
The Money Letter That Every Parent Should Write - pavornyoh
http://www.nytimes.com/2016/06/18/your-money/the-money-letter-that-every-parent-should-write.html?ref=business&_r=0
======
fefifofu
This article and the book is exactly what's wrong with personal finance
education. There is no special wisdom, clever tricks or golden rules in
finance. Chicken soup for the soul won't help.

Personal finance should be taught as a math problem. Figure out the cost of
the lifestyle you want, and work backwards from there. If your fancy house,
car, and dinners out cost $100,000 then you can figure out if your choices
make sense... does you career choice match up? does taking on school debt make
sense? etc.

Or if you are older and made these life choices already and make $50,000, your
math problem is a bit different. Does the honda or tesla fit? You can very
easily see if credit card interest of 20% will help or hurt you achieve your
goals/lifestyle if you do the math.

None of this generic "avoid debt" or "house are the best investment" (garbage)
advice helps and only confuses the matter. I think the only area that has more
confusion and bad advice than personal finance is nutrition. In the letter,
grandma says "go for a fixed rate mortgage"... what!?

~~~
jpatokal
> You can very easily see if credit card interest of 20% will help or hurt you
> achieve your goals/lifestyle if you do the math.

Is there _any_ scenario where paying 20% interest on credit card debt (or,
rather, getting into a scenario that requires that) would help you achieve
your financial goals?

~~~
fwn
Don't know about "financial goals", but goals: If your utility gain from the
20% interest is lower than the utility gain from the instant availability of
that money.

I can think of various situations where, if there were no better products
available, this might end up making sense.

------
sandworm101
A good letter if you are a middle-class household without any real problems.
But that american dream isn't applicable to everyone.

I'd write a very different letter for a family struggling with one or more
dependant/disabled family members. There, conventional saving can be difficult
but also dangerous. A big pile of money or other assets can too easily be
attached or lost to a horrible situation.

I'd also write a very different letter for wealthy families. For them, asset
protection is far more important than savings. They often spend more energy
dissociating themselves from their wealth via trusts and other tax-efficient
games than they do actually building savings.

~~~
OscarCunningham
>I'd also write a very different letter for wealthy families. For them, asset
protection is far more important than savings. They often spend more energy
dissociating themselves from their wealth via trusts and other tax-efficient
games than they do actually building savings.

I've always found it weird that so many rich people think this way. They
should be _less_ risk averse then other people. If you're rich then you should
make yourself a safety net and chase a high risk-reward strategy with the rest
of your money.

~~~
gnaritas
> If you're rich then you should make yourself a safety net and chase a high
> risk-reward strategy with the rest of your money.

If you're rich you don't need to chase rewards, certainly not risky ones;
you've already won and can relax and do whatever you want without worrying
about whether it rewards or not. That is the point of being rich, getting to
do what you want rather than what other people want.

~~~
sandworm101
I don't think it is so much not trying to earn, but being rich allows you to
take advantage of investments that normal people wouldn't or couldn't
consider. If you are not rich then you need ready access to your investments.
You might need the money one day. A rich person can instead invest in less
liquid concepts such as private equity or offshore havens.

~~~
DasIch
That you have that advantage isn't all that interesting. In the end it's not
your income that matters, it's your happiness and these two things don't have
a proportional relationship.

If you're rich, you don't gain more happiness as you gain more income. So the
only thing you really care about in regards to your income, is that it doesn't
drop low enough to affect your happiness.

~~~
sokoloff
Many of the rich care about power and influence, so aren't likely to take
their foot off the gas and coast, content to merely protect a high passive
income.

Like many of us, I'm a 2-3 percenter. I care about building wealth for my
family, giving my kids a solid financial footing, etc. If I had $10MM in
assets (enough to passively generate a 99th percentile income), I don't think
I'd only be worried about protecting income.

~~~
gnaritas
> Many of the rich care about power and influence

I'd wager most don't. Sure, some do, but they're a minority.

> If I had $10MM in assets (enough to passively generate a 99th percentile
> income), I don't think I'd only be worried about protecting income.

But you won't know until you do, anything you say now is merely a guess that's
likely wrong. Once you have a work free income, odds are your evaluation of
its value will change drastically and you will become very protective of it
due to the freedom it provides.

------
cmurf
I think more than anything right now, the advice to give is how to avoid debt.
Savings is certainly important, but increasingly a luxury, as friends still
have school debt even as they contemplate having kids. And then think it's
normal their kids will have school debt too.

School debt is not normal. That used to be for only the classic professions:
teacher, lawyer, doctor. College was either paid for by family, by grants, or
you worked your ass off but had no debt after the undergraduate degree. Now
everyone thinks debt is sane.

If I were a parent, I'd plot with the kid how bankruptcy is part of their
normal college education. Not debt.

~~~
SolaceQuantum
As far as I understand, it is very difficult to clear student loan debt via
bankruptcy.

~~~
Clubber
It is. People came up with the same plan. I believe it was popular with
lawyers, but I could be mistaken.

Get your degree, file for bankruptcy. Since they can't take your degree away
and you have no collateral, there wasn't much they could do.

The inability to relieve debt through bankruptcy is a result of that scam.

~~~
lawpoop
Yes, it was doctors and lawyers. Get out of school, declare banktupcy on
$100+k of debt (abnormal at the time except for those degrees) and then in 7
years, start over with all the money you saved as a Junior doctor/lawyer.

------
em3rgent0rdr
How about teaching in small doses at regular intervals throughout their
growing up. Or give them tools to learn by themselves.

~~~
n72
The scary thing is that banks actually sponsor investing games to be taught in
schools, encouraging crappy habits like stock picking and trusting your gut
and such.

~~~
tominous
We had a yearly competition like that at school. The "winner" was always
someone who put all their money in one penny stock and got lucky.

A better approach is to reward the portfolio with the highest Sharpe ratio,
but even that is flawed because it ignores systemic risk and confuses
historical volatility with actual risk.

Anyway, these games teach nothing about the essential habits of delaying
gratification and living within your means. Those habits are far more likely
to make you rich (and keep you rich) than any particular investment strategy.

------
thesumofall
Never heard about the tradition of the "Money Talk" and never got one either.
Feel like it is much more worthwhile to teach kids critical and independent
thinking rather than trying to teach them principles ("invest in index funds")
that might (or might not) be all that useful a couple of years down the road.

~~~
pilom
You know what I wish my parents had taken the time to teach me? How credit
cards work, how student loans work, and why I should max my 401k. Yes all of
those things could change with legislation, but I'd be much much better off
knowing those 3 things when I graduated high school than when I finally
figured them out years after graduating college.

~~~
MrFoof
I never got much of a talk, yet every time I did, I questioned my parents'
rationale and savvy. It was simultaneously both an epiphany and a dark moment
when in your early teenage years you realize you are unquestionably smarter
than your parents.

Here is what I was told:

* The value of your home doubles about every 7 years. I was told this in 1994. I then asked if my father's salary doubled every 7 years. I was immediately grounded and sent to my room.

* I was told to, without question, borrow money for the best college I could. When I asked on how I would pay that back, the question was dodged.

* How much money to save? Never came up. 401K? My parents didn't have one. Credit card interest? I was told to get it as low as I could -- but never told to avoid it.

* We always seemed to buy new cars. We had a basement full of junk. Seemed to be a nice setup for a guy working at a landfill and a stay at home mom in a city that had been in non-stop decline since the end of World War II.

I ended up going against my parents' advice. Something that got me kicked out
of the house, for refusing to borrow 150% of their homes' value (I got a
scholarship, but far from a free ride) with my own future money I hadn't yet
earned, to attend Carnegie Mellon (and instead taking a job to pay for state
school, which I ended up leaving after 3 semesters). When the dot-com bubble
was about to burst. Result?

At age 22 I moved back in with my parents. Not because I needed help, but
because they tapped their savings after Dad was unemployed for 6 months,
despite unemployment insurance, and desperately needed help (and I wasn't
giving them a handout while also renting my own apartment). I was the only
person in the immediate family that had a decent job. This was exasperated by
the fact they took a huge HELOC (at 10.5%) to help my sister pay to attend
Cornell, an offer that wasn't extended to me, but was now burying them alive.
They had to help my sister because she dropped BioChem for Psych, which for 2
years hadn't yet landed her anything better than working at a Hollywood Video
store.

I ended up giving them the third degree. Their books I forced open. So much
credit card debt (nothing insane, but significant, and lots paid in interest).
So much garbage. So much useless crap. ZERO ever saved in a 401K (it wasn't
until 7 years ago that I forced my father's hand on contributing to one).
Virtually no savings to draw on. Never mind the extreme animosity considering
that I was repaying part of my sister's Ivy League schooling, in addition to
my parents' primary mortgage (not paid off after 32 years), and their health
insurance.

Crazy thing is, they were far from the biggest financial basket cases in the
neighborhood.

~~~
seanp2k2
I grew up in a similar situation, though not as dire. I definitely had to
figure this stuff out for myself, and because of my own lack of research
combined with memories of when my father basically lost what they had called
my college fund picking stocks in the 90s (he thought things like Ricochet and
wireless ISPs were the future...thanks dad, maybe 20 years early with the
wrong players in the wrong country), I ended up not recognizing a great
options opportunity at my company and contributing nothing to it for 2 years
before our stock price increased roughly 15x (basically, I would have been a
millionaire like some my other coworkers now are).

We also had the "houses are always a good investment" bit of advice, despite
living in a much smaller house in a much crappier town than we could afford.
They're currently back at about mid-90s levels value wise, and my family did a
horrible job of maintaining our home, so the value is actually less now. This
covers basically what happened:
[http://infographics.economist.com/2015/uscitieshpi_11_2015/?...](http://infographics.economist.com/2015/uscitieshpi_11_2015/?n=21011894/2014/02/daily-
chart-18&w=595)

Needless to say, getting out a few years back was the best decision I could
have made for my life and career in tech.

If you're a parent considering writing one of these letters, how can you fact-
check yourself to ensure that you're not giving your children a huge
disadvantage with terrible advice? I personally learned a lot from
Investopedia and from messing around with Bitcoin in the early days (another
opportunity where I could have made tens of thousands of dollars had I hung
onto the 20BTC or so I had mined instead of selling them for $12/btc, happy to
have paid for a new GPU I got just for the task).

~~~
lostlogin
> I ended up not recognizing a great options opportunity at my company and
> contributing nothing to it for 2 years before our stock price increased
> roughly 15x (basically, I would have been a millionaire like some my other
> coworkers now are).

I'm unclear - is this your parents' fault?

~~~
phkahler
>> I'm unclear - is this your parents' fault?

No, it's hindsight and regret. It's funny because it would be similar to
picking that stock, yet the same poster says his parents lost a lot by picking
stocks so apparently that's a bad idea. It's easy to get confused about that
when "you worked there" as if that automatically should have given you insider
information about a 15x increase in the stock price. No, picking individual
stocks is not usually a good idea and Enron taught the lesson about investing
in your employer - if they go down you have no income and no savings.

------
rectang
"Dear kid: The 'American Dream' is a myth. Its purpose is to flatter the rich
that they are virtuous."

------
Zelmor
I do double-bookkeeping on every expense in GnuCash. One of the best decisions
I did in my 20s was not to go to bed without hitting in those couple numbers
into the computer. Elliminated a lot of stress in my life, and made me more
savings oriented. My parents never talked to me about money. Reading The
Richest Man in Babylon did the magic instead. Check it out, even if just the
wiki article. It is worth its weight in gold-pressed latinum.

------
ericfrenkiel
A modern - and superior - option would be a mobile application that could
provide ongoing and reinforced instruction to the child.

As a millennial, we're probably the last generation to learn how to write a
letter in elementary school (as well as how to use the Dewey Decimal system to
find a book in library), yet even I find the concept of writing a letter silly
and more about nostalgia for the parent than the child who will probably
wonder why you just didn't use email or IM.

After reading this article, I'd rather have the couple minutes back in my life
than trying to wonder why applying archaic communication to perennial concepts
suddenly makes it relevant for the NY Times to cover.

~~~
pilsetnieks
> A modern - and superior - option would be a mobile application that could
> provide ongoing and reinforced instruction to the child.

Reminds me of the Young Lady's Illustrated Primer of Neal Stephenson's Diamond
Age.

~~~
angersock
And now imagine you're the company providing that, including _very_ subtle
advertising!

So much profits. :)

~~~
nitrogen
Isn't that the approximate definition of Disney?

------
n72
In the same vein, as a kind of adjunct to my will, I recently put up a memo on
github to be given to the beneficiaries and trustees of my estate, when it
should come to that.

[https://github.com/nickgieschen/investingguidelines](https://github.com/nickgieschen/investingguidelines)

Feedback welcome.

~~~
hluska
I have two pieces of feedback.

1.) The letter itself is excellent and full of great advice.

2.) I especially love that you open it up with "Hello from beyond the grave.

Nice work - you've not only convinced me to write my own similar letter, but
you've also given me a great template to follow.

Thanks!

------
m-i-l
In my case I did see good examples set by my parents - although their
frugality was a little too severe for my liking (they had come from poor
backgrounds and grown up during wartime rationing), they did have plenty of
good advice like never borrowing money except where doing so can generate a
greater return than the debt (e.g. often a mortgage, or making the most of
interest free credit for things you have money for and have to buy anyway).

But there were some things that they didn't know about, because for example
their generation didn't buy stocks and shares, and had a pension provided by
the state. So there are many things I've had to learn the hard way, in some
cases too late to get the most benefit. For example, I bought a lot of BP
shares on 15 April 2010. That was 5 days before Deepwater Horizon, which not
even the world's best financial experts could have predicted. After decades of
investing in individual stocks that's when I finally realised that investing
in individual stocks is too much of a gamble, and began investing in things
like index trackers instead.

I've actually been making notes over the years, initially to help crystallise
what I've learned in my mind, but possibly also pass on to my children. It's
things I'd have liked to have heard from a trusted source myself a long time
ago. So while I hadn't heard of the practice of either a money talk or a money
letter, I might consider it now. Judging by the other comments I might be one
of the few people here who thinks this is a good idea. But it would be
alongside the usual practising what you preach, given that the best way to
teach is by example, and that education is continuous.

------
srtjstjsj
Thin submarine PR advertising for a book, not honest enough to put it in the
title.

------
somethingsimple
In the same vein, and my favorite, is Jim Collins' "How I failed my daughter
and a simple path to wealth":

[http://jlcollinsnh.com/2011/06/08/how-i-failed-my-
daughter-a...](http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-
a-simple-path-to-wealth/)

------
ktzar
In most EU countries the letter you'd need to write is very different since,
as long as you have a decent job, you'll get a decent pension which will allow
you to live comfortably as long as you own property by the time you retire.

Reading some of those letters made me realise how different risks families
have and take in the US and the EU.

~~~
sheepleherd
These things have changed dramatically in the last couple generations, in
Europe and in the US, and Asia. I would caution you against thinking that
things will stay as they are. Hell, I'd caution you against thinking things
actually are the way they seem to be.

------
a_small_island
So she kept a letter and ended up writing a book about it? What if the letter
was just made up so she could write a book?

~~~
geerlingguy
Sounds a wee bit like 'Rich Dad, Poor Dad'. Probably not helpful to someone
who understands personal finance reasonably well, and wants to pass on that
knowledge to their heirs... but that said, don't throw out the baby with the
bathwater—all of these self-help-with-a-little-finance books are better than
nothing, since most people (at least in the US) have little or no financial
education.

------
eeeeeeeeeeeee
I've always been curious about how best to approach this with children. My
parents hid all their money problems from us because they didn't want to freak
us out. On one hand, I respect this discipline. On the other hand, I feel it
allows kids to grow up without knowing how important it is to budget. I think
I would rather know the truth, even if it freaked me out because it allows
kids to have a distorted view of money and there will be a huge wakeup call
when they become an adult.

------
LoSboccacc
you know what? this is utter bullshit. lived by this advice for 30 years or
so, stashed a good amount of money, then the storm came, and I lost 90% of it
in a very rough year.

if I hadn't that, I could have had access to welfare. instead, working hard
and saving money put me squarely in the 'have to spend for everything' class,
without any benefit.

so here's the advice letter I'm gonna write to my gc:

hide everything. dodge as much as you can without breaking the letter of the
law. go find the most skilled practitioner in tax evasion and have them hide
whatever you earn so much you can qualify for welfare, free tuition, college
scholarships for low income family for your children etc.

being middle class sucks.

------
13of40
Huh- I clicked that with a little sense of doom that it would just be a list
of ways I've screwed myself financially. Turns out I've been doing most of
what's on the list.

