Poll: How Often Did You and Your Parent(s) Discuss Money?

National surveys indicate that the majority of parents across our country have never spoken seriously with their children about money. In our own surveys done with high school students, we also find that a majority of parents are not fulfilling their responsibility to raise children to understand how money and credit work and how to stay out of consumer debt.

More than half of the students we survey indicated that they’ve had, at most, two conversations about money in their lifetime with parents. And these were high school seniors!!!

What about you? Interested in describing your own experience about money conversations with your parent(s) from your formative years? In your teen years, how often did you have discussions with your parent(s) about money, credit and/or debt?

Thank you for your participation. Have a wonderful week!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Teaching First Graders about Money

I wanted to acknowledge our gratitude for a store in the area that made our work a little easier this month. In December 2011, we received word that the Walmart store in Caldwell, Idaho had approved our mini-grant application and awarded us a $750 gift. With those funds, we quickly purchased from Random House 400 copies of the Berenstain Bears Trouble with Money book.

Debt Reduction Services Inc reads and distributes book to elementary school childrenBooks in hand, I visited three first grade classes this week here in the Treasure Valley (southwest Idaho). In each classroom, we had a discussion about needs and wants as well as earning and spending money. We even had a fun (and brief) conversation about why it would be pretty pointless if money actually did grow on trees.

Next, I read the Berenstain Bears book to the entire class, after which we talked about way that the cubs were able to earn money and save it. We also talked about the chores that the children do around the home.

Finally, and this is always my favorite part of the presentation, I got to announce that I was sending each of the children home with their own copy of the book. Yea!!! I also send along a 2-page “Parent’s Guide for Talking to Children about Money,” since surveys show that most parents have never had a serious discussion about money with their children.

The teachers appreciate the presentations because the lessons correlate with the state’s achievement standards, plus they get a few extra minutes to catch up on their own work during the class. All in all, the presentations were enjoyable and successful activities.

Do you know of a teacher whose class could benefit from a book reading (usually K-4), a presentation about money and spending habits (probably 5th grade and above), or about credit and interest (9th Grade and higher)? Please let me know or have them contact me. All such educational services are free if their within about an hour of our offices.

Have a fantastic week!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on January 13, 2012 at 11:31 am  Leave a Comment  
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“Leveling” our Expenses

April 30, 2011

how to manage unexpected expensesI regularly teach in my Budgeting (“Spending Plan”) classes that our goal should be to turn as many of our Variable and Periodic expenses into Fixed (or “level”) expenses as possible.

A Fixed expense is one that occurs every single month at the same cost. Examples are rent or mortgage, car payments, 401(k) contributions, monthly bus passes and day care center bills.

A Variable expense occurs every month also, but the amount varies. Electricity, heating, gasoline, and groceries are among the most common variable expenses in our household budgets.

A Periodic expense, obviously, occurs less than monthly, irregularly or just once in a life time. Typical of this type of expense are medical-related charges, vacations, car or home repair, taxes, and most insurance premiums.

Because we are so used to our Fixed expenses, we typically do not spend that money. We know, subconsciously even, that we have to set a certain amount of money aside for our rent/mortgage or our car payment. Ideally, if we could turn all of our expenses into Fixed expenses, we would be better able to manage our money.

Here are a couple of easy ways to convert a Variable and a Periodic expense into Fixed expenses:

  1. Utilities: Most electricity and gas utility companies offer their customers the option of making the same payment every month. They simply average monthly payment for the past twelve months. Some customers have tried to tell me that  this is a more expensive option, but that is a myth.
  2. Insurance Premiums: Most insurance premiums are designed to be billed every 6 or 12 months. However, most may now be paid on a monthly basis. Be aware, though, that there is often a $1 to $5 monthly processing fee accompanying the monthly payment option.

Wouldn’t it be nice if our local grocery story or gas station would allow us to be on level pay at their establishment? Alas, I have not heard of such opportunities yet. Instead, it is up to us individually to put ourselves on level pay. This is called, of course, budgeting. We set aside a specific amount each month for our regular expenses.

Pay yourself regularly in order to be financially prepared for replacing appliances when they dieIt is up to us, as well, to look ahead and plan for periodic expenses. Your fridge may be working now, but if it’s already 12 years old, you probably ought to begin saving for your next one soon (“This Old House” has a nice list of average life expectancies of household appliances: click here). If you think it might cost you $1,100 to replace it, divide the expected expense by the number of months you probably have before it needs to be replaced, and you’ll find out what your Appliance Replacement level pay to yourself should be:  $1,100 ÷ 24 months = $46 we should be putting into our savings each month for our next fridge.

We should be doing the same calculations for our furniture (think couches, beds, tables, etc.), appliances, vehicle(s), etc…

In this way, we are “leveling” our Fixed, Variable, AND Periodic expenses so that we’re able to pay for supposedly “unexpected” expenses in cash, by check, or using our debit card, thus avoiding the additional expense of paying interest to store creditors and credit card companies.

Please feel free to share how you’ve converted some of your own Variable and Periodic expenses into Fixed expenses.

Best wishes for continued improvement in your own personal finances!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on June 2, 2011 at 3:41 pm  Leave a Comment  

What Is a Realistic Amount for Emergency Savings?

April 30, 2011

Emergency Savings Tips from Debt Reduction Services IncChances are that if you’ve ever looked into how much money you should be putting away as an emergency/”rainy day” fund, you have found that most financial experts, including myself, will suggest something like three to six months’ worth. The question, though, is three to six months’ worth of what? Gross income? Net income? All household expenses?

Here’s my take on this vital subject. First of all, it is my opinion that having an emergency fund is one of the top two or three indicators as to whether a household will remain financially stable or remain living continually on the edge of a financial abyss.

Next, I differ from many professionals who advocate paying down credit card debts and establishing a retirement fund before ever working on an emergency savings strategy. When asked which of the three should be the priority (emergency fund, credit card debt repayment, or retirement funds), my answer is always the same: “yes.”

From my experience, emergency savings is an attitude that leads to action, so committing to saving regularly, even in small amounts initially, is more important than trying to figure out long-term amounts. Perhaps, an initial savings goals could just be having $1,000 in a savings account within a reasonable time (perhaps 6 months or a year). If you can achieve this, you’ll already be ahead of 85% or more of the general US population.

That said, to establish a truly effective emergency savings strategy, each household needs to look at their current income sources (usually some type of employment) and ask themselves, “If I were to lose my job today, how long would it take for me to find another job earning me/us about the same income?”

A recruiting specialist once shared her rule of thumb with me that I think works in many situations: For every $10,000 of annual income you receive from your current employment, it will likely take you a month to find a replacement position. That means that if you earn $30,000 a year, it will take you on average 3 months to find another similarly paying  job.

However, during an economic downturn, it would be safe perhaps to double that estimate. So $30,000 of annual income might take 6 months to replace.

Next, now that you have an idea of how many months you might be without income, multiply those months by the amount of money you would need not only to survive but also to be at least minimally comfortable.

  1. Include expenses such as rent/mortgage, vehicle-related costs, food, basic clothing, utilities, holiday and birthday gift giving, and any contracted services with penalties for early cancellation.
  2. Do not include expenses related to vacations and travel, dining out, external entertainment (think theater, cinema, clubs, concerts, etc.), back-to-school shopping, charitable giving, etc.

If you ever lose you employment (or if you have a major medical event), your household should go into financial lockdown immediately, cutting out all expenses under List #2 above while planning for those under List #1. Unfortunately, we all tend to be far too optimistic about our ability to find re-employment soon, leading many to continue to spend at current levels even though we no longer have steady income. Of course, even if you do qualify for unemployment income (for which many do not because of the circumstances leading to their job loss), it only replaces a small percentage of your monthly income.

In summary, if you earn $40,000 per year and have monthly expenses (under #1 above) of $1,800, you’ll want approximately $7,200 available to you in case of job loss (4 months x $1,800 = $7,200).

Where to keep your emergency savings?Does that mean that you should put it all in a savings account, earning .25% interest? Of course not. You want to earn as much interest as possible while also keeping the cash in a fairly easily accessible account (“liquid”). One possibility would be to work toward having four 4-month Certificates of Deposit of $1,800 each, with one maturing each month. Money Market accounts may also work as emergency savings vehicles.

Best wishes in developing and implementing your emergency savings strategy. It will take time and effort, but in the end, it will definitely be worth it.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on April 30, 2011 at 9:42 am  Comments (1)  
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Can Budgeting Be “Fun?”

April 20, 2011

Last night, I met with a couple in one of my classes and wanted to share their insight into what they were experiencing. They had come to my Budgeting (aka “Spending Plans”) class a couple of weeks earlier, and they shared last night that they were making solid progress.

They had not only gone home and talked about a household budget, Can Budgeting Be Fun?but they had put one together and had been having regular discussions about it. I was excited for them because I know how a household budget can affect the family finances.

When I asked them how they were feeling about the past couple of weeks, the wife shared that they were having “fun” working on their budget. Now, you have to understand that during many of my budgeting classes, I explain how the critical step missing in virtually all failed budgets (written financial goals) makes budgets “meaningful,” but that even I – a budgeting professional – don’t think of budgets as “fun.”

So, when she said they were having fun, I had to ask for clarification. I was doubtful, I must admit. But, as she began explaining how they were enjoying the process of working together on a budget and feeling more in control of their finances each day, I could actually tell that she really was enjoying the whole process.

Budgeting Brings Peace of Mind and Greater ControlThe feeling of lacking control when it comes to our household finances is very disconcerting for pretty much all of us. Regaining that control really can provide us with a sense of euphoria that will have us coming back to our household spending plan again and again. In that sense, then, budgets certainly can be and are “fun.”

How about you? What are the feelings you’ve had as you’ve taken back control of your finances? Please feel free to share.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Plug for 2-1-1

Friday, April 15, 2011

We all know the value of being able to call 9-1-1 in an emergency. Back before the days of cell phones and Google, we also knew the value being able to call 4-1-1 for information.

But I’m regularly surprised that a large portion of our population does not know about 2-1-1. All 50 states, plus DC and Puerto Rico have 2-1-1 call centers. 2-1-1 is an invaluable referral line for help with food, housing, employment, health care, counseling and other issues.

If you’d rather surf, check out www.211.org. When you’re experiencing a financial or an emotional emergency, 211 is the number to call.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on April 15, 2011 at 5:10 pm  Leave a Comment  
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Raising Financially Savvy Kids-Part 1

April 6, 2011

Some of the inherent responsibilities of parents include protecting their children and preparing them to be responsible adults in our society. Teaching children the proper management of their financial resources helps to accomplish both of these goals.

If the children in your family are similar to my own (and I would bet there are far more similarities than there are differences), they probably do not enjoy being lectured by their parents, nor do they learn much thereby. So how else are they supposed to learn to be financially fluent if they don’t listen to what we tell them? Well, we show them.

Further suggestions will follow today’s blog, but here’s an easy, fun and effective way to teach children that money does NOT grow on trees and that it must be properly managed and controlled:

  1. Pull out the game of Monopoly or any other board game that has play money in real denominations. If you don’t have such a game, you can print some play money from www.printableplaymoney.net.
  2. Gather the kids around the table to “play” a game. Count on spending anywhere between 15 and 45 minutes for this activity. This game is best for children 8 or 9 years old or older, since they’re getting to the point of being able to grasp abstract concepts. You can tell them you’re going to play a game to show them how Mom and/or Dad makes and spends money every month.
  3. Explain the rules, such as, “We’re going to count out how much money Mom and/or Dad make every month and put it in the middle of the table. Our goal is to spend it on everything we need and then on things we want without running out of money.”
    At this point, you may choose to explain your feelings that you are sharing information that is only meant for your family, and that you are trusting the children not to talk to their friends or to extended family about how much money Mom and/or Dad make.
  4. Teaching children the realities and the value of household budgetingEnthusiastically and dramatically count out of the bills how much money your household makes every month. This should be gross income (before taxes and other deductions). Enjoy the look of astonishment on the children’s faces while it lasts. For many, any amount over $100 might lead them to think that the family is RICH!!!
  5. Explain that the first thing that comes out of the monthly income is Taxes. Remove from the pile of money in the middle of the table the amount of taxes you pay each month. To raise a financially responsible child, you should explain the benefits that come from paying taxes, including security provided internationally by our armed forces, security provided locally by the police and/or sheriff,  transportation infrastructure, schools, laws, health and human services, public transportation, and more. Avoid complaining bitterly about taxes, though it may be educational to explain how we have the right and responsibility to vote for representatives in our government who we hope feel the same way we do about how taxes should or should not be used.
  6. Next, explain that other amounts come out of your paycheck before you receive any money, including Medicare and Social Security (FICA), in addition, possibly, to insurance premiums and retirement account contributions. Remove the amount of your monthly deductions from the pile of money in the middle of the table.
  7. Teach children the importance of committing to saving for emergenciesNext, explain to the children that you have committed to paying yourself first, in case of emergencies, so that there is a specific amount that you put into your savings plan right off the bat. Let them know that this amount is non-negotiable, and that as they grow up, you expect them to do the same. Many children, even fairly young ones, may take comfort in knowing that their parents have a plan in place in case anything unexpected happens. Remove your monthly savings contributions from the pile.
  8. Then, ask the children if they think you should next pay for things you need or want? Explain what your survival needs are and remove that money from the pile. Typically, needs include shelter and security (rent/mortgage and their corresponding insurance and utilities), food and water (NOT including dining out), protective clothing (the very basics), and possibly medications or medical procedures.
  9. The next expenses to come out usually include things that make life comfortable and convenient, like transportation costs, child care, additional clothing, school activities, air conditioning in the summer,  etc. You may also include other obligations and loan repayments (credit card, student loan, signature loan, etc.).
  10. Continue to remove money from the pile until you’re left with “extra” money (usually pretty scarce). Remember to calculate the monthly amounts to set aside in order to take care of periodic expenses like vacations, car and home repair, holiday and birthday gift giving, etc. You may also consider including the children’s allowance or amounts they can earn through chores.

Going through this exercise every couple of years or so will help your children to realize that money is not an infinite resource, that it doesn’t grow on trees, and that their parents are in control of their finances. It generally has the added benefit of stemming the continual flow of the “gimmees” and the “buymees.” “Give me this” and “buy me that.”

Finally, letting our children “see” how important budgeting is to us will lead them to value it as well.

Have fun with this activity, and let me know how it goes.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Perpetuating Myths about Poverty

March 28, 2011

I’ve said it before, I was not the brightest financial light in the bunch when I was younger. Oddly enough, I come from a wonderful upbringing in a home where financial responsibility was expected and demonstrated, if not discussed openly. So, according to the philosophy that well-to-do and financially savvy parents beget children with the same financial smarts, I should have known better. But I didn’t.

Yes, balancing a checkbook and making a dollar stretch were two skills I was taught and which I have carried with me ever since. However, the wise usage of credit what not taught, most likely because I came of age at about the same time as the explosion of the consumer credit card in the 1980s. Before that, receiving a credit card while in college was not only uncommon, it was next to impossible.

So, when I pulled my first credit card offer from my apartment’s mailbox, the only thing I saw was the $2,000 credit limit. To me, that was like shouting, $2,000 of “free money.” WMaxing Out Credit Card was NOT Goodithin 36 hours of receiving that card in the mail, I had maxed it out and would, for a decade thereafter, carry a balance and pay interest (initially to the tune of 19% APR or more).

It took years to dig out of the credit card hole. In the meantime, I dabbled in a couple of payday loans, bounced a number of checks, and continually treated my savings account as a “deferred spending” account rather than an emergency fund.

I share this lengthy history to make the point that my troubles where not actually from a lack of education or from ignorance. I quickly learned how credit cards worked, but I continued to rely heavily upon them to subsidize the lifestyle I felt I deserved. What kept me in the cycle of consumer debt was my attitude, what I termed PovertyThink in a recent blog. I had conditioned myself to believe that this was the only way to look at my finances.

So here is a synopsis of a few of the myths that lead many of us to subsidize our unsustainable lifestyles through credit, thus keeping us from building true financial net worth (aka wealth):

  1. We prefer to blame others rather than take responsibility for our own financial mistakes. Banks and creditors, in particular, are the major targets of our frustration. They, after all, charge ridiculous fees for bounced checks and late payments, right?
  2. We seem to believe that lifestyles, income and effort should all be fair and proportional. That is to say, the harder we work, the more money we should earn and/or the more money we “deserve” to spend. We compare our efforts and lifestyles to those of our friends, neighbors and acquaintances, and say to ourselves, “I work just as hard as they do, so I deserve to live as well as they do.” For example, I saw friends and classmates back in college driving new(er) cars, purchasing season ski lift passes, and living in expensive condos. Some might call it impatience, but I felt I worked just as hard as they did (harder, I would argue, since I was an early-morning janitor at my school’s science center), and that I was consequently entitled to anything they had just as much as they were. Credit cards allowed me to initially satisfy that feeling but lead to long-term troubles.
  3. We choose immediate gratification over long-term security. “Living in the now” may be a popular catch phrase in movies and among a few philosopher wannabes, but it’s a terrible idea for financial security. Of course we can enjoy life each day, but this catch phrase ignores the absolute necessity to prepare ourselves for long-term financial survival. Spending money now that should be going toward savings and investments means we’re spending tomorrow’s security for today’s gratification.

Taking Personal Responsibility for Our Finances MUST Be Our First StepUntil we take personal financial responsibility for our own choices, stop expecting life (and especially financial affairs) to be perfectly fair, and we learn to delay gratification, we are destined for financial insignificance. We do not find long-term satisfaction in living paycheck-to-paycheck. We’ll find no honor in unearned positions or possessions. We’ll find no lasting peace of mind in expenditures for the pleasures of today.

In summary, for those who continue to blame others, demand financial equality (which is not the same as opportunity), and live only for today, the future may only bring more disappointment, greater financial inequality, and the dreariness of debt and financial ruin.

If you or someone you know is stuck in this rut of PovertyThink, it’s time to reconsider your situation. Do some reading about how financially successful people accomplished their goals, and follow their examples. Here’s a nice site to see read some real life financial success stories (without all the blinding glitz and false glamour of the lottery and get-rich-quick sites): Get Rich Slowly.

Have a fantastic day!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on March 28, 2011 at 1:33 pm  Leave a Comment  

Maximizing Benefit of Tax Refunds

March 15, 2011

Debt Reduction Services Inc suggests a sensible approach to using your tax refundIt’s tax return time. Many households are receiving tax refunds now or will over the next month or so., but too often, these refunds – which can amount to several thousands of dollars – are spent on consumer goods. Such emotion-based consumer spending typically has no significant impact on the household’s net worth or financial stability. Instead, it tends to perpetuate the mindless spending cycle that keeps too many American households stuck in the rut of paycheck-to-paycheck living.

Here is what we and other financial experts suggest such households ought to consider doing with their refunds instead:

  1. Set aside 25% of the refund for consumer spending, if the head(s) of the household feels “the urge to splurge.” This may help to satisfy the primal spender within.
  2. Add 25% of the refund to the household’s emergency fund. This should be held in accounts that are fairly liquid (or easily accessible). A savings account is a standard option, though its rates tend to hover somewhere between the average inflation rate and zero. Other possibilities include Certificates of Deposit that earn a little more interest than savings accounts. Money market accounts are also decent options, as well as interest earning online savings accounts. Rarely will you find an account that offers quick access to your cash but pays interest above the current rate of inflation.
  3. Use another 25% of the refund to pay down debts. Either send it to the account charging the highest interest rate or to the account with the smallest balance. Where I differ from many financial experts is that I also suggest that you consider paying down your mortgage debt. Even though there currently are tax incentives connected to mortgage debt, debt is still debt. Until a mortgage is paid off, the home owner’s freedom (to move, to rent out the home, etc.) is restricted, just as with any other type of debt.
  4. Lastly, use the final 25% to add to long-term retirement investments, including 401(k)s, 403(b)s and Individual Retirement Accounts.

Although some of these suggestions might not be relevant to some households, the remaining suggestions probably are.

Please feel free to share your own successes and experiences with your tax refunds.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on March 15, 2011 at 10:53 am  Leave a Comment  
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Defining PovertyThink

January 7, 2010

I read this past week of efforts in many countries to eradicate poverty by, as some have phrased it, “paying the poor.” The generic term for such programs is “conditional cash transfers” (CCTs), meaning that the government essentially pays cash to families in poverty that meet certain criteria, such as keeping their children in school, having regular preventative medical check ups, and attending workshops on financial skills and disease prevention.

Reportedly, the CCTs can have a widespread positive impact on reducing the income gap between the wealthiest and the poorest in that country. Today’s topic, though, is not about the pros and cons of CCTs or whether we should implement one in the US. Rather, I’d like to address the less tangible side of poverty: PovertyThink, if you will.

Financial Evolution and PovertyThink-National Financial Education Center at Debt Reduction Services IncI would describe PovertyThink as a set of beliefs, attitudes, and accepted presumptions held by individuals of ALL  income levels that prohibit them from implementing, or cause them to  take action contrary to, wisely money management behaviors, particularly with regards to building a satisfactory positive financial net worth in a capital-base economy.

Please do not misunderstand my statement. I am not referring to poverty (deficiency of money, goods or means of support) as being a choice. I am talking about people of ANY income level that subscribe (usually subconciously) to PovertyThink as a view of the financial world and, consequently, who fail to achieve financial success or independence.

Following are possible indicators of the presence of PovertyThink:

  1. Blaming others, particularly banks and creditors, for your financial woes. After all, you reason, they are the ones who have sabotaged your finances by charging ridiculously high penalty fees for bounced checks, late payments, and/or other mistakes.
  2. A strong distaste for the rich. In your mind, being rich is driving luxury vehicles; vacationing at luxury resorts; living in large homes; having mountain retreats or ocean-side cabins; having a garage full of motorcycles, ATVs, or snowmobiles; dressing in designer outfits and suits; and be able to buy just about anything else you want. You feel that those who are rich probably don’t deserve, and certainly don’t appreciate, what they have.
  3. Obsessing over the lifestyles of the rich. In spite of your feelings about the rich, you are often prone to obsess about their lifestyles and dream about what you would do if you were “rich.”
  4. PovertyThinkers play the lottery, mistakenly believing it to be their best shot at wealthPlaying the lottery. You play the lottery because it offers you the best chance of becoming rich. You feel that  the lottery is a way to become rich without having to financially injure anyone else on your way to the top, as the rich often do.
  5. Believing that finances should be fair. You hold to the belief that life should be fair for everyone and that the riches of the world should be equally available to, in not downright divided among, everyone. It galls you as completely unfair to think that the “rich” have it all and you don’t. After all, you believe that the harder a person works, the more they deserve to be rich, regardless of what they do for a living or what they contribute to society. And since you work harder than the wealthy you see on television, you feel you are just as deserving of riches as anyone.

On the surface, these beliefs seem harmless enough. In fact, #3 and maybe even #4 seem to you to be attitudes that should actually motivate someone towards financial success. So how do these points above, collectively identified as PovertyThink, actually do more financial harm than good? Let’s address them one at a time:

  1. Blaming others gets us no where. Blaming the umpire or referee for a bad call, in fact, can get you thrown out of the game.  Blaming others for our financial woes just means that we’re throwing ourselves out of the financial game. What should we do, by contrast? Accept responsibility for (and the consequences of) our mistakes. This may mean additional fees, high interest rates, and more work for us in the short term. However, once we recognize that we often get ourselves into financial troubles, we also recognize that we are responsible (and capable) of getting ourselves out of them. No one else wants us to succeed like we do. It’s time to hunker down and approach our financial challenges with more focus, patience and wisdom. Lashing out only turns would-be friends to long-term foes.
  2. Beware of misconceptions regarding what it means to be rich and what it means to be wealthyThose who dislike the rich the most are often those who want to become rich the most themselves. Unfortunately, they also usually have a warped sense of what it means to be rich. For those in the grips of PovertyThink, being rich is a lifestyle or a certain amount of income. If someone earns, say, $100,000 a year, well, they may be defined by a PovertyThinker as rich. It’s considered whether the same person earning $100,000 a year is spending $110,000 a year, is deep in credit card debt, or is staring foreclosure in the face because they can’t take care of their mortgage payment. The same could be said (and often is true) for a large percentage of people who drive the fancy cars, live in the opulent neighborhoods, and dress and accessorize themselves in the most expensive fashions. PovertyThinkers assume that the rich are greedy and have oppressed others while they earned their riches. The irony is that those who live the luxurious lifestyles tend to have noticeably smaller net worths as a percentage of their income than most millionaires, who buy used, American-made cars and live in modest homes. This PovertyThink tenant is, therefore, based upon inaccurate assumptions.
  3. PovertyThinkers are often seen buying or reading magazines about celebrity lifestyles. They know what brands of clothing celebrities wear, what types of vehicles they drive, where they vacation, which celebrities have their children in a private school and where that school is located, etc. Because many of the truly wealthy typically shun the spotlight, there is no magazine that gives an accurate description of what a real millionaire’s lifestyle is like. So, PovertyThinkers use transitive arguments to equate celebrities (who tend to earn large sums of money) with millionaires (who, outside of their primary residence, have a net worth of $1M or more in assets such as investments, accounts, business ownership, and real estate). Unfortunately, not all celebrities are (or stay) millionaires, and only a very small percentage of millionaires ascribe much importance to the extravagant lifestyles of many celebrities.
  4. Every week, we can read of or watch on television the report of the latest multi-million dollar lottery winner somewhere in the US. PovertyThinkers will see a dream come true for the winner, because they think in terms of amounts and dollars. In reality, many lottery winners (even some of the multi-million dollar jackpot winners) end up spending and/or giving away ALL of their winnings within a few years. Some huge jackpot winners have notoriously ended up living in trailer parks or with family members because they did not have a true appreciation of how much money they had won. They figured that since they were millionaires, they could give away or spend whatever amount they chose. They soon learn, though, that even a million dollars is a finite sum.
  5. The idea that reward should be directly tied to effort is not new, though it is pervasive. “Johnny got an A for effort.” However, it is a fundamental reality that effort is only one of several factors that our society rewards financially. Others include competence, creativity, productivity, personal affinity, loyalty, and on and on. To base someone’s financial compensation solely upon effort is to deny the importance of the other factors. Such an inflexible practice would lead to stagnation in productivity and innovation. Unfortunately, PovertyThinkers who fixate on the importance of effort tend to shun or ignore opportunities around them to solve problems and create solutions that could otherwise lead them toward greater compensation and reward. Developing an entrepreneurial work ethic or style, even if one works as an employee for someone else, creates an entirely new way of considering the value of work as it relates to their income.

So what’s the answer for PovertyThinkers? Since becoming a financial educator, I’ve always felt that the formula for personal finance success has more to do with motivation than with numbers, math, or school grades.  PovertyThinkers, if left to themselves, often have to hit rock bottom or experience some other sort of life changing event before taking the decision to make changes. Otherwise, not surprisingly since this is coming from a financial educator, I believe education is key. Whether through workshops, webinars, conversations, or reading materials, learning about others who have broken the PovertyThink cycle and learning how they did so can provide the hope and belief that makes such individual progress possible.

Such stories are not hard to find. Most of us just don’t look for them or don’t recognize them in the context of breaking the PovertyThink cycle. A large percentage of rags-to-riches stories (excluding lottery winners and those who inherit their money) are case studies in overcoming PovertyThink.

Have a fantastic day!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on January 13, 2011 at 11:45 am  Leave a Comment  
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