Why I’m Not Passing On A Financial Plan To The Next Generation

Lately, I’ve been thinking a lot about the financial lessons that I’m going to hand down to my kids.  They’re finally getting old enough to where they understand how to count and use money.  They’ve also reached the age where they’re constantly asking me to buy stuff.

For example, I recently had this charming conversation with Tako Jr. #1 at the grocery store…

Tako Jr. #1:  “Daaaad.  Can you buy me this candy?  It looks soooo yummy.”

Me:  “I don’t think so.  You’ve got plenty of candy at home.  Besides, Halloween is coming soon.  You’ll get plenty of candy then.”

Tako Jr. #1:  “But Daaaaad, I don’t have this one at home.  Can you get it for me?  Please!”

Me:  “No, that costs money.  It’s not free.  I need to spend our money on these groceries so we can eat.  We also need it to pay for trips.  Like the camping trip we took this summer.  That was fun, right?”

It might sound like my answer was a little harsh (denying my son some candy), but it’s conversations like these that give me the opportunity to teach lessons about saving money and choosing between ‘wants’ and ‘needs’.  I believe these are important lessons to pass on at an early age.

It’s also conversations like these that really got me thinking: How much of financial literacy is simply handed down to us by our parents?

To a certain extent, I believe how we handle and manage our finances we learn from our parents.  Thinking about my own parents, they provided me with my very first financial plan — “Get good grades, go to college, don’t waste money, and get a good job with a pension.  Then buy a house.”

This Plan was really just a slight variation of what happened to work-out well for my parents.  They simply passed on the same lessons that allowed them to reach some version of financial success.

However, The Plan they passed down was vastly different from The Plan my grandparents passed-down to my parents.  Times changed, the economy changed, opportunities opened up, and my parents discovered a vastly different financial plan that worked even better for them.

It wasn’t that my grandparent’s model for “financial success” (however modest) was wrong, it’s just that my parents found a better financial path that took advantage of current conditions.

Exactly like I did.


I Failed At The Standard Plan

Honestly, I really did start out following the “standard plan” given to me by my parents — I got good grades in school.  I went to college.  I graduated (albeit with a bunch of debt), and eventually joined the workforce.  Right about here is where the similarities between what worked for me and my parents really began to end.

By the time I joined the workforce, pensions were long-gone from the corporate workplace.  Most companies had already shifted to 401k or IRA’s.  Retirement was the employee’s responsibility.  Pensions still exist, but are mainly limited to jobs in government or the military.

On top of that, there was this huge change in how corporations dealt with and treated employees.  No longer could employees expect to work at a company for 20 or 30 years.

Employees are no longer considered to be a valuable asset that a company develops over time.  Employees are now replaceable commodities.  To be hired and fired as necessary.  Easily replaceable.  A three to five year term at a company is a more common job duration these days, and I saw no reason why this would change anytime soon.

Because of this, I avoided buying a house for a very long time.  Jobs were simply too unstable to have a mortgage for 30 years!

Given these conditions, it was obvious The Plan my parents gave me wasn’t going to work.  I failed at the standard plan.

I had to adapt a new plan, and do it quickly.


No Plan Survives A Generation

There’s an old expression that accurately captures the difficulty of executing on long term plans.  Maybe you’ve heard it before:

“No good plan survives unmodified.”

Isn’t that the truth!  Life is a constant adaptation to changing conditions.  Finances and financial plans are no exception.

If you look back into the past, every generation had their own version of The Plan that brought about financial well-being….

Pre-Industrial Revolution:  Work on the family farm or in the family trade until you inherit the assets from your parents.  At this time, there basically was no retirement.  Patricide was popular way to improve ones’ financial conditions.  It was also popular to have a bunch of kids to help out with the manual labor, but this also tended to increase your chances of being the victim of patricide.

Industrial Revolution (1760 – 1840):  The Plan for many was to work in a factory and try not to die.  There were no protections for workers, no child labor laws, no social safety-net programs, and definitely no retirement.  The best a factory worker could hope for was to remain uninjured and save as much as possible.  Then, if you finally reached a “retirement” age (too old for factory work), you left the city and spend the rest of your days gardening in the country.

1935 – 1970: Social security was invented in 1935, and The Plan becomes contributing into the social security system and working at a company with a pension.  Then, when you finally reach retirement age you can have both SS and a company pension to live-out your remaining years.  Golf was also invented during this time period, which conveniently gave new retirees something to do besides gardening.

1970 – 2000: Work for a good company as long as you can.  Try to get a pension and then save whatever you can into a IRA (introduced in 1974), realizing tax benefits.  Buy a house to build equity and have a stable place to live.  Between the pension, the house, social security, and retirement savings accounts most “boomer” retirees could expect to live a very nice retired life.

2000 – present (2018):  Work at least two years for whichever company pays the best salary.  Live at home as long as possible to keep expenses low.  Try not to get laid off.  Gain experience and then move on to the next job every few years to secure adequate salary raises.  Save whatever you can in a 401k/IRA and take advantage of company matching when available.  In the retirement fund, purchase low-fee index funds.  Also contribute to social security with the hope of one day seeing at least a little of that money again.

See what I mean?  Every generation has to come up with a new financial plan to take advantage of changing work conditions, social conditions, new technology, and whatever investment options are available.  Whatever plan worked for one generation ends up being absolute rubbish for the next generation.

What works in personal finance today might not probably won’t work for my kids in the future — Index funds are popular today, but the popular assets the future could be bonds, real estate, timeshare rentals on the moon, or maybe even carbon credits.

Who knows what investment products the future might bring!


Wealth Building

So, if each generation has its own version of The Plan that gets thrown-out, then the question for me really becomes:

What financial lessons can I pass on to my kids that will actually aid them in their future?

It seems like a waste of time to give them a plan they’ll eventually have to throw out someday.  Any plan I give them is probably going to be worthless.  The world is going to change.

sharing the tablet
What financial lessons can I pass on to these guys?

Instead, I think I want to try to pass on the most important “tenets of wealth building” that have remained constant over hundreds of years:

  • Work smart.  Put your work efforts where you’ll see the best returns.  Trade your time well.  Maybe this means picking a career in the right industry with high salaries.
  • Spend less than you make.  Do this consistently over your lifetime.
  • Grow your spending significantly slower than your income.  This ensures you can recover from financial setbacks (such as job loss) when they occur.
  • Buy mostly what you need, and only a little of what you want.
  • Invest your savings into assets.  Assets should provide income AND capital appreciation.  Anything else is speculation.
  • Be as efficient as possible with your resources. “Use it up, wear it out, make due, and do without.”
  • Don’t speculate.  Nobody can accurately predict the future.  Make a plan that works for multiple possible outcomes.
  • Don’t use debt to afford your lifestyle.  That’s just asking for trouble.
  • Don’t try to “Keep up with the Joneses”.  That’s also asking for trouble.
  • Don’t make the mistake of believing your income will continually rise.  It probably won’t.  There will be ups and downs over the years.
  • Continue to educate yourself after finishing school.  Financial education itself is a lifelong process.  Never stop learning.

See what I mean by calling them tenets?  You could pick almost any generation in history and most of these ideas would still work.

I could be wrong, but I believe the vast majority of these tenets are likely to keep working well into the future.


Final Thoughts

If you think about it, Plans are just a set of instructions to replicate success.  But the whole point of this post is that I don’t believe you can replicate financial success across generations.  History has shown us it doesn’t work.  Despite all good intentions, Plans from the past are not the answer for the future.

The Plan I received was something along the lines of  “Go to college. Get a good job, keep it, and buy as much house as you can afford.”  That was a recipe for failure in my generation and it might be a recipe for failure again in the future.  Who knows what the future might bring!

(There’s plenty of people suggesting that even college is no longer worth the required student loan burden!)

The really important tenets are practically timeless.   I believe these are financial tools every successive generation has to pick-up and learn how to use for themselves.

Simply put, I’ve decided my job as a parent is not to pass on a financial plan.  Instead, I need to teach my kids how to use the tools — So they can eventually build their own plan.

What do you think?  Do you have a financial plan for your kids?

36 thoughts on “Why I’m Not Passing On A Financial Plan To The Next Generation

  • October 10, 2018 at 6:04 AM

    Completely agree, Mr Tako – that kind of thinking is exactly what I’ve tried to pass on to our son. And while he’s only just finished university and started his first job I get the feeling it’s worked quite well: He’s rented a room in a flat-share close to his work, so he saves on rent and transportation costs. And he’s signed up for the companies defined-contribution scheme, maxing out employer match (it’s in the UK, so it’s a bit different from 401ks). He’s always had quite modest wants, which is obviously helpful – hope that’s not going to change much ;-).

    So I’m sure the way you lead by example your kids will be doing fine with their own financial plans when they’re grown up!

  • October 10, 2018 at 6:06 AM

    Plans will definitely change, but the underlying values that support the most effective plans hopefully won’t. If the lads can embrace your tenets, they should be able to draft their own successful plans. And perhaps add a final tenet: “Make sure you pass these on to the next generation” 🙂

    • October 11, 2018 at 9:33 AM

      Great idea Paul! I’ll have to add that one. 🙂

  • October 10, 2018 at 6:57 AM

    This is a good one. The kids will need to get the basics down and then be flexible. Our path probably won’t work out for them. They’ll have to keep learning and solve their own problems. I plan to pass down Retire by 40. Hopefully, our son will learn from it and also adapt it for the next generation.

    • October 11, 2018 at 9:34 AM

      I always intended my blog to be a source of information for my kids, but I never thought of it as something to be handed down. Interesting idea!

  • October 10, 2018 at 6:59 AM

    Cryptocurrency might be the future for the next generation.

  • October 10, 2018 at 7:07 AM

    This is an incredibly important (and difficult!!) thing for whoever has kids. I agree it’s about giving them the tools and framework, and if possible, the ability to critically review their own situation and make/change *their* plan accordingly.

    I like your list. I would add one point, which is around tracking expenses and income – so they always know where they stand financially – and understand the importance of managing cash flow.

  • October 10, 2018 at 8:25 AM

    That is a great list of guiding principles there Mr Tako, your kids will be successful if they consistently apply them.

    My own list of the principles I’ve been teaching my kids overlaps heavily with these, and contains a few extras:
    * Back yourself – decide when you believe you are ready to climb the next rung on the ladder, then go for it. Don’t waste time waiting for permission, being blocked by hiring freezes or corporate gridlock.
    * Maximise the value of your time – if you have to sell your life off a day at a time, maximise the price you receive for it.
    * Wealth is measured in time – as your net worth increases, that imperative to trade time for money reduces. Increasing the value of your time
    * Financial Independence is simply the point where that trade is no longer necessary. It isn’t happiness, it isn’t contentment, it is just a number.
    * Enjoy the journey – don’t postpone enjoyment, you never know how much (or little) time you’ll have.

    • October 11, 2018 at 9:37 AM

      Some great ideas there indeedably! I especially like the point about “enjoying the journey”.

  • October 10, 2018 at 8:33 AM

    Your boys are adorable! I have worked hard not to spend like crazy on my precious girl, taking lessons from Your Money or Your Life and Tightwad Gazette (an oldie but a goodie). I am in the sandwich generation like you Joe (from comment above), and still working for five or so more years, so convenience wins out sometimes to preserve sanity (prepared foods, new items I would source used if I wasn’t so stretched). I am looking to take more time off from paid employment to ensure she has a calm parent-I have a gold plated pension and benefits if I stay a bit longer. Enjoy those boys!

  • October 10, 2018 at 8:59 AM

    Some really good points here! I spent a lot of my late teens and early 20s digging myself in a hole, and it took a long time to get myself out of there. Now that I know better, I try to do better and that means sharing some of that hard earned wisdom with my future offspring. But for now, it’s just strangers on the internet!

    I think the two most important lessons to pass on are to spend less than you earn and that money is a tool, not an expression of your value. I think you covered both of these beautifully.

    • October 11, 2018 at 9:40 AM

      Thanks for the nice comment Bec! We all have to start out somewhere before climbing the mountain. Sometimes people like to start in a hole for extra challenge! 🙂

  • October 10, 2018 at 9:34 AM

    Yes! I agree with so much of this. My parents were not good with managing their money and I remember seeing them struggle to pay bills, and how stressed they would be when the phone would ring, wondering if it was a collection agency.

    Even from a pretty young age, I remember thinking that I didn’t want to have the same stress in my life in the future. So, I did what I could and relied on books (in the pre-internet / early internet age!)

    But, I will say that it’s also important to just let kids observe the mundane tasks that are required in every day financial life. I’m shocked that people my age (late 30’s, early 40’s) don’t know what it means to “pay their credit card statement balance” to avoid paying interest on their credit cards. As if somehow credit cards automatically equate to paying interest. But heck, I never even saw a credit card statement until I had a credit card of my own in my early 20s.

    Or have the kids watch you gather paperwork to file your taxes, or go to the CPA with you, or however you do your taxes. Sure, kids will probably find this boring as can be, but there is so much power in those simple observation opportunities.

    • October 11, 2018 at 9:41 AM

      Solid point Melissa. Teaching kids is so much more than giving lectures. A lot of it is about leading by example.

  • October 10, 2018 at 10:36 AM

    Hey Mr Tako,
    Great kind of advice and I agree with all the tenets you mentioned. My baby-girl is only two weeks old and I am already thinking how to make sure that she uses those rules when she grows up. I would add that it is important that we follow these tenets ourselves and perhaps our kids will naturally follow our steps. E.g. if you tell your kid that it’s a good thing to read books and he should do it, it most likely won’t work unless he sees that you are doing it yourself.
    Thanks again for a great post!

    • October 11, 2018 at 9:43 AM

      Absolutely BrokeInvestor! I’m a huge believer in leading by example. This is one of the reasons why I quit drinking and Mrs. Tako and I wear thrift store clothes almost exclusively. It’s not that we don’t have the money (we do), but we lead by example.

  • October 10, 2018 at 12:33 PM

    Great post!
    Those tenets are pretty solid. I think your little guys will do quite well in life if they follow them.

  • October 10, 2018 at 3:44 PM

    Great stuff, I think kids either get some financial literacy (or illiteracy) directly from their parents, or indirectly from simply observing. In my case it was the latter. My parents didn’t ‘teach’ anything about money – it’s was a taboo subject. But I learned frugality from them.

    • October 11, 2018 at 9:44 AM

      Thanks Dave! I’m hoping they’ll do a little bit of both! 😉

  • October 10, 2018 at 6:12 PM

    We find the allowance has completely eliminated buy me stuff requests.

    • October 11, 2018 at 9:45 AM

      We haven’t yet decided if we’re doing ‘allowances’ yet, but thanks for the feedback. It’s great to hear other people’s experiences!

  • October 11, 2018 at 1:01 AM

    Well I think this post is brilliant and enjoyed reading though the scenarios that span the ages.

    I’m also going to teach the high level timeless advice to my daughter as that should’ve more survivable to the next generation. Unless we have a shift away from capitalism and market based economics. Then we would really need to re-adapt.

    I know you like to put Easter Eggs in your posts. Is the subtitle section header “I failed at the standard plain” an intentional typo or not? Either way, it caught my attention.


  • October 11, 2018 at 10:48 AM

    First off, I swear that might the same conversation about candy that almost every parent gets to go through on a regular basis with their kids! 😉

    But more importantly, I think you pretty much nailed it. As long as kids truly understand the fundamentals and can start applying them sooner rather than later, they should come out much further ahead. They’ll figure out the details to overcome whatever generational condition comes into play along the way.

    — Jim

  • October 12, 2018 at 7:17 AM

    Yep, I have no idea how the job landscape is going to change in the next ten years for myself, forget for the next generation 15 to 20 years from now.

    JuggerBaby is only 3 but we are working on teaching foundation habits that ze can grasp (you don’t have to spend just because you have the money, spend wisely on things when you do use the money, save first, shop the sales for basics and seasonal foods). We’re a ways off from knowing which ze has absorbed but I was tickled when ze announced we could buy cucumbers because they were on sale.

  • October 12, 2018 at 11:56 AM

    Yep, no one knows what world our kids will grow up in finance wise. All we can do is provide the support they need to follow their dreams and to provide them with some common sense advice.

  • October 16, 2018 at 6:42 AM

    Passing along tenets versus a specific plan is a sound approach. I also think good parenting includes supporting your kids while they make money decisions so they can experiment and make mistakes. We have two young adults — 22 and 17 — and we don’t get involved with what they buy with their earned money, though we do have discussions about larger issues, such as college costs and moving out costs. Our 22 year old lived with a roommate for a bit, then home, now with another family member. It’s good for her to see what the costs and benefits of each arrangement are, and we feel lucky (and she knows she’s lucky) that she has options.

  • October 16, 2018 at 6:57 PM

    Absolutely love the post. That was an amazing breakdown of “the plan” throughout history.

    The core tenets you provided I do feel will set up any generation for success. Who knows of something comes along that makes 401ks go the way of the dodo bird. Most of these changes will likely favor the company and put even more burden on the employee much along the lines of going from pensions to 401ks

    And pretty savvy negotiation getting yourself out of buying candy for your kid. Lol

  • October 18, 2018 at 9:31 PM

    That is really great how you are teaching your children about money at such a young age. I really wish my boomer parents taught me about money when I was younger, but they get a grade F in that department of parenting, so I eventually had to learn about money by myself sadly. : ( I wish I could go back in time and do a lot of things over again that my parents and relatives failed to do for me when I was younger, but alas I cannot. That is why I always want people to be the person they needed when they were younger to others regardless of their ages. It’s the least we can do to make up for the bad decisions of what other people did toward us during our past.

    But anyway, back to the money thing. : ) I do not plan on having any children in the future, but it’s important to teach kids you encounter in life, like I said earlier, wisdom you wish you knew when you were younger. I’m always trying to be better with money every day, but some days I do screw up. But that’s normal for everyone a lot of the time. We just all have to do our best and take one day at a time and always be ready for the little obsticles that come throuhout the day so we can all be prepared for them. : D


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