Stick with me on this...
For those of you that have kids (and those that don’t), think a minute about the basic concept of modeling. Simply, what you do is watched by your kids and they model your behavior. You may not even be aware of it, but they are watching your every move. For instance, you may think to yourself, “I’d like my kids to be kind to each other,” but are you being kind to your spouse? How do you respond when kids do something you disapprove of? What's the response to a guy that cuts you off in traffic? Kids notice and pick up on things, then model it too.
In a similar vein, I’d like to focus a minute on money and finances.
Think about it. If your family grew up well to do or with nothing at all, the manner in which your family spent money (or didn’t spend money) affects the way you spend money currently. For instance, if your parents repeated the mantra; “you’ll always have a car payment”, then you will most likely always lease a car over the span of your life. The truth is that the time value of money needs to work for you, not against you. Save money, pay cash for the vehicle and take the money you would have paid in interest on those car payments and put it to better use.
Let’s take a look at history for a moment. Thinking back to the “Greatest Generation” – those that have seen the Great Depression of the 1930s – most lived very modest lives throughout their 20s, 30s, 40s and 50s. They saw the effects of the Great Depression and never wanted to find themselves in that situation again. So they saved money, carried no debt, and spent modestly. Their children, the Baby Boomers, grew up without much excess as well. (Here’s my sociology opinion for the day) But, an interesting thing happened for the Baby Boomers - somewhere along the way, the Boomers made an internal vow: “I don’t want to live like my parents and I don’t want my kids to have to experience growing up ‘without’ like I did.” With the changes that came about in the 1960s, both men and women were entering the workforce, dual income families were springing up, and households were having more disposable income. The results? Households started spending more and saving less (see the post Debt Happy for charts related to consumer credit and the start of the upward trend in household debt – it all begins in the mid to late 60s). Then when couples started having kids (and in line with their internal vow), they spoiled them. And thus the great downward spiral had taken full effect.
Have a look at the chart below for savings rates for the U.S. (along with some other countries) over the past 20 years (I believe you can click on the image for a larger view).
It’s a messy chart, I admit. But do you notice something? All countries noted (with the exception of France) have a decreasing savings rate over the full 20 year time period and end lower than where they started. Also, see the time period from 1990 to 2000? During a time of economic explosion and prosperity for the U.S. and the world during the 90’s, most all countries (except France and Switzerland) had a decreasing savings rate. Why? Most were not saving during economic prosperity, but were spending instead.So, what have these changes and behaviors in society cost us? What can we learn here?
For one, depending on what source your read, anywhere from 20-30% of Baby Boomers have no savings for retirement and 45-50% will not have enough to last through retirement. Wow. Now that’s a huge statistic. Many Boomers will be forced to work into their 70s to be able to live and save up for some retirement. Children of Boomers, guess what? Your parents may have to live with you during their retirement years (gasp).
Weren’t we talking about modeling initially? Yes, I’m glad you asked. If the Boomers went on a spending spree for the past 40 years, what do you think their kids have seen? They’ve seen: unbridled spending at will…
“Oh, you’re just being dramatic…” Am I? How many of us Generation X/Y’ers remember having/receiving/participating in any of the following: Video games, computer games, Beanie Babies, Barbies, Tickle Me Elmo, Walkmans, CDs, DVDs, laptops, cell phones, anything made by Apple, shopping sprees, vacations to destinations (skiing, cruises, Disney Land/World, Cancun, Europe, etc.) receiving a brand new car, and/or having your college education paid for? These things add up. Add on top of that anything our parents bought during that time for themselves, our family, or others and the vortex of money spiraling into the economy gets bigger and bigger while savings get smaller and smaller.
The results on the younger generation? Here’s an example (this may hurt): within the first 5-7 years, a newly married couple will have attained the same level of “comforts”, possessions, and lifestyle as their parents and grandparents – which took them 30+ years to attain. This one hits close to home for me. Yikes! And many newly married couples attained said status, not because they are earning more, but because of credit debt and spending beyond their means – mimicking the lifestyle that was set out before them. Again, see the graphs in Debt Happy, if you think I’m joking. Pretty scary stuff.
So here’s the question: how do we stop this downward spiral? How are we going to train up the next generation of spenders? Is it possible to change our current ways and habits?
I find the following very applicable in regards to reversing our spending habits and being disciplined spenders. For your consideration:
“No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it.” - Hebrews 12:11
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