You don’t think about what your parents are teaching you until you are a full on grown up yourself. Here are 7 important financial lessons I learned from my baby boomer parents. Who it turns out, were right about lots of things (my teenage self would never have believed it).
Personal finance lessons
You don’t notice all the good things you learned from your parents growing up until you’re an adult yourself.
And you don’t notice all the things that were missing from our school education. I wish we learned important financial lessons in school. Things like learning how to manage money, the cost of living, exactly what is a credit card and how they work, mortgages, interest rates. These are all personal finance topics that could be simplified and taught to kids and teenagers, so we don’t go into adulthood as confused about money as we are.
The gap in wealth between millennials and baby boomers is huge – baby boomers are 12 times wealthier than millennials. A lot of this is because of rising housing costs which we can’t exactly control, but there are still things in our power to change. Let’s take a look at some money lessons we can learn from the boomers.
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7 important financial lessons I learned from my boomer parents
1. Pay with cash (cash envelope system)
One of the financial lessons I learned from my parents is to pay for certain expenses with cash.
My parents deposited pay checks (now pension checks) right into the bank, and withdrew the same amount of cash every week. They used the equivalent of a cash envelope system, except instead of envelopes they used mason jars (before mason jars were cool).
Each week the cash they withdraw gets divided up according to their budget and put into jars.
They pay cash for:
- entertainment (including meals out)
They had one jar for each cash category above, and could “borrow” from one category to another if they wanted to spend more money in one particular category that week. They wouldn’t withdraw more money from the bank.
I remember those jars so well, and they really stuck to their budget. Though the mason jars were way bulkier than envelopes would be, the big advantage of using small glass jars is you could easily see how much money you had left in that category.
An additional category they had was an allowance for each person. They each had weekly fun money that they could spend on whatever they wanted.
About every five years, they adjust the amounts in those jars, keeping with their budget and inflation.
2. Don’t bite off more house than you can chew
One of the most important money lessons is only buy as much house as you can afford, with a buffer in case/for when rates go up.
Mortgage interest rates were waaay higher in the 1980s and ‘90s compared to the current time. In the ‘80s, rates soared to 18% – I can’t even imagine that! In the 90s, rates were lower, but were still more than double what they are today.
Because the mortgage rates were so high, there was only one way they could really go, and that was down. And because of the high rates, most people could only get approved for houses they could truly afford.
Mortgage rates are crazy low right now. Since the biweekly or monthly payments are relatively low, some folks are buying way more expensive houses than they can really afford.
Don’t do this.
If you are looking into buying a house, pretend the mortgage rate is higher than it actually is, and do affordability calculations based on that.
That way if the mortgage interest rate rises, you will still be able to afford the house you live in.
3. Have only one credit card
How many credit cards do you have? Including store credit cards? Those count too. The average credit card holder owns 4 credit cards (source).
My parents only had one credit card. It is so much harder to keep track of paying your balances on time if you have more than one credit card. And credit card debt can really spiral out of control if you own more than one card.
Try to consolidate any credit card debt you have, and get rid of all the extra cards.
If you are struggling with debt, it is 100% possible to change your financial situation. This post has 10 practical and mindset tips to help you get out of debt.
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4. Save For the Future
My baby boomer parents set up retirement accounts for the two of them and education savings accounts for the kids. They had an emergency fund. They saved what they could when they could.
My mom had a great paying government job when they were newly married, and was the main breadwinner while my dad was pursuing his PhD. A few years later when they had me and then my sister, my mom stayed home for many years while my dad worked. My mom went back to work when we were teenagers.
We also had a big financial crisis as a family when I was a teenager. There were times my parents could save more money, and times when there was no way that was possible. A HUGE thing that helped during that financial crisis was the fact that they had an emergency fund. They had saved money when they could, so they could dip into those savings when they needed to.
One of the big financial lessons I learned from my parents is to remember that saving is not all or nothing. Don’t wait until you have more to save something. If you have anything to spare, save it, invest it. Save $1. Save $20. When you have more, save more.
An easy and painless way to save money is by investing your spare change. There is an app called Acorns that will help you do this. If you buy a coffee for $3.40, the app will round up to the nearest dollar, and automatically invest the $0.60 in this case. It also shows you how much your money can grow over time. You will be shocked at how these little amounts invested over time can grow with compound interest. It’s very motivating to see! You can sign up here for Acorns.
5. Eat Most Meals At Home
My parents were of that generation where it was typical to cook all your dinners and eat most meals at home. Home cooked meals save money over going out or ordering in, it’s as simple as that.
Considering that food is most people’s third biggest expense after housing and transportation, one of the best financial lessons we can learn from our parents is to eat more meals at home.
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6. Track Your Finances
When I was 14 years old, my dad taught me how to balance bank statements for a business he had. I looked over all the money coming in and going out, and made sure all the numbers were accounted for.
At the time, I had no clue I was learning a valuable skill. I was pretty mathy anyways, and I was happy to make extra money to spend on movies, thrift store clothes, and music (Bjork was my jam).
Back then there weren’t any apps to make tracking money easy. My boomer parents used a paper and a pencil. But they always knew how important it was to track their financial situation.
We might not have it easier than our parents in terms of cost of living, debt, incomes, housing, or so many other things, but we do have it easier than our parents in this way.
The best app for tracking your money is called Personal Capital. It’s free, and will organize all your financial information so that you can track where you are and where you want to go. You can get started right here.
7. Spend Less Than You Make
We are deeper into debt than our parents were.
With credit cards, overdraft protection, banks offering a line of credit, it’s easy to feel a bit better about overspending. I’ve done it before.
Try to look at your own financial situation. We’re all different. Some of us live in less expensive cities, and others need to make a higher income just to live in the city they’re in. I’m a big supporter of geographical frugality (simple terms: picking an area to live where you can live comfortably on a lower salary) but that’s a topic for another day! 🙂
Don’t compare what someone else has to what you have. They could make more money, but they could also be buried in debt to buy all those nice things they have. Keep your eyes on your own money.
Whatever your income, a creative and easy way to save money is by using Trim – it’s like a virtual personal assistant for your money. Trim is a free app that works in the background to save you money in ways like canceling old subscriptions, setting spending alerts, checking how much you spent on ride-sharing apps the previous month, negotiating your cable bill, and more.