Preview Mode Links will not work in preview mode

Financial Understanding + Responsibility Yields Independence

WE BREAK FINANCIAL INDEPENDENCE INTO SIMPLE, MANAGEABLE PIECES

Finance and Fury will be focusing on helping you define your aims, and increase your knowledge and ability so you can make the best financial choices.

  1. All Episodes
  2. Why is talking to your kids and family members about money so important?

Why is talking to your kids and family members about money so important?

Dec 30, 2019

Why?

– nobody else will help to confer information and thus Teach them about value of money – Kids don’t understand value of not just money as a medium of exchange – but that their time has valued attached to it – I don’t think some adults know that either

  1. At the very basis level – Doesn’t matter on which child psychology you read (Piaget, Freud, Erikson) – all have the understanding that children are egocentric – the world revolves around them – dues to brain development and availability heuristics
  2. What about me? Constant question from kids – or variation – when are we going to be there, or the why game
    1. Isn’t a bad thing – shows curiosity that can be lost if no nurtured
  3. But when it comes to money and value of items, monetary system – Prime directive (StarTrack) shouldn’t be to worship money – but to understand value of what it can be exchanged for
    1. This doesn’t just apply to kids – value is very important – not the price
    2. Value is the very basis of every investment as well – would you pay $100 for something wroth $10? Through branding and marketing, some people do? But yet, put that money into something growing by 8% p.a. rather than being thrown out in 3 years, better one option than the other.

 

The need to understand Money

– Not to instil a sense of greed – the opposite-  but that things aren’t free and that time is used as a medium of exchange – look at current state of society – lack of self awareness from protestors or disruptors -

  1. If You work – you spend time – let's say 40 hours a week doing something – you get money in return – the Gov takes some away – then you have money left –
  2. Teaching value is important – transaction – free pocket money isn’t good – entitlements of receipt –
    1. If they need $100 for splendour for schoolies - say no – pre-plan requirement
  3. Helps to avoid getting burdened with debt at a young age as well – if you don’t value money, you wont value debt –
    1. Or understand the negative value of debt and how it depletes future wealth

 

What to talk about

  1. Is hard to talk about money with kids – Generational divides - Baby boomer generation – didn’t like to talk about it – culturally spread to the next generation and so on – generalisation of course – but Created taboo with money – created inept children
  2. Also – education – about basic economics and financial system is lacking – where do kids get a lot of economic education – board games like monopoly

 

Unfortunately – where do a lot of people get their financial education – word of mouth from friends or family – or Monopoly -

Mentality of a zero sum game –

Monopoly is the best example due to the mass familiarity and use of a bad financial mentality  

  1. Does Monopoly provide any benefit to certain players?
  2. We all start with the same amount of money in the bank, and two dice to roll each turn.
    1. Unless Ms Monopoly where gender helps outcome – either way - going first is best: Head start – reduce chance of landing on taken properties.
  3. Over time this advantage diminishes
    1. Example - You roll 5, buy the railroad. then 2nd - 4, 3rd - 6, 4th - 8.
    2. Other players have rolled a sum of 9, 15 and 23 (which is rather likely) in order from your second turn

If you play Monopoly a lot like myself – start to pick up the Basics in monopoly game economics;

  1. Don’t allow other players the ability to build houses, if you can.
  2. Build houses strategically on the most profitable for the costs - the orange set
  3. Manage your cash flow and reserves
  4. Avoid mortgaging properties, and with it your ability to win the game.
  5. Other tactics paying to get out of jail early on. Once all the board is fully owned, it can pay to have a few turns rest.

How to win?

  1. The number of ‘wins’ to ‘losses’ each turn ends up compounding over time.
  2. The more of the board you control, the more wins you will have.
  3. The more each property is developed, the greater your wins are going to be. Increase the chance of a win each turn, plus the size of each at a greater rate than other players, you will likely win.

But the most annoying part of Monopoly Is chance - How much is chance?

  1. Everyone playing knows what works in the game
  2. Difference in outcome is likely to come from how the roll of the dice works in the first 8 turns.
  3. The rest is up to us, but how much of the game's ultimate outcome comes from the luck of the dice?
  4. So when it comes to kids -0 so much of materialist consumer communications are spreading some bad psychological messaging – similar to how monopoly has installed a lot of people's psychological monetary beliefs.

I'll be honest, I don’t like monopoly!

  1. The outcome is too reliant on randomly generated chance
  2. Waiting and waiting for others to finish their turns = EG 8 people, then this may be around 88% of time played,

Who wins?

  1. Shift in the direction - clear who the winner is going to be
  2. We can just walk away from the table.
  3. But who likes to be robbed of victory?

It is lose-lose, Competition - which is why I am not a fan.

  1. If the real world was a zero-sum lose-lose game, then the outcome of life would likely take the same distributions of Monopoly where one person gets all the money at the expense of others.
  2. There have been similar times in history - Moa, Pao Pot, and Stalin.
  3. Stalin is the Top Hat and bank. First turn you get no money, he already owns the property. No $200 for passing GO. don’t leave - Stalin is a very trigger-happy kind of guy.

Thankfully we do not live in a society like this, or like monopoly. 

How to best win any game: To cooperate or compete?

  1. Is it better to maximise your result through cooperation than competition?
  2. Competition in games is destructive by win conditions
  3. Healthy cooperation, improving yourself through interacting with other players to boost your results.

Societies that were in a lack of cooperation had no growth, so was zero sum competition!

Mentality comes from focusing on others as the cause of problems - Ignore others can be hard

  1. How do you truly measure another’s success to compare your progress? solely judge on our own criteria – project what we think their life is like
  2. But who cares what the 1% are going, any why waste time complaining about it? You will find out when you get there after all.
  3. It doesn’t help to think that Monopoly Man figures of the world are only wealthy thanks to stealing from the poor.
  4. 20-year-old protesters - whole working lives behind in accumulating wealth
  5. Warren Buffet -1% of what he is today when he was 50.
  6. But when you are only competing against yourself, nobody has to lose.

 

Practical side  -

How can kids earn income?

  1. Chores for you or your neighbours – Child labour laws stop them from mining – but hospitality -
    1. Worked for my uncle during holidays labouring from 14 – getting a job in hospitality felt so much better after that
  2. Have them buy their own goods – have them work for it – don’t treat it as a punishment – make it a game – we all love games we can win -
    1. Kids are creative – Solutions: bake sales etc.

 

Focus on yourself your kids and what is best for you - Up to you! School isnt going to teach them practical skills to get through life

  1. It all starts at the individual level after all. If you want to change the world, start with yourself.
  2. If you have more capacity to help more, you can then improve the situation of others
  3. What can you do first?

Step 1 - Don’t compete with others, compete with yourself

  1. While there are other players in the game, you should only be keeping track of your own score.
  2. Competing against yourself - Focus on the outcome, not the competition.
  3. How are you going to compete against Warren Buffet? His 80bn at 13% a lot more in value than someone who got a 100,000% gain from someone invested $20,000 in bitcoin

Step 2 - Play by the bank's rules!

  1. The bank will always be the last one standing! How?
  2. Have something that people want, and would exchange money for.

Plus - use the rules of the basic game:

  1. Spend less than you earn.
    1. Cash flow is important.
    2. Millionaires average car is a Toyota, Ford, Honda!
  2. Start young and let compounding do its thing.
    1. Marginal increases will compound into massive benefits.
  3. Invest wisely and keep at it. Never invest out of hope
  4. Minimise how much of your wealth is taken from you.
  5. Be confident that you are getting better, without needing to show it off.
  6. Question: Pretend to be rich or make it a possibility?

Step 3 – Cooperate - Community – shared knowledge

  1. Cooperation is listening to this podcast. Working with others, knowing what they have done.
  2. Learning and buying investments.
  3. The only way to make money is cooperate. Buy the companies you want to profit off (shares) rather than try to protest or plunder them.
  4. Don’t compete with Buffet – Buy Berkshire Hathaway

 

These are the sort of lessons which are available to kids –

Get them involved with money decisions – problem solving – if they had $10 and needed to feed themselves or buy a new toy – what would they do?

Yes the system is unfair – but it is unfair for everyone –

More you earn the more you pay tax – so learn something about the tax law and reduce it legally

Thank you for listening, if you want to get in contact you can here: http://financeandfury.com.au/contact