Tag Archive | financial education

What My Four-Year-Old Taught Me About Investing

catch on the beach

Learning how to play catch & doling out investment advice.

The following blog post is part of The Road to Financial Wellness blog tour. The Road to Financial Wellness is a three-month, grassroots campaign promoting financial empowerment on a national level and encourages people to pursue their dream lifestyle. Find out more about local events near you.

My son staunchly refuses to write the alphabet, but he is fascinated by exponential growth. Not that he knows this is what it’s called. To pass time he loves to ask, “What’s two twos? What’s two fours? What’s two eights?” And so on. Luckily he loses interest before I max out my mental math capacity. The other day while playing this game he said, “You can’t count to a million by starting from one. You have to count with different numbers.”

Forgive my mom pride, but I couldn’t help interpreting this statement as the best investment advice ever uttered by a preschooler. Advice that I simply didn’t understand for a long time.

I’m a saver by nature, but I didn’t receive the most thorough financial education, nor did I come from a “Rich Dad” household. I never realized that just about anyone can “get to a million” using time, compounding interest, and basic earning and saving disciplines.

I saved money, dollar by dollar, through high school and college. In fact, my emergency savings was probably over-funded. Had I invested the extra, even though it wasn’t much, it would’ve been an early start at exponential growth.

After college graduation I blindly accepted the default retirement contributions set up by my employer. When I left that job after a year, I withdrew my funds, paying hefty taxes. Luckily it was 2007, the market was favorable, and it went toward a house down payment. But I’m still kicking myself for that one.

I just didn’t get it.

The Light Bulb Goes On

Not until I watched the first DVD of Dave Ramsey’s Financial Peace University. To be honest, that’s the only one I watched, but it was enough. He lays out the comparison of someone who invests $2000/year from ages 19-26, compared to someone who invests $2000/year from ages 27-65. Guess who has more at the end? The second guy never catches up. Though it makes assumes an overly optimistic 12%, the point is clear: start investing sooner rather than later. (Check it out here.)

By the time I watched this, we were contributing Ramsey’s recommended minimum of 15% to retirement accounts. But I was 25 and saving for retirement sounded amorphous, almost mythical. I wasn’t the least bit motivated about it, let alone informed. Since then I’ve become more educated about investing by reading a couple books & lots of personal finance blogs, as well as through conversations with my husband, who’s always learning more about this topic.

Maybe I should have finished watching the DVD course, but we actually had a lot of smaller pieces of personal finance in place. We were good at following a budget and limiting our spending. We had life insurance and a solid income. What I was lacking was the bigger picture of where these practical pieces could lead us. I didn’t need tips on how to save money; I needed a financial education.

Our goal isn’t to become millionaires, but to continue increasing our financial flexibility so that our life choices center more on our values and opportunities, and less on money. Paying off debt, simple living, and planning for retirement and kids’ college are all part of increasing our flexibility.

We won’t gain the flexibility we desire simply by scrimping and saving one dollar (or $100) at a time. For a long time I saved money without gaining the financial education about how to grow wealth. I’ve never wanted to be rich, but I do want the flexibility to prioritize family, volunteer, be generous, and retire someday.

That’s why we’re “counting by different numbers.”

How did you learn about investing? What’s the next step on your road to financial wellness?