Five money lessons as children that helped us become millionaires
I was recently thinking about how we got where we are: financially successful adults.
You are a product of both your nature and how you’re raised. As a result there are no guarantees that you or any children will be a success.
We’ve talked a bit about both of these things before. A while ago I wrote about a fundamental difference between my brother and I while discussing the marshmallow test. Although born a couple of years apart, we had essentially the same upbringing, yet have different financial outlooks.
An outsized portion of your financial education will come overtly or through osmosis via your parents. You’ll see what they do, and base a lot of your future actions around that. You might like what they do and model yourself after them, or reject how they act with money and go another way.
Obviously your financial upbringing from family and friends is only part of the picture though. You can also receive a formal education in financial literacy. Unfortunately, the educational system is sorely lacking in this area.
If you are relying on schools to teach kids sound money skills, you’re largely looking in the wrong place. Personal finance isn’t a core part of their remit, though they will give you some exposure.
As a result — like all other parts of your personality — your financial identity is formed by a collage of different life experiences.
I tried to think about what formed this base for both myself and my husband Alex. What made us want to earn and save money? What embedded long-term financial mindsets into us?
Here are five early money lessons from our childhoods that we think set us up for success.
Ellie: The value of a hard day’s work
When I was young my brother and I had to do various chores. Thankfully, my parents compensated us.
It wasn’t much. About $5-$10 per week over the course of our young lives. But this lesson in labour served to do two things.
Firstly, it taught me how to do practical things. Things that would save me money later on if I knew how to do them properly — like cooking and cleaning. These are things I can take with me throughout life until I’m too old to be able to do them anymore.
(It was also cheap labour for my parents, but I digress.)
Secondly, it taught me about the value of money and my labour.
It set me up to expect that my time was worth something. And naturally, I wanted more out of my time. I’d prefer to be playing games or reading or running around. But money made it worthwhile.
If I work more, I might get more money. If I get more money I can buy more of the things I want.
In the longer term it set up my thinking about having a lot of money, and the next logical step in that thinking is making your money work for you.
So with this simple action — whether intentional or not — my parents set me up towards having a money mindset that would encourage me towards financial independence.
Alex: The $1 ice cream
Alex recounts this story from back in grade one of primary school.
“The year was 1991, and we had a trip across the road from my school to a Coles supermarket.
The teacher gave everyone a task. Select something you want that’s under $1 and they’d buy it for you. But if you selected something that’s over $1, you wouldn’t get it.
A handful of smart kids knew the deal.
The rest of us dumbos — myself included — wanted to buy what our heart’s desired. Price be damned, if only because we knew nothing about prices. So off I trotted down to the ice cream aisle to buy a big 20-pack box of chocolate-coated ice cream sticks.
In my mind, I thought… ‘It’s just ice cream. It’s not like it’s a car or something.’ So I fully expected it to be dirt cheap. But it wasn’t.
It was something like $5.
Back then I was young. I would point at something to buy, and my parents would say yes or no. No extra thought ran through my brain.
However, this real world lesson made me realise that things cost more than you think they should. That you should look at the price of your groceries — check the tags. It doesn’t necessarily cost what you think it does.
It was a valuable step towards understanding the cost of things. And when I saw the few smart kids get something for free, and some of them got pretty decent things for free (remember, in 1991 $1 still got you a few lollies), it also set up some of my thinking about value for money.”
Ellie: So, time is money. But is this worth my time?
Here’s a self-learned lesson that came about as a realisation while I was still a pre-teen kid.
While I was still doing my chores, something struck me.
Early on I enjoyed the independence of making pocket money and having it to spend. I was always more of a saver than spender. My brother would spend money on things as soon as he earned it. I’d save and work towards something.
But for a while I still spent as I reached my smaller goals.
However, then something struck me.
I’d already learnt earlier that my time was worth money. But as I grew up it dawned on me that what I was buying wasn’t necessarily worth my time.
For example, maybe I’d buy a book for $15. It took 3 hours to earn that much money, but the book would take 8 hours to read. Net gain: an enjoyable 5 hours. Maybe worth it.
On the other hand, I could spend $25 on a nice new pair of pants. Looking good, Ellie. ( Feeling good, Ellie.) It would take me 5 hours to earn that much. And I might wear the pants for 8 hours in a day. Net gain, 3 hours of pre-teen self esteem. But here’s the problem: I already had pants. I already bought a nice pair of pants last month. And my parents bought me a pair the month before that, and for Christmas, and plenty of times before that.
Not only was the return on time investment pretty poor, but the purchase itself was unnecessary as well.
It soon dawned on me that when I thought about expenses in terms of the amount of time it cost me to earn that money, that I completely changed how I wanted to spend that money.
More often than not it just wasn’t worth it (to me, at least). I decided that I preferred to save money for a first car. My first house. In time, investments (more on that later). And then early retirement.
It didn’t mean that I never spent money, but I was frugal because I valued my time over most things.
I suppose the next logical step was wanting to retire early to regain my time!
Alex: Will you ever make $1 million?
Alex remembers a conversation he had with his mum about becoming rich.
“I would’ve been about 8 years old — in grade 3. I knew a fair bit more about money at this stage than I did back when I was trying to go shopping in grade 1. But obviously I had a lot more to learn.
I don’t know why I asked it, but I hopefully asked her: “Will you ever make $1 million?”
Now keep in mind that I knew that my mum earned about $30,000 in her full time job. It seemed like a lot of money, and it wasn’t horrible for the time. But with dad not working much, a recession, three mouths to feed, and a mortgage with the official Reserve Bank Cash Interest Rates around the 9% rate mark, it really wasn’t.
(As an aside, when talking to my mum on the night of my dad’s recent death, she said she had no idea how they’d managed during those times.)
But at that stage she would’ve already been 44 years old, earning more than ever before, but in the same job she’d have for another decade.
She replied saying she might, but it wasn’t certain. If she did, it would take many years. And then there was tax to consider: her salary wasn’t her take-home pay.
This was a really valuable conversation for me. It made me realise that nothing to do with finances happens quickly.
Just getting a job one day wouldn’t mean I could have a house immediately. I wouldn’t live a lavish life at the drop of a hat.
It made me realise that I’d need to save any income I had in order to build wealth.”
Ellie: A gift of shares starts me investing and seeing compound growth
You might learn about things like compound interest during math lessons at school. But like most lessons in life, they mean little until you see them in practice.
If you were raised in Australia, you might have had a Dollarmite account at school, and happily put money into it. But usually you were talking very little. I had a Dollarmite account, and early on I’d be putting $1 or $2 into it. It got me excited about banking, but it didn’t amount to much. Having $50 in an account as a small kid isn’t the stuff dreams are made of.
So I was incredibly fortunate in 2000 to receive a $1,000 gift from my grandparents when I was 16 years old.
Now we’re talking real money! However, this wasn’t spending money to blow on clothes and shoes. The gift came with an explicit stipulation: it must be invested in shares.
Being older, and with independent life now on the horizon, I was pretty excited by this and threw my other savings into it. And thus my first share purchase (over the phone to a broker, as was the case at the time) happened: $1,313.90.
This was a really valuable lesson for me to start tracking the fortunes of companies. It also made me understand how the share market and life as a shareholder works. Things like tracking purchase prices for tax purposes; dividends and dividend reinvestments.
Rather than having an influence about my behaviour with money (working for it, saving it, etc) this was something that set up my future as an investor. It’s a lesson I take with me to this day. And it was a lesson that I passed on to Alex when he started investing.
Life money lessons
The way we all interact with money as individuals is constantly changing. For instance, Alex and I are trying to consciously change how we act with money; trying to be less frugal over time. This is a deliberate act, ahead of our retirement when we’ll have a higher expenses budget.
Everyone’s diverse lived experiences shape them over time, in ways we can’t always comprehend or appreciate. At least, not at the time.
Sometimes those changes are good. Sometimes they’re bad.
Alex and I were fortunate that some of our early experiences with money gave us the right lessons to understand it, appreciate it, and work towards building it.
Without these lessons tucked away somewhere in the back of our minds, who knows what sort of lives we would be leading now?
However, they all combined to help us have a millionaire mindset.
PS: What money lessons did you learn growing up?