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In this issue: Promoting portionsaving, practicing meansliving and encouraging longinvesting.

"Working to help parents raise money-smart kids."

​​3 Ideas to Share & Save​
​(Click the link above 👆 to read this week's edition on the web.)

Hello, friends!

Last week, I wrote to you about trying to beat the market:

My second reading of JL Collins' The Simple Path to Wealth convinced me to share some ideas I've been mulling over.

For instance, are we overcomplicating financial literacy?

Yes.

So this week, I want to share some terms I've recently coined. Based on timeless ideas, all three help us focus on (and help our kids grasp) those key habits without which the rest of financial literacy learning won't matter.

— 1 —

Portionsaving:

Harsh? Yes. But an important point to acknowledge? Also yes.

Once we begin earning money, we must also begin saving it. (I wish it hadn't taken me as long as it did to internalize this. 😳)

So enter portionsaving — saving a portion of anything you make. 10% is reasonable, although 50% might be more appropriate if your goal is early financial independence.

But saving, of course, hinges on income:

We can introduce an automated savings habit in a weekly allowance, our kids' first form of income:

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Then when they get older and find work, we can help them start a Roth IRA. And as we've discussed before, matching the money they save, a topic I cover with Art of Allowance Podcast guest Bill Dwight, is a terrific incentive we parents can provide to promote portionsaving.

— 2 —

Meansliving: Despite whatever income our kids make, they are doomed to live hand to mouth if they can't keep their costs down. (I reframe this concept as ensuring their gazoutas ["goes out of"] fall below their gazintas ["goes into"] in this essay.) So they need to learn to live beneath or within their means. Put another way, they should practice meansliving.

In a world of in-your-face spending, our kids must discover controlled consumption by getting to the bottom of what they actually want. And this process is not as easy as it sounds. Because so much desire is "mimetic," or based on seeing what others have, I sense most people don't really know what they want. Even some older adults can't figure it out!

Since experience is the only way to learn, I advocate for starting an allowance and a money conversation as early as possible. But as podcast guest Veronica Dangerfield explains, meansliving is particularly hard for young people whose primary goal is just to fit in:

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"The American Dream" may seem affirming and worth striving for, but it often conjures up thoughts of things. And we know the joy we get from acquiring stuff is fleeting. So the sooner our kids stop trying to keep up with the proverbial Joneses and instead practice meansliving, the better off they'll be:

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Who knows, maybe they'll realize they want financial freedom and commit to 50% portionsaving. 🤷🏻‍♂️

— 3 —

Longinvesting: Our kids have time on their side, and we want to do everything possible to help them leverage it by taking advantage of compound interest. In other words, we need to encourage longinvesting.

But isn't investing complicated? And don't you need an advisor?

Keep. It. Simple.

So your kids have set up a Roth IRA (or a Traditional IRA, 401(k) or brokerage account). Once the money is deposited in one of these vehicles, they need to decide on an investment. But there are seemingly endless options. And choice can be paralyzing. 😵‍💫

So take JL Collins' advice to find one total stock market index fund, like Vanguard's VTSAX (or similar funds offered by other institutions).

Done. Overwhelm over.

One thing you probably don't need? A stock market simulation. In fact, a favorite thinker of mine about kids and investing, Will Rainey, explains why games may encourage the opposite behaviors you're trying to instill:

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And if your kids are itching to play the market, encourage them to use a small portion of their investable money to buy a stock they know. Podcast guest Evan Wilson provides useful advice here:

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Just this past week, the latest "Financial Illiteracy Epidemic" article has been making the rounds (at least in my world). We've seen this before. For years. And we will continue to get the same result if we keep taking the same approach.

Complexity overwhelms, and overwhelmed kids (or, frankly, adults) don't pay attention. Budgeting, credit, debt, insurance, account types, identity theft and interest rates are all meaningful areas of financial literacy learning. However, none will matter one iota if our kids don't develop the habits of portionsaving, meansliving and longinvesting.

Pour the foundation. Then build the house.

Let's keep it simple and enjoy the journey!

John,
Chief Mammal

P.S. Please consult with a financial or investment professional before making any decisions that might affect your financial well-being.

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