Better at Finance Because of your Parents – Or In Spite of them?
Submitted by G.E. Miller on Tuesday, 12 January 201015 Comments
How are Personal Finance Habits Passed from One Generation to the Next?
A few months back, I eloquently posed the question to everyone, “who would win a personal finance death match – your or your parents?”. How financial habits are passed from one generation to the next makes for excellent discussion.
Of the 174 people who voted in that poll, 121 (or 70%) voted that they would defeat their parents in this epic battle. This was a higher percentage than what I was expecting, however, after giving it a little more thought, it’s not all to surprising. After all, if you’re out in the personal finance blogosphere, the odds are that you are pretty motivated to improve your financial situation.
But it begs a few questions (and another poll).
- Is your personal finance knowledge a culmination of your parents knowledge plus your own? Is that why you feel you are stronger at personal finance?
- Is your personal finance knowledge driven by their lack of knowledge, or financial shortcomings? In other words, you were motivated to learn because you saw their lack of knowledge and/or discipline.
- If you thought that you were worse than your parents, why do you feel that way?
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I’ve thought about this exact thing many times. My parents did fine. Dad was an Army officer and mom was a teacher starting when all 3 kids were in school full-time. They had an upper-middle class salary, but they were stupid with it. Dad retired from the army in ‘06 with $0 in retirement savings. That’s right… $0. It’s all going to work out for them (they are now empty nesters with a 200K salary and dad gets a DOUBLE match on his 401K – he puts in 5% and his employer puts in 10%). So just in the last 15 years of their working life, they’ll save over $1M, and they have the army pension as well. But it’s affected all 3 kids deeply. All 3 of us are VERY aware of our financial lives. I guess it was a good lesson…
I think I am better because of them, because how I was raised with my mentality towards savings and the value of a dollar and that you can’t afford everything you want.
My parents didn’t know anything, and they taught me everything they knew!
Actually, they did know how to argue.
Please take a look at my take on parenting and budgeting: http://bit.ly/hbn-3half
What do you think?
I must say this has been a lifetime learning process for me in efforts to break the cycle. My parents were both blue collar laborers, undereducated and most respectfully, ignorant of financial matters. They lived paycheck to paycheck, and I learned the frustration and inconvenience of this all growing up. However it didn’t stop me from doing the same thing when I got into the workforce. It took years to start changing my habits. Now I’m recovering from my 20’s and making this decade of 30 my financial revolution, thanks to this site, Get Rich Slowly, and many others.
Mendy
From the day I was born until I left for college my family lived paycheck-to-paycheck and everything in the house was financed. We were a family of 5. My parents never stuck with a budget and didn’t track their spending until a huge purchase had to be made (usually emergency) or a bill payment was due. Having graduated college in May 2009 and starting my career, I have learned from the mistakes of my parents and have set goals and practices for myself. So far I have managed to spend less than my monthly budget each month and live off of 45% of my salary. I have $80k in student loans to pay off which have not kicked in yet since I am pursuing an MBA. My slary as an engineer is more than enough to help me pay off my student loans in a matter of 6-10 years and live on a budget and still have savings at the end of the month.
@ Brent – Ah, the security of a military pension. Heck, any pension would be nice!
@ Mendy – With that attitude, I’m sure you’ll be fine.
@ Calimechengr – Living off 45% is pretty darn good. Keep up the good work.
My mom was much more responsible than my dad. Dad has filed for bankruptcy twice. I think I acquired more of mom’s habits..thankfully!
I really have to think that my parents would win the personal finance battle if for no other reason than the extra three decades of experience they have over me. My parents are thoroughly middle class: Father has a bachelor’s degree in psychology from a state school, Mother graduated from high school and took a couple of semesters of community college, no degree. Both have been blue collar workers for the past 25 years making $50,000-$60,000 per year. They live in a big house in a nice neighborhood on a lake, and they will retire in a few years with over $1 million dollars in savings. I know that my dad is in charge of their finances, and he has no formal education in finance. Their success has been due simply to hard work and good fiscal decision-making. I am constantly impressed with how well they have done, and they know they’ve done well. My mom likes to say, “we’re just brewery workers” with a smirk as she sips a cocktail and looks out over the lake.
I have a bachelor’s degree in finance, and I am constantly reading and researching and trying to expand my knowledge without actually going back to school. Every time I learn something knew that I think my parents could benefit from, I call my dad only to find out that he’s already doing it. So, as financially savvy as I consider myself to be, they still win. Never underestimate the value of experience; it counts for more than that degree and all the reading you care to do.
Great questions to ask. I don’t think the results are that surprising. I think it’s more to do with living in the information age. People are more exposed to information about personal finance these days compared to our parents’ time. Besides, I’m guessing most of those who voted are of the younger generation very familiar with the internet and able to vote in without any problem. Parents, on the other hand may not even be familiar with voting via the internet, some don’t know and even afraid of operating a PC. So even if they really are better, they cannot do anything to have their voice (or vote) be heard. Just my two cents.
@ Allan – you make a great point. The key is using the information that is out there. Each subsequent generation (as a whole – not talking about readers of this blog) has been worse financially than their preceding generation. The savings rate has continuously gone downwards. And now, very few of us will have pensions to save us in retirement.
My view is that the playing field is not the same now as it was 30-40 years ago. Thesedays there is much more information available for us to process and many more investment options.
However,one thing is for sure and has not changed. You cannot become long term finacially viable if your expenses exceed your income.
Start learning the skill of saving from as early as possible, but don’t worry if you are a late starter. Always put your savings away first and spend the rest. This is called paying yourself first and the principle has never changed. Some popular books have been written on this principle alone. The amount you pay youself may vary from person to person but 10% of your earnings is a good figure to start with.
Next, learn to invest your savings so that your money is actually working for you. A good place to start is a bank term deposit, although it does not produce a high interest rate it is normally a safe first step.
Moving on to equities or property can come later.
My parents never really taught me much about money, savins or investment. They always told me to work hard.
I will teach my kids that you may be better off to work smarter rather than harder but you must have a plan and remain disciplined to achieve this.
Bad Credit Finance
I grew up in a house that considered it impolite to speak about personal money matters. In retrospect I wonder if my parents were simply too embarrassed by their lack of knowledge? My father has filed bankruptcy twice!
I followed their bad example until I had my first child. Since then we have eliminated all non-mortgage debt and saved and invested with decent success.
My kids learned that the most important rules are #1 Always save 20%, #2 Don’t lie, especially to yourself and #3 personal responsibility builds good character.
My parents are financial numbskulls, so I spent most of my youth learning how to save in SPITE of my parents’ example. Now, I’m very frugal and the polar opposite of both of them.
My parents have taught many subjects.But their knowledge is not from the financial area. I received this knowledge from other people.
I’ve learned a lot on my own, but my parents taught me all about interest, bonds, stocks, compound interest, etc. as I grew up. My great grandmother was a pioneer business woman in her hometown, and she owned large amounts of stocks and bonds as well as participating in several civic organizations as Treasurer. I guess I picked up a lot without realizing it until much later when my friends didn’t know as much as I did.
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