Money: Teens Don't Get It

I've long been a proponent of teens living at a time in their lives when they can save vast amounts of money. Though their income may be small, they have very few expenses, seeing that their room and board and virtually all their living expenses are paid for.

Warren Buffett seems to be one of the few teens who understood "the power of early" - the vast potential of saving in the the early years so that it could multiply in the latter years. That's how he saved (in today's money, accounting for inflation) $47,000 by high school graduation.

Now you'd think that perhaps the current recession has made teens rethink their spending and begin to save toward an uncertain future. Yet, a recent survey of over 61,000 teens in over 31 countries found 15 percent or less spending less on movies and music. Less than 20% are spending less on console and computer games. I assume that means that about 80% of teens haven't changed many of their spending habits at all because of "The Great Recession."

Does this strike anyone but me as odd? I've heard that adults are spending less and saving more. Why hasn't this trickled down to our young people?

50% of Generation Y Has No Savings

The recent survey also found 18 to 34-year-olds giving themselves Cs, Ds or Fs in personal finance skills such as budgeting and effective savings. Further, they were mostly likely, among working age adults, to be putting no money toward retirement. "The survey was released by the National Foundation for Credit Counseling, which polled 1,000 adults nationwide in March."

This is such a shame! I suppose the baby boomers are partially to blame for mentoring a life of spending rather than saving. But it's a shame, because

• those early years can be times for incredible savings. As I share in my book for that age, Enjoy Your Money! How to Make It, Save It, Invest It and Give It, Warren Buffett started the habit of making and saving money before age 10, and continued these useful habits through high school so that he was able to graduate with today's equivalent (adjusted for inflation) of about $47,000.
  
• they're leaving themselves wide open for an emergency to put them into long-term debt. If you have no savings when you car dies; have no savings when you have an extended illness; then you end up borrowing and paying it off over the long-haul. These emergencies happen on average every 10 years or so, meaning we should plan for them.
  

What do you think?

Schwab Study Finds People more Vigilant with Personal Finances

A June survey by Charles Schwab found

• 51 percent of investors thinking of their finances daily.
  
• Before the big market drop in 2008, only 27 percent thought daily about their finances.
  
• Forty-five percent are committed to adopting stricter personal budgets.
  
• Thirty-eight percent want to keep a closer watch on the economy.
  
• Forty-six percent want to pay closer attention to what they save and invest.
  
• One in four are considering changing financial advisers and brokers.

It would seem that it takes a significant market downturn to make people re-evaluate their finances. For the years prior to the crash, personal savings had been at all time lows, with Americans averaging somewhere close to no savings at all. That indicates to me that most people assumed that good times would go on forever - they'd never lose a job, the economy would continue moving forward, they'd never have an emergency that might require some of today's cash.

One lesson of the crash is that we should all consider worst-case scenarios. Example: is your car paid for? If not, and you lost your job, would you also lose your car due to an inability to pay? Debt introduces risk, making worst-case scenarios more devastating.

How has this economy changed your money habits?

Why Save Money?

That's the question a student asked of our panel at KSU Thursday night. I appreciated her candor. Her parents keep nagging her to save, but she simply couldn't see why they made such a big deal about it. Although other interesting questions involved the best places to put investment money and the future of interest rates, I felt, in retrospect, that the question about saving might have been the most significant. Why save? Because:

1) Saving breeds more savings.

The more you save, the more you can take advantage of bulk purchases. If you save up for items rather than making payments on credit cards over time, you save tons. Saving up for a car and buying it outright (instead of making payments) can save many tens of thousands of dollars over a lifetime. By paying for things outright, you avoid expensive payments and can invest more each month for future needs.

2) Saving protects us from debt.

Most people run into serious debt because of an emergency, like a job loss or medical issue. Had they saved up enough ahead of time, many of these could have weathered the storm without incurring crippling debt.

3) Savings can grow into millions.

As we've said before, just $20 per week stashed away in long-term investments can multiply into well over $1 million by retirement.

Money guru Ron Blue spend a lifetime studying, writing about, and counseling people about their personal finances. One day someone asked him to sum up in a sentence what he'd learned. He thought about it and responded,

"Spend less than you earn, and do it for a long time."

As Solomon wrote thousands of years ago:

"There is precious treasure and oil in the dwelling of the wise,
But a foolish man swallows it up."

It's foolish to swallow up all that we make before the next paycheck. Perhaps savings could be considered the cornerstone to successful money management.

The questioner bought a copy of my book (Enjoy Your Money! How to Make It, Save It, Invest It and Give It) after the discussion. I hope that reading it helps motivate her start the most powerful habit she could adopt: living way beneath her means in order to find financial freedom.

The Power of "Making Do"

Frugality is in! And long overdue, in my opinion. Many major newspapers include columns and blogs about how to cut back and save money. But frugality isn't just about surviving the recession. It's about wise money management.

When Professor Stanley (The Millionaire Next Door) studied self-made millionaires, he was surprised to find them living in normal houses, driving normal cars, and saving money any way they could. One of his chapters described them as "Frugal, Frugal, Frugal."

And it makes sense. To amass wealth, you've got to live beneath your means. And since savings aren't taxed, $1000 saved may net you just as much as a $2000 earned. And when you think about it, $1000 is simply a year of $20 weekly savings. Invest $20 a week starting after high school graduation and invest it wisely to retire with over $1,000,000. Don't believe me? Google "interest calculator" and put in $1000 per year at 10% interest (average stock market gain) and see what you've got in 50 years.

That sure does simplify things. All young people have to do is to come up with $20 at the end of each week. If all our earnings are gone by the next paycheck, we can either earn an extra $20 by mowing a yard or babysitting, or, we can find ways to cut back. That's where "making do" comes in.

My brother works as an engineer for a large company. He recently walked into the coffee room to find that, apparently, the coffee machine carafe (the glass container that the coffee drips into) had broken and his engineer friend had "made do" instead of purchasing a new machine. To the right is his fix looked.

Now most of us would have gone right out and bought a new coffee maker for about $20. Former generations were more innovative and not embarrassed in the least to "make do" with what they had.

I've noticed that my grandad often replaced a tool handle with his own piece of wood rather than throw it away and buy a new one. I watch mom tear off a tattered collar, turn it over, and sew it back on to keep a comfortable shirt she liked. No wonder she saved plenty to retire comfortably.

The next time something breaks, don't immediately replace it. See if there's a way to make do. Make do every week and invest your savings and you just might become wealthy.