In Arrested Development (one of the greatest shows ever!), the father of the Bluth family would use a one-armed man to teach his children valuable life lessons. Lessons about leaving a note, and not teaching lessons. Classic.
Growing up, my parents taught me all kinds of valuable lessons. Like, “don’t play with fire!” (I love the 4th of July), and “eat your vegetables”. Sadly, my parents never taught me about financial matters. It was a very taboo topic. Now after getting hundreds of thousands of dollars in loans, day-trading for 3 years, and almost losing everything (including my sanity), I’ve come up with 7 lessons I wish my parents had taught me before I went and screwed my finances up so badly.
7 Financial Lessons I Wish My Parents Had Taught Me Before College
Have you talked with your kids yet?
1. Know your FICO
Getting your free once a year credit report is great. But you really need to spend the extra cash and get your real FICO score. It doesn’t hurt your score to check it yourself. I’d recommend Myfico, you can get legit fico scores here from all three bureaus.
Your FICO score influences more than just rates on loans. It can influence your car insurance rates, even your ability to rent an apartment
2. It’s OK To Talk About It
In my family money was a taboo subject. As a result, I got my first credit card completely on my own. From there is was a sad spiral down the bad-credit chain. First one credit card, then 2, then 5.
My parents never talked about paying bills in front of me. They never talked about saving or investing. Money doesn’t have to be a taboo topic if you approach it correctly.
3. It’s OK to borrow
I remember when my parents refinanced our house. What they didn’t do is include me in the process. I was in Jr. High at the time and think of what a great lesson I would have learned if my parents had sat me down and explained the value of a 15-year fixed mortgage? Priceless.
It’s OK to borrow money when it makes financial sense. For example, lets say you have 10K in credit card debt at an average of 19% interest. You have a decent credit score….you should borrow to payoff that credit card debt. So long as you have the income to support it, you should refinance that debt at a lower rate (try a peer loan like from Lending Club). You’ll save in the long run, and you’ll be out of debt in no time.
4. It’s OK to lend
I wouldn’t recommend lending to family members, but a number of new web applications make it easy and even fulfilling to be a lender. Kiva allows you to lend money to microfinance projects in 3rd world countries. Lending Club allows you to lend to borrowers all over the US. It’s a win-win. You get higher returns, and the borrower get a lower rate because of the lack of a middle man.
5. It’s OK to take risks
It’s OK to take a certain level of risk with your investments. My problem is that I never learned how much risk was too much. I had no problem on forex investments that I could make 400% in a week on….that is a problem! Don’t go overboard with Risk, but look at your financial situation and your goals, and take risk appropriately. (learn how to trade forex here) If you’re 25 and all your investments are in a savings account, something is wrong.
6. Don’t Follow Stocks Day To Day
Following individual stocks that you’ve invested in is like watching a pot boil. You’ll go crazy and start thinking you can time the market.
My father worked at a company pre-IPO and so I was spoiled with my first real stock trade turning $100 into $2000 over a few years. Once the stock was public though, we would pretty much track it day to day. For a long term investment, you don’t need to know the daily closing price.
7. Ask for help if you need it!
Do you have trouble asking for help? When it comes to your finances, if you don’t know what you’re doing…you need some help. Talk to your close friends and see if you can get a referral for a financial adviser. If you’re totally clueless when it comes to investing, get some help! Just make sure to do your background research on hiring a financial adviser.
Had I known these 7 lessons I might have avoided some of the mistakes I made in my early 20’s. Don’t forget to subscribe! It makes me Happy : )
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Debt Kid – I don’t agree with your 7 lessons – they apply only to your situation and failings – they are not universal….. the better lessons would have been:
1 The value of money and its relationship to work (i.e., your allowance)
2 The value of goals (how you use your allowance)
3 The value of savings (establishing a practice for taking a percentage of your earnings and starting a savings account
4 The understanding of your family’s finances (this is #3 on your list) but done in an age appropriate way….
5 Major purchases – i.e., cars, real estate, etc. – how you make these decisions and how you determine if you can avoid these items
6.Retirement Planning
7 External factors – FICO, credit cards, financial councelors, etc.
Haha, ok I need an address to go give that kid money for karate lessons.
On a serious note, the best thing I ever did was get professional advice. I don’t have time to learn everything there is to know.
DK, I’d have to agree with Smart Girl—this list would have been very useful in your situation, but not as applicable to others. However, openly discussing financial matters with the entire family is always a good idea. Simply having money discussions in front of the kids is a lesson in itself—that talking about money is okay and that it is very important in a marriage.
Oh, and Arrested Development was a pretty funny show.
I think these are pretty good, but I personally believe you stretched the lesson about lending into two. Similarly, I think you did the same with talking about finance and asking for help. Still, great list!
Under your ‘It’s OK to Borrow’, I think it’s important to note that borrowing at a lower rate to pay debt that is currently at a higher interest rate makes sense on the surface, it may actually create a larger problem and more debt. If the root cause of the debt isn’t corrected (living above your means, ultimately), transferring credit card debt to a secured loan frees up the credit cards again and next thing you know, the cards are maxed again AND you’ve got a loan. I’ve seen it happen several times and with increasing frequency.
My problem was my parents did teach me all that, I just wish I would’ve listened. Right when I turned 18 I got my first credit card and a year later I was in $10,000 credit card debt with really nothing to show for it. I don’t know why the idiots at Next Card gave me a credit card with such a high limit. But now that I think about it I did end up paying it all off so I think I was the idiot. One lesson learned the hard way. It took me 3 years to pay that down. Now I know!
One thing nobody bothered to tell me before college was how I could just go to school for free instead of taking on massive student loan debt……
How much did Warren Buffett borrow coming up through the ranks? I can't see where borrowing is ever good.
Great post!