Monday, May 14, 2018

My story of financial literacy

As I was following a news feed from inside the company I came across a post from one of our Executives who regularly writes very compelling blog posts

This one in particular inspired me to share my own story of financial literacy. Hopefully you will find some inspiration too.

I need to start by acknowledging my privilege. I've been privileged to have the right examples from my parents and the right education to be able to make the right decisions. They worked very hard on their professional jobs to give me and my siblings a good middle class life. 

From my parents, one of the most important lessons I learned was budgeting, spending within your means and to put value above price.

Every month, my parents would sit at the dinner table and take out the budget notebook, my mom would take out all the bills, and would start reading them to my dad, water, electricity, taxes, school, school trip, school uniforms, car payments, etc. My dad would write it down and add things up. Every now and then, expenses would be higher than the income and they would discuss how to borrow from the savings and how to repay it. Rule #1 credit card was paid in full monthly. Open discussion, we would know when money was tight.

There was one "exception" to the budget. My dad would reimburse us ANY money we used for books, ANY kind of books.

When it was time to buy clothes, my mom would always say: Better good quality even if it is more expensive, cheap clothes will look nice one day but soon they will look bad and you'll need to replace them. Good quality will show for longer and you won't need to replace as fast. She learned that from my grand mother.

Every week we would go to the market and every two weeks to the supermarket. We knew the cost of each thing and, bonus, each could choose the food for one of the days of the week (family of 6).

Needless to say, my parents aren't rich but they retired without any money problems.

Now the second part

My adult life didn't exactly start lined up for financial success. By 23 I was married, had two sons and my wife (now ex) didn't work and didn't know the value of money. She would call me stingy even when we never had any money for savings. However, I refused to break rule #1: Pay the credit card in full. I had a great job and made relatively good money, and bought our own apartment, but I worked 16 hours a day and I didn’t have any savings at the end of the month.

The money I put in the apartment was like a savings account when we wanted to move to Canada.

We separated after coming to Canada and the children lived with me. We started going to the groceries and market together, we had a contest to figure out the real cost/value of what we bought: Is the 500 ml can for $2 cheaper than the 1 Lt for $3.50. Is the brand name really better than the no name for 1/2 the price. Sometimes the answer was "no" and we would buy the brand name. We would cook at home and actually price our dinner. It wasn't unusual to have a great dinner for $2 each. They were 6 and 7 at the time. Good practice of math too!

As soon as they were 15 they started working. And at that age, they wanted to dress well. My take was: your work money is yours to do as you please and if you want expensive clothes, you buy them. Now that it was their money, they spent it wisely.

As they started growing up, they started paying for more of their expenses. Gradually, planned.  When they wanted to use the car, they paid for the gas. If they wanted to travel with friends, they would save, and so on.

When it was time for university, they both chose local schools. One of them decided to experience residence life and he paid for it. When he saw how expensive it was, he came back home.

As soon as they were old enough, I advised them to get a credit card and pay it in full every month. It would give them convenience, but most importantly, a clear record about what they spent their money on and a credit history. They haven't missed a payment since.

When they started getting a surplus from their income, I advised them to open a TFSA and do their own risk tolerance assessment. They saw the money go down with the recession and I encouraged them to hold it. Thankfully it bounced back.

When my Amex would give me a 0% interest of 6 months, I would show them the effect of paying my line of credit with the Amex and then after 6 months paying the Amex with the savings throughout those 6 months. Sometimes the difference between doing that and paying down the line of credit right away from the investments, would be hundreds of dollars of "free" money. But I also showed what would be the effect of not paying down the Amex after 6 months: hundreds of wasted dollars.

And it all brings us to today:
The older one finished school and went on a two years specialty, I still paid school but he paid all his other expenses. When he finished, he was able to take an unpaid Internship exactly where he wanted and he was able to survive out of savings (no debt) for 6 months in Toronto! That internship allowed him to eventually get a job he really likes. Now he has a good job, good credit, no debt and some investments. He is 27.

The other one decided to continue working and traveling for a year, after university. But now he is in Sint Maarten, studying medicine. While I am the guarantor of his professional studies loan, he is taking full ownership of the debt and of course, his own credit history helped him get the loan. Not only that, but he has his own financial cushion to cover his own expenses for at least a year if need be.

My life lessons are:
1# Don't acquire debt that won't pay for its own but mainly that you can't pay if things go south. A mortgage: may be good debt (If you don't overextend yourself). Line of credit to finance a good investment opportunity: may be good debt (if you can pay the debt even if the investment fails). Credit card debt to pay for a vacation: Bad debt.
#2 Value and price are not the same thing. Lower price is not always better but also, higher price is not always better value. Evaluate each time.
#3 Your partner should share the same financial values as you. One bad partner can ruin your finances and your future
#4 Children need to hear when money is tight and what sacrifices you need to do to solve it. Eventually, they will need to solve it on their own and they must know that some sacrifices are necessary
#5 Children need to learn to manage their own money gradually. They shouldn't feel there is a safety net even if there is one
#6 Children need to learn to learn how interest works to their advantage or to their disadvantage.

Financial literacy is learned:
If you have the privilege of knowing how to manage your money, don't be selfish and talk to your children about it.
If you didn't have the privilege of a good example at home, reach out to other people or organizations which can show you some of those lessons. Don't leave it to chance.

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