My best friend grew up in the same city that I did, had two working parents, and one other sibling. Her father worked at the same place for 30 years and retired from there a few years ago. Her mother has moved from job to job ever since my friend could remember.
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And even though her father had a steady job, her mom would spend the money as soon as the check hit her hand. They were constantly behind on bills and moved every few years before they could get evicted for not paying rent. My friend could not understand why her mom just wouldn’t pay the bills or stop shopping.
Eventually, we went off to college, and that is where I saw the real long-term impact my friend’s upbringing had on her. She budgeted every cent and never overspent. It was easier because she did not have any credit cards and only used cash.
She was determined to do the opposite of what her parents did. The irony in this is that her younger sister has done exactly what her parents did. She spends money instead of paying bills, moves constantly, and always complains about being broke.
How did these two siblings end up so different? I believe it’s a matter of perspective.
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My friend is the oldest. She paid close attention to what her parents did, and to how their irresponsible use of money caused them stress.
Constant arguments, combined with the stress of moving, was too much for my friend, and she wanted to avoid it at all costs.
My friend’s situation was on my mind last summer when I was invited to discuss money with a group of teens who were involved in our town’s summer work program. The topic was “How to be a Millionaire.”
I started the conversation by asking them what it would take for them to become millionaires. Their answers varied, but most were related to fame. They said that they would need to become a professional athlete, celebrity of some sort, or run a major company like Bill Gates.
I then asked them if they felt like they could realistically ever become a millionaire someday. Their answer was a resounding, “No.” Coming from a very small town in Ohio, according to them, excluded them from being famous or rich or both.
Once more, I switched the conversation – this time, to their summer paychecks. What did they do with the money they had already earned? What do they plan to do with their paychecks in future? Some bought make-up and designer handbags, others bought the latest tennis shoes, and some were saving up for college expenses like books. We broke down their purchases, and I asked them how they felt about them. They were all happy.
Above all, they felt good that they didn't have to ask anyone for what they wanted – that they could just buy it.
So far, not so good.
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I had one more trick to reveal: I introduced them to the wonderful world of compound interest. I pulled up an interest calculator and put it on the big screen. Then I showed them that if they saved $200 a month and put it in an investment account earning eight percent each year, they would have a million dollars to retire with (the average age in the group was 15) in 45 years.
They were speechless. I think that I may have been in more shock than they were that no one had ever told them about compound interest. It was their “aha!” moment. And if even only one or two among them eventually decide to take the compound interest path to saving, I would feel vindicated.