Everywhere you look, companies are still offering people the opportunity to be irresponsible with their money. Even PayPal has gotten into the ‘credit’ game recently with their new BillMeLater service…but don’t do it and here’s why.
Painful Credit Lessons Don’t Last Long
The past several years has brought a huge percentage of Americans to their knees financially. The continued wrongful use of credit cards and the ‘mortgage’ situation should have taught us a thing or two about buying ‘stuff’ with other people’s money, but no…we’re still tempted and enamored by the idea that we can have all the ‘stuff’ we want today and pay for it tomorrow.
STOP THINKING THIS! Thinking that you can pay for things later is what keeps getting this country into the problems it’s in. In the US government only spent money it had, we would NOT be in debt…we couldn’t be.
Think Like People Who HAVE Money
Here’s the thing…
Wealthy, financially free, rich people are wealth, financially free and rich because they practice some very important, and simple, time-tested financial principles. Principles like Pay Yourself First, Put Your Money To Work for You and others.
Paying for stuff with other people’s money isn’t one of those principles.
Question: if you want to learn how to play the flute, do you learn from a concert flutist or a soccer player? I know…stupid question, huh. The fact is, if you want to have money, you MUST do what people who have money do.
In all of our financial literacy programs, we teach participants that the ONLY reason to borrow money (and that’s what using a credit card is) is if you have the opportunity to MAKE money by using it. (Caveat…I’m not talking about an emergency like a medical expense or something life-threatening.)
In other words, borrow money to invest in assets that are going to MAKE you money like rental property, parking lot, a business and other assets that have the opportunity to create a cash flow for you.
I would venture to say that most things paid through PayPal are NOT asset-like!
Financial Principles You Can Thrive By
Two of our Creative Wealth Principles (aka…Rules to The Money Game) that go hand in hand with this financial strategy are as follows:
Only Borrow Money When It’s Going To Make You Money
We’ve already discussed this one…
If You Can’t Afford To Pay Cash For It, You Can’t Afford It At All
This principle is quite simple. If you don’t have the cash, i.e., REAL MONEY, to pay for something right now, you can’t afford it. This is where we need to go back to saving up for things we want to buy. Something happened to the whole idea of delayed gratification years ago when credit cards were introduced. People no longer had to save up for purchases…they just went and bought whatever they wanted…and this was the beginning of what has become a huge issue for a huge percentage of Americans.
What You Can Do
The most important thing you can do is to learn a little self-control and the way you do that is have a big enough WHY for not buying everything you think you want or need.
In other words, learn to tell yourself, “NO, because I’d rather….. (fill in the blank).
Here’s an example of what I’m talking about.
Imagine you’re in your favorite clothing store and you see a shirt that you just have to have. Instead of buying the shirt on impulse, you say to yourself, “Self, I’m not going to buy that shirt because I’d rather feel more secure with an extra $60 in my savings account this month.”
We must learn to look further into the future when it comes to making personal decisions in regard to money, health, relationships. We all want things right now, whether it’s a new iPhone, piece of cheesecake or hugs and kisses. Learning how to best assert personal self-control, i.e., self-disciple, gives you the tools to create the future you keep saying you want for yourself.
WealthWork*
Answer the following sentences and then go look into the nearest mirror and say them to yourself. You won’t believe how powerful you’ll feel.
“I’m not going to buy this today because I’d rather experience……”
“I’m not going to eat this today because I’d rather experience……”
“I’m not going to say _______ to ________ because I’d rather create _________ type of relationship for the long term.”
And feel free to make up a few of your own.
As always, hope this information was valuable. Please leave your comments below and please share this post on your Facebook wall to share with your friends.
Elisabeth
The Financial Literacy Lady
Just helping you think differently about money www.ElisabethDonati.com
* WealthWork is what wealthy people do in their spare time to create wealth for themselves.
Of all of the financial principles we teach in Camp Millionaire and The Money Game, this principle alone would have kept Americans from getting into debt they couldn’t get themselves out of.
Making Money Borrowing Money
If you don’t understand the world of money, then you can’t understand how your could actually make money by borrowing it.
Borrowing money in and of itself isn’t what makes you money. It’s what you DO with the money you borrow that makes you money.
Good Debt vs. Bad Debt
Think of it this way…when most people borrow money, what do they use it for?
Answer…buying liabilities. You know, those things that go DOWN in value. Things like:
Cars
Houses to live in (stay with me)
Phones
Boats
Clothes
Electronics
Garden tools
and everything else that goes down in value
If you borrow money to buy these things, YOU are then liable for paying back the money you borrowed, be it from a friend, a relative or your all too friendly credit card company. This is why we call them Liabilities.
What if, instead, you used the money you borrowed to buy something that went UP in value. Things like:
Real estate that brings you a positive monthly cash flow
Creating a profitable business
Inventing or creating a product you could sell for years to come and maybe for the rest of your life
We call these things Assets and sssets are things you buy that bring make you money on a regular basis.
Yes, stocks and bonds are also considered assets but you generally wouldn’t borrow money to invest in stocks or bonds because the risk is too high and/or the return probably won’t out perform the interest rate you’re paying on the money you borrowed, i.e., the loan.
The cool part about good debt is that ‘usually’ someone else is paying down the debt.
In the case of rental real estate, your tenants are paying your mortgage down.
In the case of a profitable business, your customers are paying down your business debt.
In the case of investing or creating a product or service, you can sell the entire thing to a business for a profit or turn it into a business yourself where again, your customers/clients are playing down the debt.
All of this is a very good thing when it comes to making money work for you.
And now you see, debt can be a good thing or a bad thing…it’s all in how you use it.
Good debt is debt you use to invest in assets
Bad debt is debt you use to spend on liabilities, aka piddlyjunk.
Only Borrow Money to Make You Money
So, next time you think about borrowing money to buy something, ask yourself this very important question:
Do I have to pay this debt down myself or will someone else be paying down this debt?
If it’s you doing the paying, you might want to think twice before borrowing the money.
It’s often that we think we just have to borrow money to buy a certain thing but in reality, we don’t have to borrow money to buy anything.
But What About a House to Live in or a Car to Drive
Well, what about them? Here’s the thing:
That house you live in that you borrowed money to buy? It’s not an asset in the sense that it doesn’t bring you money on a regular basis, unless you’re renting out enough rooms to more than cover your mortgage payment. It’s really the bank’s asset…it’s bringing the bank regular monthly income as long as you keep making your payments.
The car you borrowed money for? My guess is that you could have driven the car you had prior to this one for a few more years and saved up to buy a car that was adequate without buying a new one that required you to borrow money. It’s just a guess mind you but I’m often right.
If you want a new car, why not create an asset that generates the passive income you need to cover the car payment?
Again, just a thought and another way of looking at borrowing money.
There are, however, several challenges with financial education in schools:
Schools are gears toward getting students to be proficient in subjects they are tested in: math, reading, writing, science, etc., NOT subjects that are classified as electives.
The main reason schools are gears toward tests and these subjects is that they aren’t so much looking at what helps create a successful human being but are focused on getting a certain percentage of their students into college because most schools, like most adults, are brainwashed into believing that college is THE way to success rather than simply A way.
Schools also focus on the tested subjects because most of the time, schools funding is tied to how well their students do on those tests.
When a school or individual teacher makes a commitment to start teaching their students about money, the programs that are ‘affordable’ are only not the best financial education program available and you do get what you pay for.
Free financial education programs, most made available by financial institutions, are boring…they use boring workbooks, boring curriculums, aren’t taught in a relevant way (i.e., students have no connection with the material) and well, all in all, this makes the programs pretty ineffective. Here’s an interesting article from Kiplinger that reflects the point.
Let’s say that schools start really making a place for financial education in their classrooms…for whatever reason: legislation, demand by parents, demand by students, new goals by the administration…it’s going to take it all.
Teachers and administration will go out and start looking for the best financial program they can find.
And if cost is an issue, which it so often is, they end up searching for free…and this is what they get…a curriculum focused on a lot of the right things and one that is completely void of lessons that teach kids the real truth…what it takes to become financially free in this day and age.
This is what they’ll study, and generally be bored studying it:
Budgeting: The lesson is generally that you must spend less than you make and live within your means rather than simply planning your spending. There is a subtle message of ‘not enough’ when teaching budgeting. In Camp Millionaire and The Money Game we teach kids that ‘a budget is a tool to make their dreams come true’ rather than the idea that they always must be on a diet with their money.
Saving: The lessons usually revolve the idea that we have short term and long term goals though the long term goals are often college and buying a car. We teach kids that they have two Savings Jars; one for saving up to buy something (for cash…not borrowing to buy it) and one for what we call “just in cases.” Savings in Camp Millionaire isn’t tied to different types of goals but what you use the money for instead.
Credit Score: The lesson is that they WILL borrow money so they better make sure they have a great score when they go to buy it rather than teaching them that borrowing money isn’t mandatory in life. But you’d hardly know that with the way everything is offered credit from about every type of company imaginable these days. Let’s teach kids that they don’t have to ever borrow to buy something if they don’t want to (and then teach them how…I’ll get to that in a second).
Debt: The lesson is often to learn to use credit cards wisely rather than not using them at all. Some of the richest people in the world use debit cards because they don’t want to ever use other people’s money the wrong way. Then again, others use their credit cards to accumulate points to use for mileage, trips, bonus products and more. A better lesson is learning the difference between Good Debt (debt other people pay down…using from investing in assets) and Bad Debt (debt YOU pay down…usually from buying piddlyjunk, aka liabilities).
Miscellaneous lessons including insurance, buying cars, saving for college, borrowing money for college (yikes), retirement accounts like IRAs, and a few other things.
Financial Literacy – The Critical Piece That Gets Left Out
Let me ask you a question…
Why do you want your kids to learn about money in the first place?
So they’ll end up with plenty/lots of money when they’re older?
So they’ll be able to retire when they’re older?
So they’ll be able to provide for themselves and their families?
So they’ll never move home because they’re in debt up to their eyebrows?
All of the above?
Financial Literacy Education Must Teach Students How To Invest
It’s a rare financial literacy curriculum that teaches investing as one of the core principles…but without it, it’s like teaching kids how to brush their teeth but never showing them how to use the dental floss…or worse.
Investing is putting money (or time or resources) into something with the expectation of some type of gain from that.
Why is the idea of investing so critical? Because it’s darn near impossible for people to ‘save’ their way to retirement…that is IF you want to wait until you’re pretty old to retire.
The idea behind investing is learning to send your money to work in addition to, and then instead of, you!
Investing means you put money into real estate so you can live on the rental income, put money into the stock market so you can live dividends and interest and put money into business ventures (yours and other people’s) so you have profit cash flow from continued profits to live on.
Learning to invest wisely takes time. The challenge is that everyone on the planet has learned different things about investing…including developing different beliefs about different types of investing.
For example:
Some adults grew up with parents who invested in real estate and did well so that’s their focus.
Other adults grew up with parents who lost a ton of money in real estate and wouldn’t invest in it if it were the only way to make their money grow.
Some adults grew up with parents who taught them about the stock market and made great investments.
Others grew up with parents and/or grandparents who constantly said, “the stock market is too risky.”
Some adults grew up with parents who were entrepreneurs, experienced the freedom of being able to call their own shots and create their own lifestyles and wouldn’t dream of getting a job.
Others grew up with parents who always had jobs and talked perpetually about the securing of going to college and getting a good secure job. We all know where that has gotten our population.
What’s the point?
The point is that the world we live in has changed. Kids need to learn the difference between Earning money and Making money.
Getting a job isn’t easy and isn’t necessarily the most safe and secure thing to do.
Saving alone is almost never going to create financial freedom for anyone.
Financial Literacy Solution
If your kids are in a financial education course at school, make sure the curriculum includes investing. If it doesn’t, volunteer to teach the missing piece yourself. Don’t know how to teach it? Call me…I’ll show you how easy it is to teach kids the importance of investing for their financial futures.
Want to make sure your kids learn about money and investing in a fun and highly effective way?
Invest in their financial future…and the financial future of every one of their classmates…by giving their teacher The Money Game.
Even if you can’t afford to do this, let the teacher know they can apply for a Get One, Give One™ Grant to receive The Money Game for free.
Remember the parents’ voices in the Charlie Brown movies? Ever feel like your teen hears “wah wah wah wah” like Charlie Brown and his crew do when you bring up the subject? So, how do we talk to our teens about money in a way that makes it real, makes it matter, and makes it last?
I like to keep in mind two main things when I talk to teens about money: first, there’s what we say out loud about money; and second, there’s what we don’t say out loud about money. In both cases, though, messages are sent and received, loud and clear.
These messages form the foundation of the financial education our children receive, so it’s important to give it some care and thought. Here are four areas to consider: allowance, needs vs. wants, giving, and goal-setting.
1. Allowance
If, for example, we give our teens an allowance by just handing them money each week with nothing tied to it, and let them spend it however they want, I wonder what they learn. Do they learn, “Money just comes to me, and it doesn’t matter what I do with it”? What does that translate into when our teens become adults?
What would they learn, then, if we said, “I’m going to put you in charge of purchasing this, that and the other thing, which I currently spend $xxx a week on. This way you don’t have to ask me for money for those things and I’ll help you make great decisions around that money as well so you can learn what it takes to handle your money wisely.”
We certainly want to teach our children what money is: Money is a form of exchange for goods and services and it’s one of the important tools that make our dreams come true. Because of this, it’s important to begin inspiring your children to create their own money. They can do this by offering their services to others or creating products that they can sell to others that solve a problem or fill a need.
When our teens are older, we then add, “You’re doing such a great job managing your money; we’re going to give you a raise in your allowance so that you can now be responsible for xxx, xxx and xxx. We’re still going to be helping you every step of the way. You will be responsible for the right choices as well as any mistake you make with this money and that’s how we all learn.”
Just remember, as the adults in their lives, it becomes our job to provide them with the tools and information they need to become excellent money managers. The goal of giving an allowance this way is that they are fully responsible for the financial decisions of their lives by the time they are 16-18 years old. This way they can move out or move on to college and know what to do with their money.
2. Needs vs. Wants
If you have been reading my blog for a while, you already know I am a maverick in this area. Lots of folks think it’s really valuable to have teens learn to identify what a “need” is and what a “want” is. I beg to take a different position. Why? I think these words hold judgment in them, and I find that teens stop listening when we try to tell them what they need and what they want, based on OUR beliefs.
What would the teens in our lives learn if we said, “You can have whatever you’re willing to have” (excluding harmful things and those that are truly inconsistent with the values we are teaching them)?
I find that some things I think I NEED suddenly become not-so-necessary when I consider what I would have to do to get them. A lot, in fact, gets taken care of in this framework of “Are you willing to do what it would take to get that?”
My thought process, when I am deciding whether or not to buy something, is: What would I need to sacrifice? What would I need to do to get the money? Am I willing to discipline myself to save for that thing? Am I willing to wait for it? Will I still want it by the time I have saved for it?
I prefer this context over “Do I need this or want it?” and trying to live within the confines of a disempowering money conversation based on a subjective values. It reminds me that I, not my bank account, can determine what I can have. Because, I can, ultimately, have whatever I am willing to have.
After all, when it comes down to it, I don’t want everything. I just want what is IMPORTANT to me; something that is unique to me, and it doesn’t fit into a Needs vs. Wants diagram.
3. Giving
What do we say and not say about Giving to our teens? Do we send the message that they can keep all their money and that adults will take care of charity? Do we send them to ask for sponsors for fundraisers, and not expect them to be a sponsor? What are they learning from this? Do you think they learn, “You need to have a certain amount of money before you give some of it to causes that matter to you? Or, do you need to be a certain age before you assume responsibility for how things go –in the greater sense?”
I believe that it’s important to raise our children on the ideas that we ALL can give, and we are ALL responsible for the greater good of humanity. By living these values in real time, with real money, we teach our children how to view themselves and the difference they can make now AND for the rest of their lives.
4. Goal-setting
There are few conversations you could have with your teen about money that are as important as this one. Once we set a goal and we know the value of that goal, we suddenly start to rearrange ourselves around this goal.
Think about how teens that are college-bound, for example, operate. They see their grades and all of their activities in terms of “Will this help me get into college?” As a teacher, when I see a student underperforming in school, I always ask them about their goals. In almost EVERY case, underperformers either don’t have a goal that rides on their performance in school OR they don’t see the value of that goal, OR they don’t see themselves as having what it takes to reach that goal, so they aren’t committed to it.
Likewise, we organize our financial lives around our goals. If we don’t have money goals that inspire or motivate us, OR if we don’t think we can set meaningful money goals and reach them, we spend and save accordingly. When we have a clear goal and a clear reason for that goal that really matters to us, then we get really interested in how to achieve it.
Teens can set a long-term goal for their money, as soon as they can see that they have the tools to reach it and that starting now, when they are young, makes it SO much easier to reach. (This is where you pull out the compound interest charts!) The structure of this goal-setting conversation can result in a statement that goes something like this:
By the time I am 70 years old, I want to have a net worth of $X. When I have this amount, I will be able to ____________ for myself and _______________ for others. If I start now, I can reach this goal by doing 5 things:
1. Talking about money with my parents and other people who know about it;
2. Learning about money and engaging in lots of opportunities where I get to explore it;
3. Practicing an effective money management strategy;
4. Giving some of my money to a cause I care about;
5. Aligning my mind so I learn to think about money like a wealth builder.
Note: This post is one of five in our series, Our Comprehensive Approach. You can see the others by clicking Learn, Give, Practice, and Align at www.yourteensmoneyskills.com
Everywhere we turn these days, we hear and read about others who have figured out, and want to share, the secrets to creating our dream lifestyles, live the way we want to live and so on.
There are books and seminars galore promising to share these secrets with you, for a nice fee that is. Often, it’s the fees from these seminars and books that are affording those people their new dream lifestyles. But that’s not the point.
The fact is, there are a few things you need to know in order to create the lifestyle you say your really want:
1) What lifestyle DO you really want, and
2) Is this lifestyle one you can and want to support?
The first question is obvious because if you don’t know where you’re going, you’ll never get there. We teach this principles in our Camp Millionaire programs.
The second question is the most important one and it’s the one people not only forget to ask themselves; they don’t even consider it.
When working with teens who often have starry eyes when it comes to growing up and living ‘the dream’, they talk about big, fancy homes and expensive cars and lots of toys and vacations and clothes, and…you get the picture. Heck, there are a huge number of adults who still think they want this stuff.
When it comes right down to knowing yourself and getting a feel for what really matters and what you really want for yourself, it’s often more about comfort, convenience, ease, enjoyment, satisfaction and well, a little love and joy thrown in makes a nice finish touch.
The Reality of Fancy Lifestyles
Now there’s nothing wrong with wanting to live a certain way or have certain things…if you’re willing to work to support it. The challenge with most people I’ve coaches is that their dream lifestyle isn’t congruent with their willingness to work to support it. In other words, they just don’t want to work that hard to support the things they thought they wanted.
What happens next is they either realize they don’t want that lifestyle or they admit to themselves they aren’t willing to do what it takes to support it. Either way, they are now stepping into their REAL lifestyle reality and this is the beginning of financial happiness and contentment.
I met with a man last year who is a millionaire about possibly using The Money Game in his programs and one of the first questions he asked me was, “Are you a millionaire?” I said, No. He asked me why not? I replied, “You know, it’s not what I’m aiming for…being a millionaire doesn’t mean much to me. Having a simple lifestyle that doesn’t require thousands of dollars to support every month so I can do this ‘financial literacy’ thing that moves me does mean something to me.”
He wasn’t really sure how to take all of that. But I am serious…it’s really what I want. Why? Because it’s so much easier to support than having a big old house (rent or own), a new fancy car and a bunch of stuff I don’t need.
The older I get, the simpler I want it and I know I’m not alone. I’ve talked to many of you my age (54ish:) and I’m hearing the same story told in many different ways. Luckily I’ve known this about myself for a long time so have structured my life in such a way as to afford the things that are really important…like getting away for periods of time.
If you noticed in the paragraph above I said, ‘my life affords me’, instead of, ‘me affording my life’.
Teens and Lifestyle Reality Checks
So, if you’re the parents of a teen with high hopes and grandiose ideas about how life is going to look when he/she grows up, an educational reality check can do wonders to help prepare them for what they will have to do to support their dreams.
And by all means, support their dreams. Be positive, do NOT roll your eyes at them, do NOT tell them to ‘get real’ or anything else that may cause them to think they can’t have what they really want…because they really can. It’s your job to show them how and let THEM make the final decision…a decision that moves them in whatever direction they want with clear eyes and a vision for what it’s going to take.
Start out the conversation by asking your teen if he has thought about how he wants to live when he gets to be an adult. If he has, ask him if he’d like you to help him see what it will look like financially on paper. Get all the details you can….let him go wild with details: what, where, when, color, size, etc.
When you have it down, make a list and start doing the research to determine:
1) What it’s going to take to buy those things, and
2) What it’s going to take to support those things.
We’ve all thought we wanted a certain something until we, or someone else, figured out what it was going to cost and take to support. All of a sudden, you just don’t want that thing as much as you thought.
Let this be a fun project you do with your kids, either as a family project or one to one with each child. Make sure it’s a positive, uplifting activity…remember, your job as the parent or guardian isn’t to talk them out of anything, it’s to help show them the numbers, put dreams down in dollars and then let them make choices based on reality instead of unthoughtout dreams.
Lastly, remember that we all have dreams and without them, we’d never get anywhere. Where would we be today if Martin Luther King hadn’t had a dream? Or Steve Jobs or …
I got this in an email today and it’s good information from an attorney. Even If you dislike attorneys, you will love them for these tips.
Read this and make a copy for your files in case you need to refer to it someday. Maybe we should all take some of his advice! A corporate attorney sent the following out to the employees in his company:
1. Do not sign the back of your credit cards. Instead, put ‘PHOTO ID REQUIRED.’
2. When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the ‘For’ line. Instead, just put the last four numbers. The credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check processing channels won’t have access to it.
What's in your wallet?
3. Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home address. If you do not have a PO Box, use your work address.Never have your SS# printed on your checks. (DUH!) You can add it if it is necessary. But if you have It printed, anyone can get it.
4. Place the contents of your wallet on a photocopy machine. Do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel. Keep the photocopy in a safe place.
I also carry a photocopy of my passport when I travel either here or abroad. We’ve all heard horror stories about fraud that’s committed on us in stealing a Name, address, Social Security number, credit cards..
Unfortunately, I, an attorney, have first hand knowledge because my wallet was stolen last month Within a week, the thieves ordered an expensive monthly cell phone package, applied for a VISA credit card, had a credit line approved to buy a Gateway computer, received a PIN number from DMV to change my driving record information online, and more.
But here’s some critical information to limit the damage in case this happens to you or someone you know:
5. We have been told we should cancel our credit cards immediately. But the key is having the toll free numbers and your card numbers handy so you know whom to call. Keep those where you can find them.
6. File a police report immediately in the jurisdiction where your credit cards, etc., were stolen. This proves to credit providers you were diligent, and this is a first step toward an investigation (if there ever is one).
But here’s what is perhaps most important of all: (I never even thought to do this.)
7. Call the 3 national credit reporting organizations immediately to place a fraud alert on your name and also call the Social Security fraud line number. I had never heard of doing that until advised by a bank that called to tell me an application for credit was made over the Internet in my name.
The alert means any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit..
By the time I was advised to do this, almost two weeks after the theft, all the damage had been done. There are records of all the credit checks initiated by the thieves’ purchases, none of which I knew about before placing the alert. Since then, no additional damage has been done, and the thieves threw my wallet away this weekend (someone turned it in). It seems to have stopped them dead in their tracks.
Now, here are the numbers you always need to contact about your wallet, if it has been stolen:
We pass along jokes on the Internet; we pass along just about everything. If you are willing to pass this information along, it could really help someone that you care about.
