you have about how college should be. Take what is available and make it your own.
Student debt is unconscionable. We’re taking young people, giving them 13 or more years of “we’re taking care of you,” “you’re too young to worry about this,” and suddenly they are legal adults, and the choice is theirs, but they really should consider taking on some debt to pay for school, because look at this pretty chart showing how someone with a college degree has so much more earning potential than someone who does not.
It’s difficult to process just how expensive school is becoming, how quickly. Right now, California community colleges charge $46 per semester unit, or $1,104 full-time for 1 year, plus maybe $40 in miscellaneous fees. If you want a heavy course load, 17 units all year, that rises to $1,564. A bunch of students qualify for the Board of Governors Fee Waiver, but that generally means the their families have poor financial situations, too. How much did community college cost when you were a young adult?
And that’s just the community college, in-state fees. 4-year colleges and private colleges are becoming ever more expensive, too. Adjusting for inflation, Stanford increased from $10,600 per year in 1960 to $59,600 now, just tuition, not counting miscellaneous fees or the cost of living in Palo Alto. And then there’s financial aid, of which there are nice grants for the destitute, enough to cover books and stuff, but mostly it takes the form of bankruptcy-immune student loans. Is it even possible to work part-time, go to school part-time, and graduate without debt, anymore?
It certainly doesn’t help that most of the kids learn fantasy-world liberal social policies, and increase their own fees. For example, I watched the students at UC Santa Cruz protest the wages and working conditions from the prison-food multinational that ran the cafeterias, and they “won” when UCSC agreed to turn the service workers into UC employees. The next year, instead of cutting the salaries of the executives, UCSC made cafeteria meal plans mandatory for everybody. And then these kids grow up into adults who vote for every bond and regressive tax that plagues my ballot.
As a caregiver and mentor, I’m not sure I can tell my kids to go to college.
It’s difficult to process just how expensive school is becoming, how quickly. Right now, California community colleges charge $46 per semester unit, or $1,104 full-time for 1 year, plus maybe $40 in miscellaneous fees. If you want a heavy course load, 17 units all year, that rises to $1,564. A bunch of students qualify for the Board of Governors Fee Waiver, but that generally means the their families have poor financial situations, too. How much did community college cost when you were a young adult?
And that’s just the community college, in-state fees. 4-year colleges and private colleges are becoming ever more expensive, too. Adjusting for inflation, Stanford increased from $10,600 per year in 1960 to $59,600 now, just tuition, not counting miscellaneous fees or the cost of living in Palo Alto. And then there’s financial aid, of which there are nice grants for the destitute, enough to cover books and stuff, but mostly it takes the form of bankruptcy-immune student loans. Is it even possible to work part-time, go to school part-time, and graduate without debt, anymore?
It certainly doesn’t help that most of the kids learn fantasy-world liberal social policies, and increase their own fees. For example, I watched the students at UC Santa Cruz protest the wages and working conditions from the prison-food multinational that ran the cafeterias, and they “won” when UCSC agreed to turn the service workers into UC employees. The next year, instead of cutting the salaries of the executives, UCSC made cafeteria meal plans mandatory for everybody. And then these kids grow up into adults who vote for every bond and regressive tax that plagues my ballot.
As a caregiver and mentor, I’m not sure I can tell my kids to go to college.
25+ years ago, when I went to in-state school all 4 years, it was $75/credit hour for my undergraduate. My friends that went to CC for two years paid $35/credit hour for CC.
Right now, the community college that one went to is $100/credit hour. The private school is $1200/credit hour, although they charge a flat rate for full time admission. There are a lot of fee waivers in there that lower the actual amount to about $700/credit hour. For both, books ran about $500/semester, and that reflects strategically not purchasing some books.
For all of the above, the targets were 30 credits per year.
Right now, the community college that one went to is $100/credit hour. The private school is $1200/credit hour, although they charge a flat rate for full time admission. There are a lot of fee waivers in there that lower the actual amount to about $700/credit hour. For both, books ran about $500/semester, and that reflects strategically not purchasing some books.
For all of the above, the targets were 30 credits per year.
> s it even possible to work part-time, go to school part-time, and graduate without debt, anymore
For my personal experience, the answer was yes. I went to a Midwestern in-state school and worked IT jobs part time (full time in summer) to pay for my school.
For my personal experience, the answer was yes. I went to a Midwestern in-state school and worked IT jobs part time (full time in summer) to pay for my school.
As far as I understand, it is very difficult to clear student loan debt via bankruptcy.
It is. People came up with the same plan. I believe it was popular with lawyers, but I could be mistaken.
Get your degree, file for bankruptcy. Since they can't take your degree away and you have no collateral, there wasn't much they could do.
The inability to relieve debt through bankruptcy is a result of that scam.
Get your degree, file for bankruptcy. Since they can't take your degree away and you have no collateral, there wasn't much they could do.
The inability to relieve debt through bankruptcy is a result of that scam.
Yes, it was doctors and lawyers. Get out of school, declare banktupcy on $100+k of debt (abnormal at the time except for those degrees) and then in 7 years, start over with all the money you saved as a Junior doctor/lawyer.
I think the parent meant bankruptcy as in not having any money for anything in your college years.
You are correct Student loan debt can not be discharged in bankruptcy.
You are correct Student loan debt can not be discharged in bankruptcy.
How about teaching in small doses at regular intervals throughout their growing up. Or give them tools to learn by themselves.
The scary thing is that banks actually sponsor investing games to be taught in schools, encouraging crappy habits like stock picking and trusting your gut and such.
We had a yearly competition like that at school. The "winner" was always someone who put all their money in one penny stock and got lucky.
A better approach is to reward the portfolio with the highest Sharpe ratio, but even that is flawed because it ignores systemic risk and confuses historical volatility with actual risk.
Anyway, these games teach nothing about the essential habits of delaying gratification and living within your means. Those habits are far more likely to make you rich (and keep you rich) than any particular investment strategy.
A better approach is to reward the portfolio with the highest Sharpe ratio, but even that is flawed because it ignores systemic risk and confuses historical volatility with actual risk.
Anyway, these games teach nothing about the essential habits of delaying gratification and living within your means. Those habits are far more likely to make you rich (and keep you rich) than any particular investment strategy.
Couldn't agree more. Kids learn to handle money from their parents behavior, for good or bad. A single letter can't have the same impact that years of example and teaching can.
Never heard about the tradition of the "Money Talk" and never got one either. Feel like it is much more worthwhile to teach kids critical and independent thinking rather than trying to teach them principles ("invest in index funds") that might (or might not) be all that useful a couple of years down the road.
You know what I wish my parents had taken the time to teach me? How credit cards work, how student loans work, and why I should max my 401k. Yes all of those things could change with legislation, but I'd be much much better off knowing those 3 things when I graduated high school than when I finally figured them out years after graduating college.
I never got much of a talk, yet every time I did, I questioned my parents' rationale and savvy. It was simultaneously both an epiphany and a dark moment when in your early teenage years you realize you are unquestionably smarter than your parents.
Here is what I was told:
* The value of your home doubles about every 7 years. I was told this in 1994. I then asked if my father's salary doubled every 7 years. I was immediately grounded and sent to my room.
* I was told to, without question, borrow money for the best college I could. When I asked on how I would pay that back, the question was dodged.
* How much money to save? Never came up. 401K? My parents didn't have one. Credit card interest? I was told to get it as low as I could -- but never told to avoid it.
* We always seemed to buy new cars. We had a basement full of junk. Seemed to be a nice setup for a guy working at a landfill and a stay at home mom in a city that had been in non-stop decline since the end of World War II.
I ended up going against my parents' advice. Something that got me kicked out of the house, for refusing to borrow 150% of their homes' value (I got a scholarship, but far from a free ride) with my own future money I hadn't yet earned, to attend Carnegie Mellon (and instead taking a job to pay for state school, which I ended up leaving after 3 semesters). When the dot-com bubble was about to burst. Result?
At age 22 I moved back in with my parents. Not because I needed help, but because they tapped their savings after Dad was unemployed for 6 months, despite unemployment insurance, and desperately needed help (and I wasn't giving them a handout while also renting my own apartment). I was the only person in the immediate family that had a decent job. This was exasperated by the fact they took a huge HELOC (at 10.5%) to help my sister pay to attend Cornell, an offer that wasn't extended to me, but was now burying them alive. They had to help my sister because she dropped BioChem for Psych, which for 2 years hadn't yet landed her anything better than working at a Hollywood Video store.
I ended up giving them the third degree. Their books I forced open. So much credit card debt (nothing insane, but significant, and lots paid in interest). So much garbage. So much useless crap. ZERO ever saved in a 401K (it wasn't until 7 years ago that I forced my father's hand on contributing to one). Virtually no savings to draw on. Never mind the extreme animosity considering that I was repaying part of my sister's Ivy League schooling, in addition to my parents' primary mortgage (not paid off after 32 years), and their health insurance.
Crazy thing is, they were far from the biggest financial basket cases in the neighborhood.
Here is what I was told:
* The value of your home doubles about every 7 years. I was told this in 1994. I then asked if my father's salary doubled every 7 years. I was immediately grounded and sent to my room.
* I was told to, without question, borrow money for the best college I could. When I asked on how I would pay that back, the question was dodged.
* How much money to save? Never came up. 401K? My parents didn't have one. Credit card interest? I was told to get it as low as I could -- but never told to avoid it.
* We always seemed to buy new cars. We had a basement full of junk. Seemed to be a nice setup for a guy working at a landfill and a stay at home mom in a city that had been in non-stop decline since the end of World War II.
I ended up going against my parents' advice. Something that got me kicked out of the house, for refusing to borrow 150% of their homes' value (I got a scholarship, but far from a free ride) with my own future money I hadn't yet earned, to attend Carnegie Mellon (and instead taking a job to pay for state school, which I ended up leaving after 3 semesters). When the dot-com bubble was about to burst. Result?
At age 22 I moved back in with my parents. Not because I needed help, but because they tapped their savings after Dad was unemployed for 6 months, despite unemployment insurance, and desperately needed help (and I wasn't giving them a handout while also renting my own apartment). I was the only person in the immediate family that had a decent job. This was exasperated by the fact they took a huge HELOC (at 10.5%) to help my sister pay to attend Cornell, an offer that wasn't extended to me, but was now burying them alive. They had to help my sister because she dropped BioChem for Psych, which for 2 years hadn't yet landed her anything better than working at a Hollywood Video store.
I ended up giving them the third degree. Their books I forced open. So much credit card debt (nothing insane, but significant, and lots paid in interest). So much garbage. So much useless crap. ZERO ever saved in a 401K (it wasn't until 7 years ago that I forced my father's hand on contributing to one). Virtually no savings to draw on. Never mind the extreme animosity considering that I was repaying part of my sister's Ivy League schooling, in addition to my parents' primary mortgage (not paid off after 32 years), and their health insurance.
Crazy thing is, they were far from the biggest financial basket cases in the neighborhood.
I grew up in a similar situation, though not as dire. I definitely had to figure this stuff out for myself, and because of my own lack of research combined with memories of when my father basically lost what they had called my college fund picking stocks in the 90s (he thought things like Ricochet and wireless ISPs were the future...thanks dad, maybe 20 years early with the wrong players in the wrong country), I ended up not recognizing a great options opportunity at my company and contributing nothing to it for 2 years before our stock price increased roughly 15x (basically, I would have been a millionaire like some my other coworkers now are).
We also had the "houses are always a good investment" bit of advice, despite living in a much smaller house in a much crappier town than we could afford. They're currently back at about mid-90s levels value wise, and my family did a horrible job of maintaining our home, so the value is actually less now. This covers basically what happened: http://infographics.economist.com/2015/uscitieshpi_11_2015/?...
Needless to say, getting out a few years back was the best decision I could have made for my life and career in tech.
If you're a parent considering writing one of these letters, how can you fact-check yourself to ensure that you're not giving your children a huge disadvantage with terrible advice? I personally learned a lot from Investopedia and from messing around with Bitcoin in the early days (another opportunity where I could have made tens of thousands of dollars had I hung onto the 20BTC or so I had mined instead of selling them for $12/btc, happy to have paid for a new GPU I got just for the task).
We also had the "houses are always a good investment" bit of advice, despite living in a much smaller house in a much crappier town than we could afford. They're currently back at about mid-90s levels value wise, and my family did a horrible job of maintaining our home, so the value is actually less now. This covers basically what happened: http://infographics.economist.com/2015/uscitieshpi_11_2015/?...
Needless to say, getting out a few years back was the best decision I could have made for my life and career in tech.
If you're a parent considering writing one of these letters, how can you fact-check yourself to ensure that you're not giving your children a huge disadvantage with terrible advice? I personally learned a lot from Investopedia and from messing around with Bitcoin in the early days (another opportunity where I could have made tens of thousands of dollars had I hung onto the 20BTC or so I had mined instead of selling them for $12/btc, happy to have paid for a new GPU I got just for the task).
> I ended up not recognizing a great options opportunity at my company and contributing nothing to it for 2 years before our stock price increased roughly 15x (basically, I would have been a millionaire like some my other coworkers now are).
I'm unclear - is this your parents' fault?
I'm unclear - is this your parents' fault?
>> I'm unclear - is this your parents' fault?
No, it's hindsight and regret. It's funny because it would be similar to picking that stock, yet the same poster says his parents lost a lot by picking stocks so apparently that's a bad idea. It's easy to get confused about that when "you worked there" as if that automatically should have given you insider information about a 15x increase in the stock price. No, picking individual stocks is not usually a good idea and Enron taught the lesson about investing in your employer - if they go down you have no income and no savings.
No, it's hindsight and regret. It's funny because it would be similar to picking that stock, yet the same poster says his parents lost a lot by picking stocks so apparently that's a bad idea. It's easy to get confused about that when "you worked there" as if that automatically should have given you insider information about a 15x increase in the stock price. No, picking individual stocks is not usually a good idea and Enron taught the lesson about investing in your employer - if they go down you have no income and no savings.
so what you are saying is that you should have borrowed for college because then you would have had no money to help them with and would at worst case ended up in the exact same situation?
"buy real estate no matter where it is located it doesn't matter if there is no actual supply and demand constraint in our vast suburb in comparison to a city on an island or peninsula"
the truth is that your parents don't know anything about economics and investing, they are simply people that had children
the truth is that your parents don't know anything about economics and investing, they are simply people that had children
I never got the money talk. It was just a part of conversations.
Me: "People sure have a lot of stuff these days. These self-storage places are huge."
Dad: "Yeah. I figured it was a growing industry, so invested in one back ten years ago. The company made a lot of money, but management were a bunch of crooks. They spent all the revenue on overpriced purchases from their friends and family.
No matter how good the fundamentals, you can't win if you're dealing with crooks."
Me: "People sure have a lot of stuff these days. These self-storage places are huge."
Dad: "Yeah. I figured it was a growing industry, so invested in one back ten years ago. The company made a lot of money, but management were a bunch of crooks. They spent all the revenue on overpriced purchases from their friends and family.
No matter how good the fundamentals, you can't win if you're dealing with crooks."
Yeah. I think it could be a little more concrete than that. First, that there's a lot of cultural baggage around money, and it's important to try to know how that's effecting your decisions. Second, that all the sellers of financial products/services are trying to sell you something, they're no more altruistic than a used-car salesman.
I have also never heard of nor received such a talk. I do, however, wish I had been given one.
Well...if they're telling you to do something specific, wouldn't that stop being a "principle"?
"Dear kid: The 'American Dream' is a myth. Its purpose is to flatter the rich that they are virtuous."
I do double-bookkeeping on every expense in GnuCash. One of the best decisions I did in my 20s was not to go to bed without hitting in those couple numbers into the computer. Elliminated a lot of stress in my life, and made me more savings oriented. My parents never talked to me about money. Reading The Richest Man in Babylon did the magic instead. Check it out, even if just the wiki article. It is worth its weight in gold-pressed latinum.
A modern - and superior - option would be a mobile application that could provide ongoing and reinforced instruction to the child.
As a millennial, we're probably the last generation to learn how to write a letter in elementary school (as well as how to use the Dewey Decimal system to find a book in library), yet even I find the concept of writing a letter silly and more about nostalgia for the parent than the child who will probably wonder why you just didn't use email or IM.
After reading this article, I'd rather have the couple minutes back in my life than trying to wonder why applying archaic communication to perennial concepts suddenly makes it relevant for the NY Times to cover.
As a millennial, we're probably the last generation to learn how to write a letter in elementary school (as well as how to use the Dewey Decimal system to find a book in library), yet even I find the concept of writing a letter silly and more about nostalgia for the parent than the child who will probably wonder why you just didn't use email or IM.
After reading this article, I'd rather have the couple minutes back in my life than trying to wonder why applying archaic communication to perennial concepts suddenly makes it relevant for the NY Times to cover.
> I find the concept of writing a letter silly and more about nostalgia for the parent than the child who will probably wonder why you just didn't use email or IM.
Unless you forget to log into your account with the important emails for N days and GMail/Hotmail/Outlook/Yahoo recycles the account.
This actually happened to me before I was in tech (i.e. properly understood the value of backing up my data). After my dad passed I kept an otherwise useless Hotmail account because it contained a lot of email conversations with him. I went to log in one day only to find the account and emails had been deleted. Hard way to learn that particular lesson.
TL;DR physical possession of important things isn't an entirely obsolete idea.
Unless you forget to log into your account with the important emails for N days and GMail/Hotmail/Outlook/Yahoo recycles the account.
This actually happened to me before I was in tech (i.e. properly understood the value of backing up my data). After my dad passed I kept an otherwise useless Hotmail account because it contained a lot of email conversations with him. I went to log in one day only to find the account and emails had been deleted. Hard way to learn that particular lesson.
TL;DR physical possession of important things isn't an entirely obsolete idea.
> A modern - and superior - option would be a mobile application that could provide ongoing and reinforced instruction to the child.
Reminds me of the Young Lady's Illustrated Primer of Neal Stephenson's Diamond Age.
Reminds me of the Young Lady's Illustrated Primer of Neal Stephenson's Diamond Age.
> wonder why applying archaic communication to perennial concepts suddenly makes it relevant for the NY Times to cover.
The NYT is archaic communication.
The NYT is archaic communication.
In the same vein, as a kind of adjunct to my will, I recently put up a memo on github to be given to the beneficiaries and trustees of my estate, when it should come to that.
https://github.com/nickgieschen/investingguidelines
Feedback welcome.
https://github.com/nickgieschen/investingguidelines
Feedback welcome.
I have two pieces of feedback.
1.) The letter itself is excellent and full of great advice.
2.) I especially love that you open it up with "Hello from beyond the grave.
Nice work - you've not only convinced me to write my own similar letter, but you've also given me a great template to follow.
Thanks!
1.) The letter itself is excellent and full of great advice.
2.) I especially love that you open it up with "Hello from beyond the grave.
Nice work - you've not only convinced me to write my own similar letter, but you've also given me a great template to follow.
Thanks!
Sincerely, good on you for making sure you have your estate in order, so many don't; but I sure as hell hope I outlive github :)
In my case I did see good examples set by my parents - although their frugality was a little too severe for my liking (they had come from poor backgrounds and grown up during wartime rationing), they did have plenty of good advice like never borrowing money except where doing so can generate a greater return than the debt (e.g. often a mortgage, or making the most of interest free credit for things you have money for and have to buy anyway).
But there were some things that they didn't know about, because for example their generation didn't buy stocks and shares, and had a pension provided by the state. So there are many things I've had to learn the hard way, in some cases too late to get the most benefit. For example, I bought a lot of BP shares on 15 April 2010. That was 5 days before Deepwater Horizon, which not even the world's best financial experts could have predicted. After decades of investing in individual stocks that's when I finally realised that investing in individual stocks is too much of a gamble, and began investing in things like index trackers instead.
I've actually been making notes over the years, initially to help crystallise what I've learned in my mind, but possibly also pass on to my children. It's things I'd have liked to have heard from a trusted source myself a long time ago. So while I hadn't heard of the practice of either a money talk or a money letter, I might consider it now. Judging by the other comments I might be one of the few people here who thinks this is a good idea. But it would be alongside the usual practising what you preach, given that the best way to teach is by example, and that education is continuous.
But there were some things that they didn't know about, because for example their generation didn't buy stocks and shares, and had a pension provided by the state. So there are many things I've had to learn the hard way, in some cases too late to get the most benefit. For example, I bought a lot of BP shares on 15 April 2010. That was 5 days before Deepwater Horizon, which not even the world's best financial experts could have predicted. After decades of investing in individual stocks that's when I finally realised that investing in individual stocks is too much of a gamble, and began investing in things like index trackers instead.
I've actually been making notes over the years, initially to help crystallise what I've learned in my mind, but possibly also pass on to my children. It's things I'd have liked to have heard from a trusted source myself a long time ago. So while I hadn't heard of the practice of either a money talk or a money letter, I might consider it now. Judging by the other comments I might be one of the few people here who thinks this is a good idea. But it would be alongside the usual practising what you preach, given that the best way to teach is by example, and that education is continuous.
Thin submarine PR advertising for a book, not honest enough to put it in the title.
In the same vein, and my favorite, is Jim Collins' "How I failed my daughter and a simple path to wealth":
http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-a...
http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-a...
In most EU countries the letter you'd need to write is very different since, as long as you have a decent job, you'll get a decent pension which will allow you to live comfortably as long as you own property by the time you retire.
Reading some of those letters made me realise how different risks families have and take in the US and the EU.
Reading some of those letters made me realise how different risks families have and take in the US and the EU.
These things have changed dramatically in the last couple generations, in Europe and in the US, and Asia. I would caution you against thinking that things will stay as they are. Hell, I'd caution you against thinking things actually are the way they seem to be.
> you'll get a decent pension which will allow you to live comfortably
Assuming the state pension system will still be running by then and won't be totally broken due to birth rates < 2.
At least in countries such as Germany they are currently facing issues because of the low amount of young payers in the next few decades. And politicians are just ignoring this to get votes from the mostly elderly population (recently in Germany: pension raise of >5% while inflation is at almost 0%).
Sorry, but I think depending on the pensions in the EU is waay to risky. It'll probably fail like a ponzi scheme in few decades. I guess US-citizens are actually better off, because they have more money to save on their own.
Assuming the state pension system will still be running by then and won't be totally broken due to birth rates < 2.
At least in countries such as Germany they are currently facing issues because of the low amount of young payers in the next few decades. And politicians are just ignoring this to get votes from the mostly elderly population (recently in Germany: pension raise of >5% while inflation is at almost 0%).
Sorry, but I think depending on the pensions in the EU is waay to risky. It'll probably fail like a ponzi scheme in few decades. I guess US-citizens are actually better off, because they have more money to save on their own.
[deleted]
So she kept a letter and ended up writing a book about it? What if the letter was just made up so she could write a book?
Sounds a wee bit like 'Rich Dad, Poor Dad'. Probably not helpful to someone who understands personal finance reasonably well, and wants to pass on that knowledge to their heirs... but that said, don't throw out the baby with the bathwater—all of these self-help-with-a-little-finance books are better than nothing, since most people (at least in the US) have little or no financial education.
I was wondering the same and would have appreciated if the piece was advocating for personal finance to be taught as part of a mandatory high school curriculum.
I've always been curious about how best to approach this with children. My parents hid all their money problems from us because they didn't want to freak us out. On one hand, I respect this discipline. On the other hand, I feel it allows kids to grow up without knowing how important it is to budget. I think I would rather know the truth, even if it freaked me out because it allows kids to have a distorted view of money and there will be a huge wakeup call when they become an adult.
you know what? this is utter bullshit. lived by this advice for 30 years or so, stashed a good amount of money, then the storm came, and I lost 90% of it in a very rough year.
if I hadn't that, I could have had access to welfare. instead, working hard and saving money put me squarely in the 'have to spend for everything' class, without any benefit.
so here's the advice letter I'm gonna write to my gc:
hide everything. dodge as much as you can without breaking the letter of the law. go find the most skilled practitioner in tax evasion and have them hide whatever you earn so much you can qualify for welfare, free tuition, college scholarships for low income family for your children etc.
being middle class sucks.
if I hadn't that, I could have had access to welfare. instead, working hard and saving money put me squarely in the 'have to spend for everything' class, without any benefit.
so here's the advice letter I'm gonna write to my gc:
hide everything. dodge as much as you can without breaking the letter of the law. go find the most skilled practitioner in tax evasion and have them hide whatever you earn so much you can qualify for welfare, free tuition, college scholarships for low income family for your children etc.
being middle class sucks.
Huh- I clicked that with a little sense of doom that it would just be a list of ways I've screwed myself financially. Turns out I've been doing most of what's on the list.
Personal finance should be taught as a math problem. Figure out the cost of the lifestyle you want, and work backwards from there. If your fancy house, car, and dinners out cost $100,000 then you can figure out if your choices make sense... does you career choice match up? does taking on school debt make sense? etc.
Or if you are older and made these life choices already and make $50,000, your math problem is a bit different. Does the honda or tesla fit? You can very easily see if credit card interest of 20% will help or hurt you achieve your goals/lifestyle if you do the math.
None of this generic "avoid debt" or "house are the best investment" (garbage) advice helps and only confuses the matter. I think the only area that has more confusion and bad advice than personal finance is nutrition. In the letter, grandma says "go for a fixed rate mortgage"... what!?