September 27, 2023
By Mike Davidoff
The intent of this blog is to share in more depth some of the common emotional and financial challenges that are unique to the sandwich generation. I write this from the perspective of both a lifelong personal finance and investment professional, but even more so from the lens of someone who believes we all learn from each other’s shared experiences and knowledge to make our own lives just a little bit better.
There are multiple areas in this life where my skills, talent and performance come in well below average compared to my fellow humans. Some examples include my ability to change a flat tire (thank the lord for AAA), my accuracy level on lyrics from “Hamilton,” and my lack of game on the dance floor (it’s appalling… ask my wife).
If you ask me how I rate myself as a dad, I humbly give myself high marks. If you ask me how well of a job I have done in teaching my two boys (ages 17 and 15) about money, I might even anoint myself as class valedictorian. After all, I have a bunch of fancy three-letter financial certifications after my name, I went to the top business school in the country for finance, and I was a publishing Wall Street equity research analyst in my younger days. I mean, c’mon, other than baseball and The Simpsons reruns, is there any other topic in the universe where I possess a stronger command of the subject matter?
However, like many other experiences during my journey as a parent, I was recently served a huge slice of humble pie by my kids. During separate conversations with my two sons, I shared with each that my upcoming blog topic was “How to teach your kids about money.” I expected a “That’s cool” or “Yeah, that’s important” or “Thank you, Dad, for teaching us so well and preparing us to be confident, self-sufficient young adults in this uncertain and topsy-turvy world that we are about to enter.” My sincere apologies, I was daydreaming when I wrote that last one.
My older son, who will be in college a year from now (fingers crossed), told me “You never teach me about money, and I feel like I will be on my own in college and have no idea what to do.” When I pressed him on what topics he felt undereducated about, he highlighted credit cards, taxes, Roth IRAs, and bank accounts. My younger son, without hesitation, responded with “You and Mom never tell us anything about money.” When I probed him on areas we do not talk about, he shared that he would like to know how much certain items like our house, our cars and our vacations cost, how much we make, and how much we own and owe. A little personal, yes, but all valid and insightful questions for a 15-year-old.
While the boys’ reactions were a surprise to me, these conversations turned out to be a blessing and provided my wife and me with a wonderful opportunity to now have deeper and more meaningful discussions with our boys about money. Yes, it is important to teach our kids about taxes, credit cards, mortgages, stocks, crypto and Roth IRAs. No doubt. But even more importantly, we parents and grandparents, aunts and uncles, teachers, managers and coaches need to guide our teenagers and young adults to develop a healthy emotional relationship with money to allow them to build a strong lifelong foundation in financial wellness.
Here are a handful of the most important life lessons about money that I wish to share with my kids and their cohort of teenagers and young adults:
Financial wellness is important. You need money to pay for your life. Everything in life costs money. The only ways to get money is to work for it (wages), earn interest (savings and investments), borrow it (debt) or inherit it. If you are perpetually stressed and anxious about money, it will negatively impact your overall wellness.
Financial wellness is an element of your overall health, along with physical, intellectual, emotional, environmental, spiritual and social wellbeing. Only you can define what financial wellness means to you. For some people, it is how much money they are making. For others, it is how much money they are saving each month or how much they have in their emergency fund or Roth IRA.
For me, there have always been three measuring sticks to gauge my current financial health: 1) Am I earning more in after-tax income from my job than I am spending?; 2) Am I contributing to my workplace retirement accounts such that my balances are increasing each year (outside of what the stock market does)?; 3) Is my consumer debt balances on credit cards, student loans and car payments trending lower rather than higher?
Understand rule #1 – compound interest. You do not need to earn a PhD in personal finance and investing to build a healthy financial life, but there are a handful of basic concepts that you need to learn. The first is compound interest. If you invest money in an interest-bearing investment such as a stock or an equity index fund, you are going to earn interest in the form of dividend payments, interest income and capital appreciation over time. That is a great thing. Your money is working for you, and you are earning a positive return on your investment. Conversely, if you borrow money in the form of a credit card or a car loan, you owe money on the money you have been lent, and you fight the uphill battle of paying back the interest expense payment on top of the principal balance on the loan.
Accept the responsibilities of being the CEO of your financial life. Money is stressful and anxiety-producing for almost all of us, including the adults in your life. There is rarely enough of it, and we are all generally worried about running out of it. That’s okay. It is your responsibility to take charge of your financial life because if you do not, someone else will who does not always have your best interests at heart. If you follow the basic concepts above (earn more than you spend, set aside a portion for investments, keep your debt levels minimal), you can fill in the rest of your knowledge gaps as you go along and are in front of important financial life decisions.
The resources available at your fingertips today are incredible. For example, if you want to learn about the nitty-gritty details that help you comprehend the major factors that will drive your ability to find an affordable college choice, there are YouTube and TikTok tutorials, calculators, blog posts, podcasts, industry association websites and e-books easily accessible to you. In addition, there are many wonderful adults who would be thrilled to sit down with you to answer your questions. The one nuance is that you need to advocate for yourself and take the time and energy to wade through the confusion of complex money topics to have it make sense for you and empower you to make the best decision for you.
Control what you can control. Accept what you cannot control. Here are the areas that you can control: your attitude, your actions, your habits, your decisions and your resourcefulness. Here is what you cannot control: the economic cycle, the stock market and the financial performance of your employer (especially when you are young). It is important to form healthy money habits when you are young. Some examples include: 1) Taking on summer jobs during high school and college to build up your resume and establish experience earning money; 2) Opening a Roth IRA and starting to contribute so you can build savings and learn about investing; 3) Setting up automatic contributions to your company 401k during your first full-time job which allows you to fund your retirement account every paycheck without having to think about it.
Delayed gratification pays off. It’s a wet blanket sometimes, but it’s just the way the game works. Play the long game. It’s true with your diet, exercise and at work. Leave your investments alone as long as you can because the stock market tends to increase in value over time. Buy a smaller house. Buy a cheaper car. Live with a roommate. If you form healthy and consistent money habits now, your future self will thank you.
As you get older, your life and financial responsibilities increase, sometimes at an exponential pace. Your flexibility decreases. Your ambition and hunger get compromised. Your tolerance to put up with a tough boss and difficult life circumstances decreases. When you have a strong financial foundation, your ability to navigate life’s inevitable curve balls becomes much easier to manage.
Debt has consequences. Always think twice and sleep on it before taking on a big loan. In the United States, we have a system set up that incentivizes borrowing. High school seniors are lured with the idea of attending their dream school, even if it means taking out significant student loans. First time homebuyers are often aspirational in how much home they can afford, and there are few intermediaries during the buying process who sit down with them to outline the potential negative outcomes of stretching their cash flow too much. Young entrepreneurs are encouraged to chase their passions, but it can often come with a sustained period of volatile income generation and high stress. The point is not that debt is bad, but that it comes with consequences that may lead to extra pressures in your life that you did not originally anticipate.
Use gamification to your benefit, not your detriment. Your generation has grown up in a world that is much different than the way I grew up. You had an ipad in your lap at age 5, a cellphone by age 12, and 24/7 access to the internet most of your life. I had a bookshelf full of books and magazines and an Atari game system for Ms. Pac-Man and Donkey Kong in my house. Yes, I am showing my age.
Your money ecosystem today is entirely digital which comes with tradeoffs. On the positive side, you can access and move money faster, you can automate nearly all areas of your money life, and your ability to find an immediate answer to a money question sits on the phone in your pocket.
The negative of all things digital is that you may not be as careful to think twice when everything you spend comes from the push of a button. There is no doubt that it can be a dopamine hit to purchase goods and services online, trade stocks and options and gamble on sports, among other activities. If you have addictive tendencies, there can be very negative outcomes to your emotional and financial health, and sadly, there is often very limited friction between you accessing these apps and you losing a lot of money.
There will always be people in your life who make more money than you, drive a nicer car and have a bigger house. There are over eight billion people in the world including well over three hundred million in the US. You are the best and most unique you in this world, but the odds are nearly certain that there will be others out there who are richer, more successful, can jump higher and run faster than you. Be confident in your own life choices and accept that the outcome will not always be exactly as you wish. Understand that there is not only skill but also luck involved in creating wealth.
To wrap up, it is important for you to develop a healthy mindset and habits around money at a young age so it can serve as an enabler rather than a major source of stress and anxiety.
And to my sons who are hopefully still reading this and did not switch over to Instagram after paragraph #3, I hope this gives you a greater sense of confidence as you move forward in your money lives.