I’ve learned many things in life and one of the biggest learnings is what NOT to do from my parents.
I feel like an asshole saying this, but my parents were terrible at managing money. Wait, sorry…that’s an overstatement. They didn’t manage their money. They were just terrible with money. I love my parents and they did many things right – providing food and shelter, encouraging education, stressing the importance of family, demonstrating a strong work ethic, etc. However, money management wasn’t one of their strengths.
Money was a black box growing up. It was never spoken about and when the topic came up, the subject changed quickly. There was no transparency on the topic and I don’t recall any lessons about money basics — budgeting, saving, compounding interest, etc. The only thing I recall was my mom “balancing the checkbook,” which I recall only as a math exercise as a kid. The connection was never really made to the concept of money. What still blows my mind to this day is that my mom worked at a local bank for 25 years!
My parents always lived paycheck-to-paycheck. We lived in a small Midwestern town and my father worked a blue collar job at a manufacturing company. Every Friday at 5 p.m., we would ride in his truck listening to Todd Rundgren’s “I don’t want to work, I just want to ‘bang on the drums’ all day” on the radio on the way to deposit his paycheck at the local credit union. He would deposit enough money to cover the major payments like the mortgage and car payment, but he would take out enough twenty dollar bills to have his wallet barely able to fold. This was my dad’s system. It wasn’t a good system and it set our family up for failure.
As a kid, I thought this was normal. Now, as an adult, I can’t help but think, “what the f*** were my parents thinking?”
It wasn’t until three years ago when I realized the state of my parents finances. I was on a call with my mom and she seemed more stressed than normal. For context, my mom “managed the finances” at home. This was by default, because my dad was oblivious to finances. His job was to work hard, bring in the money and fix the house when it needed repairs. My mom took care of everything else (kids, laundry, dinners, dishes, etc., etc., etc.). On the call, I could sense things were off so I asked my mom, “Are you doing okay with money?” For the first time, my mom cracked and indicated that “things weren’t too hot.” I took the bait and probed deeper only to find out they had $10K+ in credit card debt, a second mortgage and were behind on mortgage payments.
Hearing this from my mom was a hard pill to swallow, because they took pride in three things in life: family, house and “the truck.” I reserve judgement on this priorities for another day and another blog post. I love my parents and, for better or worse, I believe(d) it is my responsibility to take care of my parents like they took care of me growing up. It’s not my place to judge them or anyone else for what they believe is important in life.
With the blessing of my wife, I offered to help my parents out under one condition: they give me full transparency into all their assets and liabilities, including full account access. My mom complied and I started digging in. I built out an excel spreadsheet detailing their monthly budget with line items for ongoing expenses, as well as payment plans for their outstanding debt. The biggest learning from this whole process was the gap in understanding with “minimum payments” versus “outstanding balances.” My mom thought it was sufficient to make the minimum payment and she would eventually pay it off like a car payment. She was unaware how much interest they were accruing and how much worse their situation was getting month after month.
I never wanted to lend my parents money, because I never thought I would see my money again. It turned out better than I expected. My parents got out of debt, they paid us back the full amount over the course of three years, and I now had transparency of their finances going forward. My parents also became more open to making adjustments to the budget, which included them eventually selling their home and downsizing to reduce their total mortgage and monthly payments. I still was never able to get them to get rid of their $125 per month cable bill, though.
It can’t go without saying that the remaining 25% of what I originally lent them was paid back from life insurance received from my dad passing away. In a weird and sad way, the financial groundwork I laid with my mom made money conversations much easier when we needed to pay for my dad’s funeral and determine where she stood financially without my dad’s paychecks coming in. It turns out that if we didn’t downsize their home a year earlier, then she wouldn’t have been able to make monthly payments for three months due to delays with life insurance payments. My sister and I paid for my dad’s funeral and I lent my mom another lump sum to ensure she had sufficient cash flow for the short term. Dealing with the death of a spouse and a father is hard enough. I can only imagine the difficulties of layering on financial stress to the situation.
So, is it better to be taught about money directly or learn the hard way?
My parents didn’t even learn the lesson. Either their parents didn’t teach them the lesson or they never absorbed what their parents were trying to teach them. My parents were never conscious teachers and I happened to stumble upon financial management later in life. I’m personally grateful for the experience, but I still ask the question, “what the f**** were my parents thinking?”
Every good parent always want their kids to be better off than they were. I believe good parents will expose their children to money lessons – intentional or unintentional. Great parents know what wisdom they wish to impart upon their children and work backwards to create lessons in childhood to give them this education. My goal in life is to have my daughter learn everything she needs to handle a similar situation, but without having to learn it the same way.
Parents should teach their children how to create and stick to a budget. Parents should teach their kids the difference between minimum payments and full balances. Parents should teach their children the importance of saving money and the benefits that compounding interest provides when you keep money invested over time. Parents should have a will and children shouldn’t have to be surprised to know what’s in the will. Parents should share details of their personal finances with their children and make them aware of why they make the decisions they make. Parents should give their children the knowledge to effectively manage their own finances as well as their parent’s estate when that day comes.
Personal finance shouldn’t be taboo, especially with your children. Learn from your parents conscious or unconscious teachings, and be a better parent than your parents so that you can have your child(ren) be better than you.