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Tuesday, 8 August 2017

Let's talk about finances and taboos

Despite our lives being ruled by the things we do to get money and the places we spend that money, getting people to talk about their income and outgoings seems impossible. Discussing investment strategies is either considered really boring, or some hush-hush back room conversation that can only be had with your closest confidants. I was in a 5 year relationship where bringing up money was met with avoidance, hostility, and a pretty derisive attitude that made me feel worse than Scrooge McDuck because I was thinking past next weeks pay.

This isn't to say that when you meet someone you should shake their hand and say "Hi, My name is Jane Doe, I make $32.37 p/hour working 35 hours a week and ascribe to the '50% on Needs 30% on wants and 20% savings' strategy. Personally I like the low risk nature of index funds but I'm keen to branch out into flipping houses when I have enough capital." That's a little bit overshare, but I think this conversation needs to be opened up.

There's no reliable statistics that say talking about money solves the worlds money problems but financial literacy can't be underestimated. My first 'job' was as a paper-girl. Once a fortnight the newsagent would drop the bills, a stack of envelopes and $40 on my parents doorstep. It was my job to fold up the bills, put them in the envelopes and deliver them to the right houses. It probably took me 2-3 hours of sorting and 3 hours to deliver. So I was on roughly $7.20 p/hour ($20 p/week) and I had no concept of financial literacy or saving that money. I remember blowing $20 on lollies at the local deli. I remember buying Red Bull at the supermarket most days. I remember my phone bill being $30 a month, which was a terrifying 37% of my income!

When the newsagency switched to digital delivery of bills (I guess, one day they just stopped delivering the money) I picked up a job at a supermarket. For 3 hours a week, at about $8.70 p/hour.  So after tax, it was still taking me more than a week to earn enough to pay my phone bill. It sucked, the job was terrible and I hated it. Twelve months later I picked up a job at Hungry Jacks, for $7something an hour, but closer to 12 hours a week. Suddenly I had spare money! And like every teenager in their first job, I had no self-control. And suddenly a lot more stuff.



Thankfully, somewhere in my early years I had an exciting 'investment' moment. My parents had set up Dollarmites accounts for my brother and me when we were young. They were pretty terrible, with some horrible fees and low interest rates that meant money in those accounts was pretty much stagnant. But I had a savings account, and I knew those numbers slowly going up were kinda cool. Then a couple of things happened.
  • My parents moved my money to an account with a better interest rate. I seem to remember getting 6+% p/a
  • My grandad needed to unload some money and gave all the grand-kids a rather excitingly large gift. Seeing that jump in 'my' savings was amazing.
  • I got a bank statement and saw my interest payments for January, February and March. I was outraged! Why was February's payment less than the others! So I got my first lesson on how banks calculate interest.
I don't remember any other serious Financial Literacy lessons. But I knew money was pretty cool to have. And I knew there were ways to get it other than work. And I really hated seeing money go into my account one week, and be completely gone by the next. It felt like a huge waste, I was doing all this work and all my money was dribbling away into pointless snacks and soft drinks.

Getting it together

I started a budget. It was a crappy paper budget that I've redrafted a few times, but stayed with me for about eight years. At first I just tracked what I spent. Then I started tracking what I earned against what I spent. And added what I saved. Nowadays I use a big elaborate spreadsheet stored in Google Sheets so I can access it anywhere. I track my spend month to month, and my income and savings / investments year to year. I even have separate spreadsheets at home for more in depth savings and spendings tracking. It has become an ingrained habit to know how much I spend, and how much I saved. I've just opened a new credit card for travel hacking and they delay reporting expenses for almost a week, which is driving me absolutely batty!

When I was 17 my father started buying investment properties. For as long as I can remember I was keen on buying a house and having someone pay me so they could live there! Wow! It was a solid, visible investment that paid back hundreds per week. When I was 18 I put in an application for a home loan and was unsurprisingly laughed at by the banks. So I dumped all my money into a high interest term deposit and came back next year. Thanks to a huge pile of luck, a great property mentor and my parents confidence in me, I bought a house. At 19.

For the next few months I read everything that came my way about real estate and squirreled as much money away as I could. I don't want to do things in halves so I tried to buy another. And was again solidly laughed away. This time I had no out, I had a borrowing capacity of $1 including my personal income and my rental income. So I switched tactics, dabbled in the share market, mostly sticking to low risk bonds.

What's the point of this story?

The point of telling you this isn't to brag. I stumbled drunkenly through my personal finance journey. At 26 I own a rental property and have a comfortable cushion of investments. But, honestly, despite the amount of time and research I poured into all these things, I was lucky. I was lucky to have a cashed up benevolent granddad. I was lucky to have a savvy father. I was lucky that the day I first saw a bank statement I was in the right mood and the sun was shining, and it was exactly 11:23am or whatever it was that caused some tiny something to tick in my brain.  I was ridiculously lucky that I met my property mentor who jumped through rings of fire over a shark tank to get my first property. And I've been crazy lucky ever since that my tenants have accepted all the rent rises, taken care of the property, that the house hasn't flooded, that the stock market hasn't crashed, that I've fallen from job to job and ended up somewhere that pays me quite well.

Having my successes with my finances so heavily based on luck scares me. Since buying my first property I have done a lot more research on my investments, but the basis of my success is the luck of having the right random childhood experiences that shifted my mindset. Which leads me to my point, no one ever spoke explicitly to me about finances unless I asked first. And watching those big responsible adults umm and ahhh and shuffle their feet was pretty nerve wracking. I am immensely grateful that my father and property mentor were willing to talk to me about money and answer my questions, even if the answer was occasionally "I don't know".



When was your last money conversation?

Here's the thing though. Money is integral to our lives. Even if you ascribe to a minimalist lifestyle, that minimal still costs you money. The freedom to go home, turn on the lights and have a nice hot shower is driven by money. So refusing to talk about it baffles me. It is a taboo subject, and that needs to change.

I asked on Twitter who you could talk to about money and a scary 38% of people are only able to talk to their family. Almost 10% of people can't talk to anyone. While @DiligentDividend is happy talking to anyone about how much he earns @FatherWithCents thinks it might be shame that keeps people quiet. @indie_finance doesn't like talking about making more than others - although having those conversations might lead to pay rises for everyone if you lean on your boss hard enough.

Talk to your kids

I'm not a parent so I can't say much about parenting. But if you don't talk to your kids about money, where do you expect them to learn it? Primary school taught me how to count money, and the difference between dollars and cents. High school, the time when children enter the labour market and start earning, had work experience but no conversations about spending, saving and budgeting. School isn't designed to teach us how to cope with cash.

I can't talk about general parenting, but if I wanted to go back and teach young me about personal finance, I'd do it with games. Monopoly was initially designed to show you all the problems with capitalism. The Game of Life gives you a job, an income and expenses. Cashflow 101 is about collecting enough assets that you have a passive income, can quit your day job, escape the rat race and achieve 'life goals' like traveling the world and starting a successful charity. It also comes in a kids version.

The games all have varying levels of realism but they all make a good starting point for getting your brain switched on. At worst they're a bit of fun, at best they can open up that conversation.

While you're playing Cashflow 101, you should read "Rich Dad, Poor Dad". Robert Kiyosaki recounts the difference lessons his Rich Dad (his friend Mike's father) and his Poor Dad (his real father) taught him about money. The book is accessible and easy to read, I found it on Dad's bookshelf in primary school and I loved it. If you asked me about it I would probably ramble for ten minutes about how great it is.


Talk to your friends

You probably already do this. If you ever chat about that super cheap recipe that you made, or complain about the crazy big electricity bill you just got, then you're discussing finances. I find that most people tune out when I start talking about intangible things, interest rates, stock markets, diversified funds. They're scary unfriendly words. But personal finance is just as much about your day-to-day choices. About cheap nutritious meals. About looking for a cheaper electricity company.

The first and, I would argue, best step towards financial literacy is knowing how much money you get in and where it goes. Talking to my friend and co-workers has turned up a wealth of information about rebates on gas, where to find a cheap conveyancer and house hunting tips.

Diving headfirst into a conversation about  insurance, or investments is pretty daunting, but chatting about a new house is exciting. If you push past the taboos, those exciting conversations can turn up a wealth of knowledge. And knowing that the guy you sit next to at work owns eleven properties is pretty interesting too.

Money is considered a measure of 'success' in society. It's hard to get people to open up about their income because we're all afraid of being judged. At the same time it can be considered uncouth to talk about your financial success. After all, if financial success is 'life success', it comes across as bragging. I'm not suggesting that you start comparing dollar figure incomes with your friends, but knowledge shared is knowledge gained. You help yourself by solidifying what you know. You help your friends by sharing. And when you talk about the big scary topics, they start to feel smaller and easier to manage.

Talk to your partner

For so many reasons, talk to your partner! Communication is key in every part of your relationship, from cooking dinner to travel to sex. If you can't talk to your partner about your long-term and short-term finance goals, you've got a problem. They are going to be the ones comforting you when shares dive, high-fiving you when an investment matures and standing next to you scratching their head when the bills come in. Eventually most couples combine their finances, so when you start investing or making money saving choices, it's not your income and livelihood that is at risk, it's theirs too.

Your financial literacy

Financial literacy isn't just the big 'boring' investment questions. It's the basics, it's starting small and building up. The important part is identifying your goals and working towards them. If your goal is to travel as much as possible, you might be willing to eat rice and beans every night to save the cash for your next around the world extravaganza. If you hate travel and love food, do the opposite. At it's core, financial literacy is understanding where your money comes from, where it goes and making conscious choices about your spending and saving.

Financial literacy leads to financial freedom - which is a vague, loose term that depends on what you want. It can be something as small as the freedom to buy a coffee every day without every worrying if it fits in the budget. For me it means eventually not relying on my employer as my primary source of income. So all that 'boring' investment mumbo jumbo is fascinating to me.

6 comments:

  1. Great post! I'd love to meet Jane Doe ��
    I agree that it is super important to talk to kids about finances as a parent, though I also believe there needs to be stronger curriculum in schools. I say this because my parents hardly spoke to me about money, but their actions were louder than words and it turns out they weren't the best mentors in that space at all. I was a great saver at my first job, but only to the point where I was saving for something I wanted, then I would blow it all and start again. There was no concept of saving for the future or beyond that.
    It was only when I found the Barefoot Investor book many years ago that I really started to think about money, though still didn't really know how to action it.
    Facebook and the blog community have been amazing resources. Imagine if I had found them 10 years earlier!

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    1. I agree schools should do a bit of the lifting, but teachers have so many responsibilities already! They become some of the biggest mentors in kids lives, teaching them morals, sharing, maths, reading, basic science, guiding them through friendship and relationship dramas... sure the curriculum should include some finance knowledge - but as a parent I wouldn't leave it to overworked teachers.

      I read Rich Dad Poor Dad as a kid - thank god for finding out what an asset and what a liability was at a young age!

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  2. So, so important to speak with your kids about it. I don't believe I had any real education on finance at all! Here's what I learnt from my parents:

    1. work hard.
    2. save hard.
    3. track expenditures.

    And that's it. Mind you, it's probably still a fairly good start, but I didn't see a point in tracking expenditures so I never did it. Had I known about investments, the power of compounding and other related topics, I might actually have kept to a budget and started tracking. Instead I frittered my money away.

    I have actually started talking about these things with my younger sister, as I wish somebody had talked to me about them. I don't actually have anybody to talk finance with (nobody is interested) hence why the blogging community is so satisfying!

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    1. My mum taught me it's okay to buy two new outfits a week if they were on sale :( My dad taught me to make charts and graphs for EVERYTHING :D guess which lessons stuck

      I love talking money with people, you never know who is open though. I mentioned property in passing to a friend and found out she was in the middle of finding a buyers agent and investing! Passing comment turned into an in depth half hour conversation, it was great

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  3. Dear 35,

    Growing up, my Father was the finance guy (although he only saved and never spent, not an ideal mix) and my Mother spent more than they made. I talk to my kids about money all the time. They love the idea of compounding interest/income and generally choose to invest any money they have (they're 7) in the bank.

    Unfortunately, I don't have anyone (in person) to talk to money about. My husband would prefer a root canal, my BFF has other interests and my other friend is deep in debt (they make movies about her life) and doesn't want help getting out.

    And so, I have recently found finance blogs that allow me to get my fix. I read a post talking about "Money Friends". Someone who would like to talk about money, investments and other financial issues. It would be nice to find someone like that.

    Looking forward to reading more.

    Besos Sarah.

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    Replies
    1. That openness you have with your children sounds amazing!

      It's a pity our 'real life' friends are rarely our finance friends - it's much easier to talk over coffee than over a keyboard. But I love how much the blogging community gives everyone a space to talk money without judgement.

      Looking forward to more of your comments :)

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