Why Successful Financial Planning Is Best Left To the Kids
June 10, 2019
Lessons from kids
Why are kids able to learn so quickly? Think of all that kids do to grow, evolve, and develop during their “formative years”.
In just a few short years, from the time they’re born to the time they reach adolescence, they learn to crawl, walk, communicate, speak, question, compromise, reason, negotiate, manipulate, and rationalize…
All while simultaneously developing and refining fine motor skills and coordination and learning to read and write. And this is just scratching the surface. It’s really pretty incredible when you stop to think about it for a minute.
If you’re a parent you’re acutely aware of this. “They grow up way too fast”, we say. I don’t have kids yet, but my best friends are almost exclusively parents at this stage in my life, so I’ve gotten to watch as their kids have grown up. In some ways, this offers a perspective that’s even more fascinating.
I’m not around every single day to watch and observe them like their parents are. If you’ve had friends with kids, or a niece or nephew, and you’ve ever gone several weeks or a few months at a time between seeing them, you know what I’m talking about. It’s almost like watching a movie in snapshots, and each time you try and track the plotline you’ve skipped ahead a scene, wondering what in the heck happened. It’s pretty incredible…
While it might be easy to write this off as simply “part of life”, this experience has caused me to reflect quite a bit. It’s worth pondering, how does this happen? How are children able to take on so much new information and apply it all simultaneously to advance their development at the rate that they do?
First off they have a major advantage over you and me. They simply don’t know any better. As we all get older, we all have our own unique experiences that shape our perspective of the world. Those experiences lead us to create stories in our minds and those stories shape our belief systems…for better or worse. By the time we’re young adults we’re pretty set in our ways, and by the time we’re “mature adults” (however you define that) we like to think we have it all figured out.
A child, on the other hand, has the benefit of no pre-conceived notions which serves them well.
How does this apply to you and me?
At this stage, it’s fair for you to ask what this all has to do with you?
I think this observation offers a useful formula for progress that we can model from our kids, which can serve us in any aspect of our lives that we wish to make meaningful progress.
What ultimately enables children to develop so quickly and significantly is the combination of unbridled curiosity and genuine open-mindedness to the answers they seek.
It’s a true skill, and as adults, most of us lose that skill. We get stuck in our ways and determine we know best. Subconsciously, we shut ourselves off to new information that might help us if that information conflicts with what we’ve already established as our belief systems.
Think about it. When most of us are presented with an opinion or idea that conflicts with what we believe, it’s in our nature to immediately go on the defensive and view that idea as the opposition. It’s not your fault. The fact is this is hard-wired into our DNA and is part of what makes us human. It’s a feature that serves to protect us, but the unintended consequence is that it also limits us.
We all have our own unique experiences with money. How you grew up and what money looked like at home for your parents shapes how you think about money and the role it plays in your life as an adult. If money was always restrictive and a point of stress and contention, that often carries forward for you, and materializes into your personal experience with money.
On the other hand, if you grew up in a home where money seemingly “came easy”, you’ll be more conditioned to see money from an abundant mindset. It’s a tool and resource to serve you and you treat it much different than the person who always associated money with struggle and scarcity.
As you grow up in your financial life, your experience gets more and more granular. You acquire more information and use that information to begin to place labels on things.
For example, you might have an experience that teaches you that the path to building wealth is to invest in the stock market. Maybe you read a book, or watch TV and learn this principle from a perceived “expert” on the subject.
Down the line, you meet someone who’s achieved success financially and they tell you that they attribute their success to investing in the stock market. This validates the information that you previously received so now your association is “if I want to build wealth, then I have to invest in the stock market”. If you establish this as a fundamental belief, you now compartmentalize “stocks” as “good”, and anything that opposes that belief must be “bad”. Make sense?
We all do this, and it shapes our behaviors with money – for better or for worse.
A Kid’s Approach Personal Finance
Bringing this idea full circle, how might a kid approach the notion of financial planning? They’d start by asking a lot of questions and would be open-minded to the answers they received, with no pre-determined attachment or association to that answer.
They would have an idea of what they wanted to learn and would exercise genuine curiosity until they reached a conclusion that aligned with the outcome they wanted when they started.
If you’ve ever felt confusion, frustration, or overwhelm around the subject of money you certainly aren’t alone. The primary source of that frustration and overwhelm is that we aren’t taught to clarify our desired outcome in the first place. If you’re unclear about the result you want, it’s impossible to accurately determine what your expectations should be. And when you can’t define what your expectations are, whatever result you do get won’t be what you expected, causing more confusion, frustration, and overwhelm. It’s like going on vacation but never picking your destination before you left. Hard for that to end in anything but disappointment.
So, what’s the result you’re after? What would success look like for you? How would you define it? Not based on an arbitrary number on paper, but based on the freedom it afforded you.
Michael Finke, PhD, and distinguished professor of Wealth Management at The American College conducted an interesting study into the primary sources of happiness for retirees. His key finding is that when it comes to achieving happiness and satisfaction, money is just a number.
We’re all taught to save, invest, and build wealth, somewhat arbitrarily while we’re working, but achieving a number on paper is meaningless. What ultimately matters in terms of delivering happiness is how we can spend our money. In other words, money is simply the enabler of happiness if it frees us to do things we care about and enjoy.
Asking Better Questions
If you want better answers, you have to start asking better questions. Start with questions like…
What role do you want it to play for you as you work towards your desired outcome?
Have you established your priorities? Are you more concerned with the growth of your money or the cash flow it provides? Liquidity and control of the money or long term benefits down the road? These are just a few key features to consider with any possible investment strategy.
How will that impact your tax plan – now and in the future?
How will it affect your family?
This is just a starting point, but the key take away is this…don’t fall victim of the traps that plague so many people. The world of money, finance, and investing is a noisy, pressure-packed place. It’s filled with lots of different schools of thought and conflicting opinions. To make it even more challenging, most of them have their place when properly applied.
Don’t base your judgment of what’s good or bad, or wrong or right on someone else’s. Get clear about what you want your money to actually do for you. Clarify your outcome. What needs to be true in order to achieve that outcome? What would be necessary in order to support it?
Then ask the deeper questions that help you to filter through the information until you can make a confident decision that aligns with your desired outcome.
This process will not only help you achieve more confidence and certainty financially, it will help you accelerate your progress at the rate of a child…which is a great thing to aspire to! Perhaps successful financial planning really is best left to the kids.
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