Lately I have been thinking about the lessons I want to impart to my son about money. Nothing is more pervasive in our day-to-day lives than money, and so I want to give him a good framework for understanding it, so that it can help him achieve his goals, rather than being a source of stress and anxiety.
My son is still too young to understand money, but I think that it’s good to start thinking about these things early on, so that when a question comes up or the opportunity to teach a lesson presents itself, I’ll be ready. It’s also been a good process for me to think about the ways I approach my relationship to money: my biases, anxieties, what I think I do right, and what I could improve on.
So, below is a non-exhaustive and non-ordered list of lessons that I want my son to learn. I will doubtless return to this topic often as the years progress.
Lesson 1: Money is simply a tool. Like all tools, it needs to be maintained and treated with respect.
Money is a tool. It provides a means to store the accumulated value of labor; it facilitates exchange; and it provides a unit of accounting and valuation. In order for money to be able to do things effectively in your life, you need to treat money as you would a tool in your workshop. A dull saw cannot cut wood effectively. Disorganized finances make it difficult to achieve the things you want to achieve. It is always better to use the right tool for the job you want to accomplish than trying to use the wrong tool.
Lesson 2: Simply having money is not going to make you happy. But not having enough will definitely make you unhappy.
Money makes it possible to enjoy things in life, but there is not a 1:1 correlation between your net worth and happiness. I have known many people with lots of money, but with low life satisfaction. Money is important, but your health and personal relationships are more important. Conversely, not having enough money is virtually certain to make you unhappy. “Enough” is a slippery concept, and people I have known who are successful and happy are those who have been able to come to an equilibrium about what “enough” means to them.
Lesson 3: There is no such thing as getting rich quickly.
Money is outwardly apparent to others. The houses, the cars, the vacations are all visible to those around us. What is not visible to others is the years of hard work, the sacrifices, the failures. Everyone I have known who has been successful has worked hard for a long time. People who do get rich quickly (such as lottery winners), usually end up as cautionary tales because human character is not able to withstand a sudden change in material circumstances.
Lesson 4: Money can complicate relationships.
Money easily becomes a projection of values, and this can very quickly lead to complicated relationships, especially between people with differing values. Think of all the personal conflicts you have seen that ultimately come down to money: feelings of inadequacy and superiority based on relative wealth can be very destructive to relationships. Similarly, a sense being in control versus being controlled can cause bitter resentment.
Lesson 5: Money is the direct result of labor or investment.
Perhaps just a fancy way of saying that money doesn’t grow on trees, but all wealth is the result of either having worked for it, or a return on invested capital. Nothing in this world comes without effort.
Lesson 6: All investment entails risk.
A corollary to Lesson 5. Risk and return are inextricably related. There is no way to grow your money without assuming risk. Growing money faster and in higher magnitude generally involves more risk. Act accordingly.
Lesson 7: To a large extent, the economy is based on you treating money as an abstraction. Fight that impulse.
It’s not a secret that the American economy is based on consumer spending. That’s good and bad. In the aggregate, more people spending money translates into higher levels of economic growth in the aggregate. But for individuals, spending money unnecessarily, or in non-productive ways, leads to lots of financial stress. Money is already an abstraction of our labor or accumulated capital (people don’t tend to make the connection between cash they spend and the time they spent making that cash). The modern financial system devotes serious energy to making an abstraction even more abstract. Credit cards are less tangible than cash. Paying with your phone is even less tangible than swiping a card. Many talented people are employed in the field of making it easier to spend your money. Resist this impulse!