Tuesday, May 24, 2011

Personal Finance

I was out on the net getting my RandomRoger fix today and he referred to a Wall Street Journal article about five things a high school graduate should know about finances.  Then he went on to suggest that financial education is not supplied and as a result we are financially illiterate.  I'm not so sure that formal financial education is the answer.

First of all, personal finance is different for different people.  We have friends (our age & income group) who live in a house that is twice the size of ours.  Building that house was a choice they made; it was where they wanted to put their money.  It isn't something that I would be comfortable doing but it works for them.  Education isn't going to change their desire for the large house nor my desire for more diverse investments. 

The brand of personal finance that works for my wife and myself doesn't work for either of our children.  I suspect this is because my wife and I were brought up by parents who had lived through the Depression and WWII.  The deprivation and sacrifice that those two events brought about made our parents thrifty to say the least!  Both of our mothers re-used aluminum foil, for example.  Our children were brought up in the relatively affluent 70's and 80's.  My wife and I both worked and the kids pretty much got whatever they wanted within reason.  We 'educated' our kids to have what they wanted; happily we also educated them to work for it!

I suspect there a LOT of people who basically don't know how to handle money but I'm not sure it's something you can teach but rather it is something that must be learned; learned by living life.  I know that when I was 22 I made some mistakes; wasted quite a lot of money as a matter of fact.  Lost on my first few investments as well.  The problem is when people are living so close to financial disaster that any loss, however small, is debilitating.  If that happens when you are 25 you have plenty of time and hopefully the resilience to recover; if you are 55 your options are more limited.  It's why I'm 100% in favor of governmental old age pensions.  My wife and I are fortunate enough not to need it but there are millions who are not so fortunate.

RandomRoger talked about a couple who lives near him who have no stocks, no bonds.  But they did understand fixing houses and renting them out and saving money.  It's a different type of personal finance but it worked for them.  That's really all that matters.  If it works for you then it works.  There are no wrong answers as long as it works.

Have a good one!


Croft said...

I couldn't agree more about educating kids on finance. When our son was in school the subject of credit cards was never mentioned and that was when they were in their heyday, collecting 18.5% interest from all his classmates.

That same son and his partner also have real estate as their retirement plan. They have built two suites, one in the basement and one over the workshop. After renting the workshop to their own business, their rental income is about $500 per month more than their mortgage. They plan on buying a second property and renting it out as well. It is what you have to do when you have no pension plan (except government).

JoeinVegas said...

Too many people have no money. It would be nice if school did help you learn how to live, rather than just educating you, but with budgets, oh well