Too much of a good thing is still too much. This can be as true for our attempts at a financial gain as it can in any other area. As a financial adviser, I saw many people try and fail to over-save.
For example, someone who has never saved is unlikely to be able to save 25 percent of his or her income right from the start. It often ends in revolt.
Savings ends. A new car, an expensive vacation, or some other sort of wild expense not tied to any of their carefully articulated long-term goals would appear. But there are ways to develop a money mindset, even from a young age.
My Daughter’s Tooth Fairy Savings Plan
I am a father of three children, all young adults now. I tried to teach them about money from a young age, but some children are naturally more financially inclined.
My youngest, Rachel, is my only daughter. She’s a typical daddy’s girl — the apple of my eye. And she has gone through normal events involved in growing up, such as losing her baby teeth around 5 years old.
When she was little, she liked to be prepared for things. She even had a book about losing teeth or the tooth fairy — something along those lines. The book came with a little, velvety purple bag with a gold drawstring. This was where she put her teeth when they fell out. That way they didn’t get lost or misplaced before she was able to collect from the tooth fairy.
Rachel, however, took a different tack. She didn’t want to turn her teeth over to the tooth fairy. She did not, she would not.
Rachel accumulated her baby teeth in that little, velvety purple bag with a gold drawstring because she was saving. Not saving to keep the teeth, but saving in case she needed the money from a few teeth at once — then she could cash them in!
The little bag was effectively a bank account from which Rachel could make a withdrawal on any given night and have the cash at her disposal the following morning. The Bank of the Tooth Fairy.
What’s Your Money Personality?
For some people, an inclination to save is natural. This tends to be paired with a future-minded orientation, a willingness to go without now for something better in the future.
A future orientation is not something that everyone either has or doesn’t have — it is more of a spectrum.
Those who are not future-oriented tend to have the most trouble saving. It’s difficult for them to see how a present sacrifice can lead to something more later. Meanwhile, those who think about the future often see the importance of saving. That said, a person lacking a natural future orientation can develop one.
Developing Habits, Regardless of Money Personality
Habits are like muscles — they develop with exercise. I have had clients try several tricks to increase their awareness of their impulse spending. One idea is to keep a rubber band around your wallet. This can remind you to consider the options before opening the wallet.
Another simple step is to put your credit cards in a plastic container, fill it with water, and place it in the freezer. The credit cards are still there for an emergency — their real purpose — but impulse spending will likely be checked by the work required to access them.
Rachel’s Money Personality
Rachel had a natural future orientation that drove her to forgo the instant cash that the tooth fairy would surely provide. Her money personality as a child grew with her into adulthood.
Somewhere in her stuff from her early childhood, there's still the small, velvety purple bag with a gold drawstring. It still contains those baby teeth. She never did cash them in.
I bet the comfort of knowing that she could do so on any given night was somehow worth a lot more than she would’ve gotten if she had cashed them in quickly.
Teach Your Children Early
Having a tooth-fairy bank is a great start. But as children get older and grow out of the tooth fairy phase, it's important to continue teaching them about finances.