Money Talks Series - Part 1

💸 Understanding the Concept of Money

The nature of money is complex and multifaceted.

An enlightening perspective comes from Economics Professor Suneye Rae Holmes of Spelman College, as shared with young businesswoman Marsai Martin. Professor Holmes describes money as an unusual commodity, one that people strive to obtain only to part with it later.

Sounds odd, doesn't it?

The common drive is to amass as much money as we can, only to spend it swiftly.

Our approaches to earning and using money vary, ranging from beneficial to potentially detrimental.

we'll explore scientifically-supported methods to educate young people on making wise financial choices. This will cover both earning and spending money.

Our journey will delve not just into the numerical aspects of finance but also into the psychological elements that influence both positive and negative financial behaviors.

I aspire that throughout this exploration of financial concepts, you will find valuable tools not only for guiding the younger generation but also for re-evaluating your own financial strategies.

As we begin 2024, let's embrace a journey of self-awareness in effective financial management. 👍

Distinguishing Between Essentials and Desires – And All That Lies Between

Before diving into instructing children on financial stewardship, it's crucial to instill in them the understanding of "essentials versus desires".

This concept may appear straightforward, yet it's far from it.

Many are acquainted with psychologist Abraham Maslow's Hierarchy of Needs:

Source: Thought.co

At the base of Maslow's pyramid are physiological needs — in financial terms, this translates to covering basic expenses like:

• Food

• Shelter

• Clothing

I think we can all pretty much agree that these are universally objective “needs”.

As we move up the pyramid, “needs” get more subjective from a financial sense, but still carry psychological weight, and it’s important to recognize this nuance.

Financial decisions are not black and white.

Instilling hard-and-fast rules on our kids like “always save 20% of your paycheck” or “never take on debt” doesn’t prepare them to tackle the complex financial decisions that they’ll face in adulthood.

We’ve created an exercise that can help you move through the pyramid with your kid so they can understand their “needs” versus their “wants” when it comes to money.

The bedroom inventory exercise

This straightforward activity can lead to significant and insightful conversations.

Encourage your child to audit everything in their bedroom, categorizing each item as either a "need" or a "want".

This might be more challenging than it initially appears.

Of course, some "needs" are obvious, such as:

🛏️ Beds

💡 Lights

⏰ Alarm clocks

And some "wants" are clear-cut too, like:

🧸 Toys

🎮 Video games

🌈 Posters

However, consider clothing: Some items are essential, like a winter coat or socks, while others, like designer jeans or expensive sneakers, are more likely to be "wants".

Exploring the contents of a bedroom can uncover a multitude of grey areas, varying based on personal circumstances and your child's aspirations. This offers a vital chance to talk about financial concepts, privilege, and investing in the future.

Consider these scenarios:

🎒 Does your child wear a uniform to a private school?

🎸 Are they learning a musical instrument?

⚽ Do they play competitive sports?

If yes, it's an opportunity to discuss the costs associated with these activities and the family sacrifices made for them.

Then, prompt your child to think about what they could potentially forego.

The aim here isn't to strip down your child's life to the essentials but to teach them that financial literacy goes beyond distinguishing basic wants and needs. It's about understanding the concept of value.

Understanding Value

In this context, "value" refers to the long-term benefits your child might gain from making astute financial decisions. Value can come from aspects like health, opportunities for advancement, and social well-being.

For example:

Consider comparing two $1,000 expenditures with your child:

A season of competitive basketball

A new flat-screen TV for their room

While neither is a basic need, one offers considerably more value than the other.

While engaging in the bedroom categorization task, delve into the significance of items that classify as "wants" and navigate the nuances of the gray area.

Simply initiating this dialogue sets the stage for achieving exceptional financial literacy.