Tuesday, December 13, 2005

Mamas, don't let your babies grow up to be financial dimwits

A few P.F. bloggers have recently written about the importance of teaching one’s kids about money and saving. I wish I could say that my parents taught me about finances, but they didn’t. For example, they let me spend most of the high school graduation money family members had sent me, on clothes. I don’t remember them once talking about what that money was supposed to be used for, or telling me that I should save it. I left for college at age 17 with a brand new checking account and no idea how to balance my checkbook. “Just follow the instructions on the back of the statement,” I remember my mother saying, but I never did. I bounced several checks my freshman year and I remember her getting irritated with me, but that was it.

My second year of college I discovered credit cards. I applied for a Discover on the advice of my roommate. “It’s a great card,” he said, “because if money’s a little tight one month, they’ll let you skip a payment.” I soon found that not everyone accepted Discover, so I applied for a Visa as well. Quickly I ran up about $800 of debt, and after a year I was making only the minimum payments (sometimes nothing on the Discover) and seeing no light at the end of the tunnel. I can’t remember how I found out about the Consumer Credit Counseling service, but I remember talking to them once on the phone and making tentative arrangements to go in. They probably would have been able to help me more than I realized, but eventually I just confessed to my parents what I’d done, and my dad wrote a check to cover my debt. I recall him saying that they’d bail me out just this once. Surely I’d learned my lesson, right? I was 20.

Right after college I got caught up in a “business enterprise” with a real flake. I wasn’t sure I really wanted to go into this business, but I didn’t have any other ideas about what I wanted to do with my life, so I plunged ahead. I had perfect credit and he didn’t, so most of the loans went under my name. He left town after a year or so, and so *I* owed more than $40,000 to various vendors and the landlord of our retail space. Eventually, at 25, I declared bankruptcy.

A year or so later I was gainfully employed, with a 401K. Two years later, after I’d left that company for another job (without benefits), I cashed out that 401K to cover some debts. I was 28.

A year later, J and I decided to move from Texas when the company that bought his company in Austin offered him another position in Massachusetts. I got a job at an academic library, where I enrolled in the university’s 401a plan. They also offered a 403b, into which they’d put the equivalant of 5% of my gross salary on my behalf (free money), and I’d be fully vested in three years. All of the retirement paperwork confused me. I put my money into some aggressive mutual funds, and for reasons I can’t fully explain, a few select funds like Finance, Real Estate and Food & Agriculture. I had no idea what I was doing (but at least this time I didn’t lose much money—it being the early 2000s, I lost less than most folks, in fact).

I’m still employed with the university going on five years now, which means I’m fully invested in my 403b. The university offers retirement information sessions for both retirement plans on a regular basis, and I make a point of going at least once a year. I’ve since tweaked my retirement accounts to reflect more thoughtful investment choices, though I’m still learning the ropes of investing. I still sometimes jump into things without completely understanding them, like with the Roth IRA I opened recently, but I’ve been careful to do so with only small sums of money. I now read books about personal finance on a regular basis—and then of course there are all the blogs!

At age 34, I’m finally beginning to feel like I’m getting somewhere. I save 20% of my income, my credit scores are all in the 700s, and the bankruptcy will be off my record in a couple more years. Sometimes I even feel like I’m ahead of most Americans, when I hear about things like interest-only mortgages, car leases and people not contributing to their retirement plans. Admittedly, I do still sometimes brood a little over past mistakes. I hate to not take full responsibility and shift some of the blame onto my parents, but did it really have to be that way? I think if I had a child, and I told her absolutely nothing about finances, I would NOT be surprised if she made the same mistakes I did. Therefore, all I can say is: if I do have a child, I’m starting her out young.


Anonymous Jane Dough said...

While your financial education was a rough one, just think about all those mistakes and the bankrupcy as paying tuition in Life 101.

Now that you are finally at the other end the good news is you are young (yes, 34 IS young - no snickering all you 20-somethings out there - just you wait) and you are on the right path. The only way to really learn about investing is to do it. So your Roth IRA and your 403b are your text books now. Explore your options, try a mutual fund or stock or two - watch them for 6 - 12 months then adjust.

The more you buy, sell, and research the smarter and more confident you will become.

You are entering into your most productive and highest earning phase of your life. Now is the time to crank on saving and investing.

Keep it up - you are doing great!

11:26 PM  

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