Are We Rich? What to Say When Your Kids Ask

Hey Mom, are we rich?  Has your child asked you this question, or it’s opposite, “Are we poor?”. We have and it is a doozy.  Here is how you can deal with this question when you get it.

Let me start by repeating something I’ve said a few times. I’m very fortunate. I grew up with all my needs met, and I currently do the same for my children. I acknowledge that much of that privilege came from the luck of the timing and place of my birth. Had I been born somewhere else, or at some other time, I would not have had all the opportunities that I did. I also acknowledge that I have worked for what I have.  But just the fact that I was able to be educated, to be in a position to work, makes me one of the lucky ones in this world. So with all that said, yes we are rich.

Us vs The World

If we compare our situation to the vast majority of the people in the world, we would have to acknowledge that we are rich. Are We Rich Vs the WorldThe majority of the world makes much less per person than that of my family and me. And that is true for most of the people in my community. I have to believe that would also be true for most of the people reading this. According to where most of my readers are based, and those countries average income per/capital. Which means by those standards, we are very well off.

Us vs The Neighbourhood

But let’s be honest, when our children ask are we rich or poor questions they are not comparing us to households around the world.  They are Are We Rich vs neighbourhoodcomparing themselves to their friends down the street. They want to know how their family stacks up compared to the friend with a new pair of Jordans on, or a Nintendo Switch. Are we rich compared to those families?

I think this comparison starts early.  Our kids are not much different than us. I won’t pretend that I don’t look at clothing, cars, and other items and try to estimate where I fit economically compared to my peers. I like to believe that I don’t, but I would be lying if I said I didn’t. But with age and a bit of wisdom, I think that whatever mental calculus I do when I see those items I still treat the people I meet the same way regardless. It may be hard for me to stop doing mental math, but it has always been easy for me to treat people as people, I thank my parents for that.

What’s the  Answer?

If this question comes up, and I am positive it will come at some point, I would suggest you avoid diving deep into your pay stubs and tax returns. Start by asking a simple, “Why do you ask?”.  In addition to buying yourself some time to formulate an answer, it will also give you a chance to address what is at the root of your child’s question. Maybe they are comparing what they have versus what other’s don’t or perhaps it is something altogether different.  First, try to get to the cause of the question before you dive in.

Regardless of where your child is coming from with the question, I would suggest you work on defining the terms “Rich” vs “Poor.”  In our family being rich is as having enough money to cover all the needs of your family.  This is a great time to identify needs vs wants if you haven’t already done so. If you have all your needs covered and you have money left over to buy your wants I consider that rich. Poor, on the contrary, is when you do not have enough money to cover all of your needs.

Definitions Matter

With that simple definition, it is easy to understand why we can feel poor while we are some of the wealthiest people in the world.  If we start to believe that having the newest smart-phone is a need, but we can not afford it, then we will feel inferior.   Similarly, people with very little can feel wealthy if they want for little.  I don’t want to stray into the ills of consumerism, but if you get into this discussion, you can easily segway into how wanting more can make you feel bad.

It is easy to grasp the “keeping up with the Jone’s” effect.  The more we see others have, the more we want, the more we want, the less we feel like we have.    To counteract this effect, we practice gratitude.  I think it is essential to fight against the endless want so that we can appreciate what we have.   

Be Honest

If this question arises for you.  Be honest about your situation.  Provide your children with both comfort and clarity. Let them know that you, as their parent, will do everything in your power to supply them with all the needs that they have.

If this question arises out of wanting for more stuff let them know that not getting all of their wants met, right when they want them is a good thing too.  Remind them how much more valuable items feel when they have to save.  Remind them how fortunate they are.

“Are we rich/poor?” is not an easy question to answer, but answer honestly for your situation, and you will be fine.  Let me know what you have said to your little ones when this question has come up.

 

 

Are you Wealthy?

What does it mean to be wealthy? Easy right? Being wealthy means you are rich, you have lots of cash, go on vacations and you can buy what you want when you want. Or is it?

I had a fascinating conversation with Felicia Robinson Joly. She is the co-author of The ABC’s of Wealth: Big Ideas for Little Children. A book I mentioned in a previous post on when is the right time to start talking about money with kids. Her book takes a different approach to start the conversation about financial literacy by discussing the vocabulary of financial literacy.

The book

I’ll admit when I read “ABC..” I thought it was a bit simple. Felicia, to my surprise, echoed that observation, and then doubled down on it. She told me it is simple by design. We both agree that there has been far too little time spent teaching financial literacy in the past, but we also acknowledge that becoming financially literate can be a daunting task. She consciously created her book to be approachable, so that there would be “no excuses” to avoid the conversations. The easy to read verses get stuck in your head like a pop song. By creating rhymes and memorable text her hope is that you and your child will easily absorb the vocabulary of financial literacy.

The Mission

But back to wealth. During our conversation, Felicia brought up the question “What is wealth?” again and again, and for good reason. Felicia’s objective with the book is to get people financially literate, but more importantly, her mission is to have people define what wealth means to them.

“Over the last 200 years, we have lost focus on what our intrinsic value is”. “Money has become the master” and “we’ve devalued ourselves” Felicia explains.  She went on to say that she wants to shift the “underlying mindset” with our relationship to money to be “based on our own definition of what wealth and value is”. Right now she believes those definitions “are being shaped by external ideas”.

Put another way Felicia says she wants people to “define wealth within” and to “look at yourself as your ultimate asset…your mind, abilities and craft”. Rather than seeing a doctor, a lawyer, or a ‘YouTube star’ and thinking that is what wealth is, I am going to get that.

Value

The idea that we have devalued ourselves reminded me of The Icarus Deception, by Seth Godin. I wrote in a  review of his book how he empathized that we are all artists. The industrialized economy of the past forced us to be a part of a larger system. In that system, we only had value as a cog in the larger system. In our new economy, we need to remember that we all have an individual value that we need to offer the world. It is only through the creation of our ‘art’ that we can then engage in the exchange of value. My ideas, my art, for your connection, your attention and your money.

Felicia notes that this is what the billionaires have done. She referenced the billionaires who started with the questions of how am I going to create value, what idea do I have that I can then share with the world. What connections can I make to exchange value? She noted how Oprah created value with the exchange of ideas, Richard Branson with the exchange of music, and Bill Gates with the idea that there could be a better way to interact with hardware. They created value by first having ideas to share.

People have it upside down; they think ‘let me get the money and then I’ll be important’ or, ‘I want to be wealthy so I will work for that wealthy person’, instead of creating their own idea and exchanging it with the world.

Shifting Mindset

That shift in mindset made me think of those people in our lives who do a 180 in their career. They put the brakes on hard, after spending years climbing the ladder, only to realize years in that they don’t want to be doing what they are doing. Or worse, they came to that realization but kept going even though work brought them no joy, only income. It happens. We get on a path, and follow it,  never asking if is this the right path for me? This is what happens when we do not define what wealth is for us. When we assume that wealth is solely the collection of money. And then we go down the path we define that will allow us to accumulate the most money we can.

Felicia is hoping to make that shift more conscious, not a result of burnout or happenstance, but a conscious decision to say this is what wealth means to me. Time to be with my family, or time to see the world, or just time to sit peacefully with myself. And once you define wealth, then you use your abilities to create value to reach that goal.

I’ve written about target setting for savings, but this is target setting for living. Defining what success is, what wealth is are things that should be done before your career.  You can adjust and iterate if needed. And they should be based off your objectives and goals, not based on what we see on Instagram, Facebook or YouTube.

How do you define wealth and success?  Have you conveyed your thoughts on wealth to your children?   Who is helping them to define their wealth?  If it’s not you, then who, DJ Kalid, Labron, the Kardashians?

I commend Felicia on her mission to shift mindsets because I agree that wealth should be defined within.  You can find Felicia and her financial literacy program at  Power@Play and you can find the ABC’s of Wealth here.

Things My Parents Didn’t Tell Me – Credit Debt

I’m very fortunate to have two loving parents who gave me more than I needed to succeed. They cared and provided for me both physically and emotionally, so this is not a condemnation on them by any means. Also, I don’t want anyone to think that I’m hung up on things that happened 20-30+ years ago. I am not. I own every step I’ve taken on my path.

What this is, is an honest look at some of the things that I wish I would have understood earlier in life. “What my parents didn’t tell me” is a catcher label than “Things I wish I learned sooner”. It also has the bonus of taking us back to when we were children, and still forming our understanding of the world and the way it worked.

My Debt Story

So what is it that I wish I had learned sooner? For me, it would be Credit and Debt. If you borrow money, you need to repay it. It seems so obvious now that it is almost ridiculous to write it out. And yet, I didn’t do it when it mattered. I also didn’t realize the severe ramifications of not repaying my debt, or maybe more critically, of not paying it back on time.

Specifically, I’m talking about credit cards. I got my first credit cards when I was living on my own around age 18 or 19. At first, I didn’t use them much; they were for emergencies, right? But then I did…for everything. They are so convenient, and who has cash on them anyways? Big or small purchases, it didn’t matter; and since my savings balance didn’t move, it felt like free money. But then the minimum payments started getting higher, and I thought, “Maybe I’ll pay this one a little late. Is MasterCard going to struggle if they don’t get my minimum payment on time?” You see where this is going.

What I Didn’t Know

I didn’t realize what I was doing to my credit score.

It’s crazy, right? How is it possible that I got thousands of dollars in credit without anyone sitting me down to say, hey this is how this whole system works. No one told me what a late payment would mean, or more accurately what lots of late payments would mean. If I’m honest with myself, if someone said “Hey Clif, you know you are not going to be able to get a car loan when you are done school, because you are paying your credit card bills late” I would have said, “I’ll walk”. But the fact remains,  I was given a credit card without anyone telling me:

  • A $2 pack of gum bought with a credit card will cost you $50 when you only pay the minimums,
  • Paying on time is just as important as paying your bills at all, or
  • Defaulting on a credit card could keep you from buying a car, a house and in some instances from getting a job.
What Will I Teach My Kids

So what does that mean now? Well, for one, I plan to explain the credit system to my children before they are living on their own. I will teach them how purchases on credit card are a loan. I will teach them that paying your bills is just as important as WHEN you pay them. They will learn that their credit history starts from their first bills to their last credit payment. And that information will be used to determine interest rates and creditworthiness for the rest of their lives (or seven years, which seems like a lifetime when you are in your twenties). But more important than any of that, I want to get my children into the habit of paying back.

Lend Your Kids Money

I believe the one thing that would have changed my actions as an adult, even more than understanding the system, is if I had developed the habit of paying loans back.  I didn’t owe anyone anything until I got my first credit card bill and student loan, both when I was about 18 years old. When I started borrowing, I was not used to paying anyone back. And it was easy for me to think, no need to pay this back now.

Some people would never consider paying a bill back late. They are born with that sense of urgency when in debt, unfortunately I was not one of them. I want to build that sense of urgency into my children. I need to create repayment habits in my children through actions.   And the only way to make that habit is to lend my kids money!

That’s right; I want you to lend money to your kids too. I’m sure I’ll get some push back on this. “Advances on allowances will mess with the concept of saving.”  I respect that, but I think just like there are times you use credit to get something now rather than waiting, the concept of credit and debt is something you should incorporate into your child’s money practice.

Lending in Practice

Here is what I have done. If I go out with my son to buy something with his allowance, I do my best to set the expectation that the item he wants to buy will be purchased only with his money. He should be going to to the store with all the money to buy the item, but it will happen from time to time that something else catches his eye that is more expensive, or he forgot the tax (I make sure he pays the tax).

In those instances, I tell him I will lend him the money, but as soon as he gets his allowance, or whenever he gets money the first thing he needs to do is pay me back. I take the receipt from his purchase, write an IOU on the back, and have him sign it. I will not lend out more than one week’s allowance since my objective is not to get him into debt trouble. That is his credit limit.

Here is how it played out the first time I did this. I lent my son an extra $4 a few weeks ago. Right before his allowance, he was given $5 for his birthday from Papa. I will not lie; I felt conflicted telling him that he had to pay me back using his birthday money, and I will also let you know there were tears when he paid me back. But I believe a lesson was learned. And I plan on lending to him again in the future.

How are you teaching about Debt and Credit

Debt and credit are big on my personal finance curriculum. I would love to know if you have any other ideas on how to teach our kids about this important concept. Also, I want to make “What my parents didn’t teach me about personal finance” into a series. I would love to interview you, yes you, the one reading this, to hear your finance journey. You can remain anonymous, but I think we all have important stories to share. Let me help you share yours. If you are interested reach out to me: info@cliftoncorbin.com

Lastly, a lot of this post assumes that you have a good handle on how credit cards and the credit system works. If you don’t, I would strongly urge you to read up on them. I will go into more detail on credit cards in future posts, but if you feel like you need something now, email me and I will send you some resources.

Why You Need To Stop Saying “We Can’t Afford It”?

How many of you have told your kids, “We can’t afford that” when asked to buy something for them? I have, well, that is to say, I used to.

It is easy to be less than fully conscious of the things we say to our kids. I had lunch with a good friend of mine, and she shared a quote from a parenting book that she read that resonated with me. I apologize if I butcher the quote, but it was something along the lines of “children are great observers, but awful interpreters.” I couldn’t agree more.

What do you think your child’s interpretation of “We can not afford it” is? Especially after they see you spending money. We can’t afford that toy, but we can afford beer, or gas for the car, or some other item for the house.

Children Are Awful Interpreters

Unfortunately, our children do not get nuance. We know when we say “we can’t afford it” what we are actually saying is, “In our family budget we prioritize what we spend money on.  On our list of priority items, this toy is at the bottom”.  Ha. Can you imagine trying to say that to a child on the verge of a meltdown in a store? Of course not, so what we say is, “No, we can’t afford that,” and we go on our way.

The problem is, our children don’t get it. How is it possible that we can “afford” all the other things that that they see us spending money on, gas in the car, food in the house, or clothes on our backs, but when it comes to the things that they want, all of a sudden we don’t have money.

Well, I won’t pretend that I can interpret what a child thinks, but I can tell you what I would think if I observed those inconsistencies. I would think that my wants are not as valued as the wants of the adults in the house. I would also be confused about how money works. Does money only exist for my parents, but not for my wants? I would be utterly confused on the one end or very disappointed and devalued on the other.

Our Job Is To Demystify

As parents, it is our job to demystify the world for our children, not to add more confusion. “We can’t afford it” is an easy out, but it is not an accurate statement. If the desires of your child do not exceed the balance of your bank account, then we can not afford it is not a true statement.

So what are you to say? Well, first off, don’t start this conversation when on the verge of a meltdown. You start by explaining to your child how much money you have; where it comes from; and where that money needs to go. Do you get a salary or an hourly wage? Explain in terms your child understands. Let them know that you have only so much money coming in each month or week, and that money needs to be spent on the items that your family needs. This can be a fun and engaging conversation and enlightening for both you and your child.

Try to have your child list out the needs that your family has. A place to live, food to eat and clothes to wear are the primary ones, but see how deep you can go. If you need to commute to work, see if your child can come up with gas for the car, or subway pass as a need. Guide them and try to list the big ones. Go deeper if your child is into it. Then explain that the money that is left over after the needs are met can then be spent on wants, and then explain how you prioritize the desires in your family. If wishes are doled out on birthdays or other special days, then tell your child so. If you can buy more wants more often, let your child know the guidelines for when those wants will be met.

How Do You Prioritize

That way, when the question comes up in a store for that toy or candy, you can say, “that is not a priority for us right now”, or “we are not choosing to use our money to buy that at this time”.  Let them know they may get it on their birthday or whatever guidelines you set out. It is not an easy out, and it may likely spur on more conversation such as needs vs wants, but at least you are starting to show your child how money is allocated, instead of using a blanket statement that may not be true to appease them.

Are there other phrases that you catch yourself saying, that you wish you could change, or better yet have you ever found yourself saying a money cliche. Tell me about it in the comments.