Author Topic: Help! Have agreed to teach $ to 20-somethings in our clan, where to start?  (Read 21607 times)

Malaysia41

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Our extended family is meeting in the San Juan Islands for 5 days over the 4th of July.  I offered to teach financial management / planning to the younger set (I'm 41, they are all young twenties).  I've got so much to share I'm actually kind of scared I'll turn them off with TMI.  I need to distill it down. 

I could just send them to the MMM site, but I fear that it may spook them - they like shopping at Nordstrom and looking all fine and hawt and - yeah - they are early twenties.  I can't lead with frugality. 

A few ideas to lead with.. feedback please!

1. start with a riddle i just made up: "I'm an employee, I'm a coupon, I'm a vote. What am I?"  (Answer: money) the idea is quickly acknowledge what they are well aware of - $ as a coupon for shuz and services. Then go into the idea of putting $ to work for them (every dollar is an employee as MMM says).  I figured out that at a 4%SWR, you need $3000 in the bank to finance a $10 / month spending habit.  That may seem overwhelming (I have to save $3000 to get $10 a month???), but turn it around - if you shave $10 per month off of your spending - that is like $3k in the bank IMMEDIATELY.   (then talk about using $ to vote for good biz practices, etc)

2. start with personal stories of financial ineptitude.  Despite a money obsession since age 10 ( I used to lend $ to my older siblings at 10% interest compounded WEEKLY),  and despite having earned a CFP whilst on maternity leave for shits and giggles in 2005, and despite having taken a biz minor in college(sidecar'ed to engineering degree), I have made some capital F foolish errors with my $.  I could lead with these stories. (e.g. when my tech stocks went through roof I actually thought to myself - "sweet, I can start spending hundreds as if they were tens" doh!  enter.. 2000 crash. or catching falling daggers in 2000 even as I was buying a house and needed the escrow $, or my mental process when buying shoes that I don't need, etc. on and on ).

3. start with fear: a talk about how our world is pretty much set up for business to take your $ at every opportunity.  Big biz knows how you behave but do you?  we'll discuss the concept of anchoring (behavioral econ), our relative thinking, our rationalizations, etc.  Business knows we think this way and the system is geared to maximize the extraction of $ from us - as often as possible.  We can talk about the Covey spheres of influence (focus on things you can do (like develop frugality chops, hang with people who don't money-shame you into following the status quo , widen your options , take non-standard career paths, be frugal most of the time, etc). 

4. Why get badass with your money?  For retirement? Shit no - you are twenty - that means nothing to you. For financial Independence?  Maybe getting warmer - FI may be a little more interesting.  How about this: freedom.  fuck-off money.  getting to spend your whole life for you - not as a wage slave. (note  if you find a job you love OF COURSE it is okay to go for it - just make sure to build your FU stash so you can walk away whenever you want ).

5. throw down a challenge: anyone who gets to FI first gets a beer from her Aunt.  Anyone who gets to FI before I did (I'm 41) gets (IDK I haven't thought of a reward - ideas?). 

Oh and then there are the fundamentals - at which point I will begin to send them to MMM - e.g. 4% SWR, frugal vs cheap,  $ made $10 at a time - basically all of the featured articles plus a few select ones peppered on top.

Anyway - I could REALLY use some advice.  I love these ladies and I want to give them everything I can to equip them to go into this life with the skills to keep the $ they earn so that they can put it to work for them in whatever path they choose.


CarDude

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Ooh, this is an opportunity. I'm old school, so I'd probably start with the key YMOYL idea: that every dollar you spend irrevocably takes away part of your life energy.

If you're (for example) buying $10 lunches while making $10/hr after taxes, you're essentially spending one hour working for no pay every day of the week.

aj_yooper

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Two random thoughts:  If you don't mind sharing your balance sheet, show them what you do and what you got.  Do a Jeopardy game on finance with prizes from the family group.

odput

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Ooh, this is an opportunity. I'm old school, so I'd probably start with the key YMOYL idea: that every dollar you spend irrevocably takes away part of your life energy.

If you're (for example) buying $10 lunches while making $10/hr after taxes, you're essentially spending one hour working for no pay every day of the week.

I love that concept...you hear all over the place the phrase "time is money" but the meaning never truly sinks in and you miss out that because that phrase is true, money is time

frugalnacho

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5. throw down a challenge: anyone who gets to FI first gets a beer from her Aunt.  Anyone who gets to FI before I did (I'm 41) gets (IDK I haven't thought of a reward - ideas?). 


...They get to retire and be FI?  What could you entice them with that would make them want FIRE more than FIRE itself?

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To me the biggest thing for people to understand is the magic of compounding interest and time...how it works for you when you save and how it works against you when you borrow. 

That can be the story of the 20 y.o. who saves 5K a year for 10 years and then stops who has oodles more money at 65 that the person who started at 30 and saved until 65.  (I forget the exact figures.)  Or it could be the $40 blouse on sale which ends up cost $80 because of cc interest.  Or the $5 a day on coffee which could turn into xxx if saved instead.

kelladoo

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Ooo fun! Did they request that you talk to them about financial management? I'm assuming that they don't know a whole bunch outside of: "saving $ is good", "start saving for retirement as soon as possible" and maybe even "it would be cool to invest but I have no idea how to start doing that/how to do it right"

I am a 20-something myself and I think you are underestimating how much 20-somethings care about retirement. They think it's decades away and are probably facing the idea that they will have to work until they are old as shit. You've got to start off by changing their outlook. Introduce them to the concept that a normal person does not have to work for three decades before retiring and being able to spend their time how they want. Give them an example of something possible for them. "If you make $XX,000/yr and save/invest 60% of your take home pay, surprisingly, you can retire in Y number of years." (Show them the attached graph.) Make sure they know that this can be done without winning the lottery and most importantly by setting themselves up with a lifestyle that will allow them to do this. This is the best time for them to start defining that lifestyle!

If that interests them, they will probably want to know what steps they can take now. You can talk about what to do with the money they want to save or invest. Investments can be in the form of paying off debts, owning a house, trading stocks, trading index funds. And make sure to mention that this is where their money has the potential to earn money at a faster rate than it would earn in a savings account, so saving is great, but they can do better still by doing other things with their money. Show them how to sign up for a Vanguard account.

There will probably be some who are less open to changing their lifestyle. Show them what they can do with their money they are willing to save. Down the road, once they start seeing their investments perform, they may be more likely to change their lifestyle to allow greater amounts of $ to be invested.

Hopefully you will hook a few of them and they will come back and ask you more questions. Just signing up for a Vanguard account should open up a whole bunch of questions from them. Wait to dig deeper until they really show interest in learning more.

MMM might be too much for them... unless you sell it to them the right way. The only reason I am willing to come back and read every single MMM article is because I was drawn to the site by the news article headline "I Retired When I Was 30" and that is still in the back of my mind every time I read a blog post. Make sure to let them know that this has already been done by real, middle class people and give them the link to the MMM blog to explore on their own.


Have fun and good luck! Let us know how it goes!
« Last Edit: June 11, 2014, 11:52:30 AM by kelladoo »

Lans Holman

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Hey, my extended family is gathering in the San Juan Islands for the 4th!  What island?

To go with your question, I wouldn't necessarily emphasize the "retirement" aspect so much as just the power that money in the bank gives.  Might be early retirement, might be travel, might be working less or having the freedom to quit a job you hate even though you don't have another one lined up yet.  These are all things that become possible when you learn to live below your means.

Misstachian

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I agree with Mary W and Kelladoo! I'd start by showing some compound interest charts and showing how money begets money if you save it early. That's what got me hooked into saving what I could.

Personally, I think the 4% withdrawal, x in the bank to afford y is a little more advanced and gets you in the weeds a bit (explaining SWR, how you get to 4%, the math behind it). That to me seems like the conversation if they get it and are enthused, but I wouldn't lead with it. Instead, I might show Shockingly Simple Math - save 50%, only work 17 years. Save a lot less, work forever.

Of your choices, I'd start with 4 and 3, and use sprinklings of 2 throughout that discussion. I'd show the simple math and compound interest charts (if you save x/month from 25-35 you'll end up with more money than the person who saves way more from 35-45 or whatever it is). And daydream with them - what would their ideal lives look like? How can they get there?

AlanStache

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Maybe dont start with it but if you showed them the math of if they invested 1k per year from when they were 15 to 25 years old to make the point that time will pass regardless if they are saving/investing or not.  "you all remember when you were 15, well had you done this, now at 25 you would have xx and nearly half that is dollars you did not put in the account."

nawhite

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2. start with personal stories of financial ineptitude.  Despite a money obsession since age 10 ( I used to lend $ to my older siblings at 10% interest compounded WEEKLY),  and despite having earned a CFP whilst on maternity leave for shits and giggles in 2005, and despite having taken a biz minor in college(sidecar'ed to engineering degree), I have made some capital F foolish errors with my $.  I could lead with these stories. (e.g. when my tech stocks went through roof I actually thought to myself - "sweet, I can start spending hundreds as if they were tens" doh!  enter.. 2000 crash. or catching falling daggers in 2000 even as I was buying a house and needed the escrow $, or my mental process when buying shoes that I don't need, etc. on and on ).

4. Why get badass with your money?  For retirement? Shit no - you are twenty - that means nothing to you. For financial Independence?  Maybe getting warmer - FI may be a little more interesting.  How about this: freedom.  fuck-off money.  getting to spend your whole life for you - not as a wage slave. (note  if you find a job you love OF COURSE it is okay to go for it - just make sure to build your FU stash so you can walk away whenever you want ).

I'm 27, so probably the slightest bit older than your target audience.

2) Don't talk about the stock market collapsing on you. The fact that "Stocks always go up" is an advanced topic that you shouldn't touch until you have buy-in from them about this being a worthwhile idea.

4) My first question before EVERYTHING ELSE, would be: "What would you do for the rest of your life if you won the lottery and ended up pocketing $2 million after taxes?" Every person will have a different answer and that is ok. If someone says "I'd live like a movie star!" go through a budget with everyone to show that, no, you can't live like a movie star for your life with only $2 mil (note I said do a budget, do not derive the 4% rule b/c that shit is boring. Most people are willing to accept the 4% rule as fact if it comes from a CFP). Then rephrase your question to "Ok so really having $2mil in the bank means you get $80k/year to live off of without doing anything. So what would you want to do with your time? Volunteer? Skydive? Surf? Build houses? Climb mountains? Raise children full time? Garden? etc. Without this answer from each one of them, you will never get any buy-in and they'll be bored to tears.

Now that you know what each person dreams of, go through the examples of a 5% savings rate vs a 50% savings rate (get one year off per 20 years of work vs one year off per one year of work). Mention your concept of if you lower your expenses by $10/month, you lower the amount you need by $3000, but also show that $10/month that they are saving instead of spending compounds into about $1500 after 10 years at 5%. So by not spending, they help themselves in 2 ways, decreasing the amount they need to save, and increasing the amount they are saving.

Go through compounding with a spreadsheet. Describing it with a spreadsheet always makes it more real than a graph to the people I show. If credit card debt (or any other debt) is a problem for any of them, go through an example of minimum payments on a $400 TV and how much it will actually cost. Do the same thing with a car loan at 8%. Show that this shit gets expensive if you do it with debt.

Now, do the example of compounding 50% of an average salary and show how it takes 14 years for earnings to exceed expenses. You can use the Networthify calculator (http://networthify.com/calculator/earlyretirement) to run these calculations fast.

So now you have shown them that they can "do what they want for the rest of their life" (I would stay away from the terms "retire" and FIRE etc.) starting no later than 14 years from now.

Then if they are still with you, move on to how to invest what they save.

MaxTheTerrible

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Don't forget to ask them the question of what is the most important financial asset they all have that you don't (time).
good luck!

frugalnacho

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2) Don't talk about the stock market collapsing on you. The fact that "Stocks always go up" is an advanced topic that you shouldn't touch until you have buy-in from them about this being a worthwhile idea.

I don't think it's that advanced of a concept.  Stocks go up, stocks go down, stocks stay the same, and every which way at any given time, but the overall trend is continuously marching upwards.  They need to understand that so they don't panic when the stocks dip, but also so they don't have the same folly and spend like crazy when their stocks are rushing up.  That may be an important lesson to learn so they don't reward themselves with a new car just because their portfolio increased 30% in a given year.   They need that 30% to weather the bad years - and it all works out to a SWR of 4%.

No Name Guy

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Where to start you ask? 

With the ONE concept that is the ultimate foundation to amassing a fortune:  SPEND LESS THAN YOU EARN, period.

After that, it's all detail.  How much less to spend than you earn (savings rate).  What to do with the accumulated capital (investments).  How to use, or more fundamentally, what is leverage and how can this tool be both your best friend and worst enemy at the same time.  etc, etc, etc

Another thing:  Talk about the foolishness of the YOLO concept as it relates to spending it all now, since "I might die tomorrow".  For 20 somethings, the fact is most, nay, the vast majority will live a very long life.
http://www.ssa.gov/oact/STATS/table4c6.html

For 20 year old males, live expectancy is ANOTHER 56+ years (and nearly 9 out of 10 will make it another 40 years).  Females, 61+ years (with 92% of 20 Y/O females making it another 40 years).


CommonCents

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4) My first question before EVERYTHING ELSE, would be: "What would you do for the rest of your life if you won the lottery and ended up pocketing $2 million after taxes?" Every person will have a different answer and that is ok. If someone says "I'd live like a movie star!" go through a budget with everyone to show that, no, you can't live like a movie star for your life with only $2 mil (note I said do a budget, do not derive the 4% rule b/c that shit is boring. Most people are willing to accept the 4% rule as fact if it comes from a CFP). Then rephrase your question to "Ok so really having $2mil in the bank means you get $80k/year to live off of without doing anything. So what would you want to do with your time? Volunteer? Skydive? Surf? Build houses? Climb mountains? Raise children full time? Garden? etc. Without this answer from each one of them, you will never get any buy-in and they'll be bored to tears.

+1

Talk first about WHY they want money (what it really represents for them and those values - looking good before others?  Security? Stability?  Freedom? Travel?) and then move into the nuts and bolts.  I like the $2m example above. 

Ask them when they think they can retire - and then ask what they would think if you told them you knew someone who retired at age 30. 

Then once you've hooked them on wanting it, THEN talk nuts and bolts about how to get there.  Being open with your finances will probably help make it concrete.

Malaysia41

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Hey, my extended family is gathering in the San Juan Islands for the 4th!  What island?

To go with your question, I wouldn't necessarily emphasize the "retirement" aspect so much as just the power that money in the bank gives.  Might be early retirement, might be travel, might be working less or having the freedom to quit a job you hate even though you don't have another one lined up yet.  These are all things that become possible when you learn to live below your means.

Lans - we will be at Roche Harbor on San Juan Island - THE BEST PLACE TO BE FOR THE 4th!  You'll see our clan on the log roll, in the 5k run, the donut eating contest (my son won this 2 yrs ago - he swept the 6 and under category).  We will be wearing the red shirts with our team name 'Bun's Terrors' ( my mom's nick name is Bun and my dad's name is Terry... the extended clan are the terrors :) .  What island will you be on?

Tetsuya Hondo

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As someone who does a bit of training, I would begin with an assessment of my audience. Here's a few questions I would ask:
  • What do they want to learn?
  • What do they already know?
  • What concerns do they have about money?

I'm sure there's a few other good questions you can think of to ask them as well. Once you've gotten an idea of that, then you can design your lesson around it. People always skip the first step in training (Assess, Design, Develop, Implement, Evaluate) and jump right to the design. This thread is a nice little illustrations of that. :) Although, all great ideas.

Also, keep in mind their capacity for learning given the context when you're coming up with your lesson(s). They are, after all, 20 somethings in San Juan. That doesn't exactly make for the most conducive learning environment. :) My guess is that you'll want to be realistic in what you can impart while you're there. As others suggested, it may be enough to just plant a seed.

All that said, the law of 72, the 4% rule, and FIRE in general were all enough to blow my little mind, so those would likely be at the top of the list for content... depending on what feedback you get from them.

Malaysia41

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I'm deeply moved by your thoughtful responses.  From the twenty something perspectives to the teacher's view, from sharing what 'hooked you' to suggestions for keeping it simple - everything you've all written is useful and I'm already feeling more in control in coming up with a game plan.  I will start with uncovering / posing questions.  Then I will have ready all of your tips for deep dives / further discussion.  Yes, much of these talks will be over dungeness crab, old bay seasoning and beer (good beer - I live in Malaysia and the beer here is CRAP.  Can't wait to drink an Honest-to-God-Ale back in the Pacific NW!).   Seriously - from the bottom of my heart I am grateful for your insights.

Malaysia41

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Oh - and keep the advice coming - I'm continually checking this post - and I will update with the results after the 4th.  I love these lil' 20-something buggers so much I hope they latch on to these ideas.  May the MMM ethos work magic through me this 4th July week. 

MDM

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Many good ideas on theory given already.  I'm going to elaborate on kelladoo's "Show them how to sign up for a Vanguard account."  In other words, help them with "sounds good and all that, but how do I actually ______?" 

Will they have internet access?  If so, you could walk them through signing up for - and arranging a payment into - their very own IRA (Traditional or Roth, as preferred).  E.g., Vanguard 2060 Retirement Target (or whatever you prefer - I'd keep it as simple as possible for now).

Even better would be to walk them through signing up for (and/or increasing the contribution to) their own 401k.

Or making a principal payment on any high interest student loans.  Etc.

Theory in competition with crabs and beer many not fare well.  But real, tangible, actions - they will provide good reasons to celebrate with more crabs and beer!

Just guessing from your OP, but they might need some hand holding to get past the mechanics of investment.  It would be a great service if you can enable them. 

Alternatively, you could ask them to do the above on their own before July, then deal with theory (and any remaining practice items) when you are together.

One pre-work item they should all do: prepare a budget based on actual income and spending.

Good luck!

Middlesbrough

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I have lurked here for a while now, but had to register to put my two cents in on this one.

I am a 23 and only a year removed from graduation. I took a personal finance class my senior year and learned some valuable tools, but didn't get a whole lot from the class. I am odd due to being a math lover, number cruncher, and overall avid learner.

The first thing to do is check for understanding (as noted by someone else above). I was amazed by the general lack of knowledge even from a bunch of college students. Once you find that base, you know where to start the teaching process.

When it comes to lessons, a good one was getting paired with others in a group and preparing a family budget. You then get the number of kids and household income drawn from a hat and have to negotiate a monthly budget with your group deciding how to allocate for major categories of spending and savings rates. It is good way to teach budget preparation, as well as, working with others who have different financial ideas.

Good luck !

ch12

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No More Harvard Debt did a presentation on FI for 12 year olds:
http://nomoreharvarddebt.com/2014/01/29/teaching-a-debt-perspective-to-12-year-olds/

I did like it a lot.

I'd also hit them with shockingly simple math.



http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Many good ideas on theory given already.  I'm going to elaborate on kelladoo's "Show them how to sign up for a Vanguard account."  In other words, help them with "sounds good and all that, but how do I actually ______?" 

Will they have internet access?  If so, you could walk them through signing up for - and arranging a payment into - their very own IRA (Traditional or Roth, as preferred).  E.g., Vanguard 2060 Retirement Target (or whatever you prefer - I'd keep it as simple as possible for now).

Even better would be to walk them through signing up for (and/or increasing the contribution to) their own 401k.

Or making a principal payment on any high interest student loans.  Etc.

Every persuasive speech should end with a call to action. Even putting $5 per paycheck into the company 401k will get them started with saving for retirement. I do consider it a grand success that my roommate started contributing to her 401k up to the match and then, when she got a raise, INCREASED HER PERCENTAGE so that her take home was the same as before! Her mom thanked me for convincing my roommate to save for retirement.

I think it's a good contrast with how intense my own saving is. Last December, 80% (the largest percentage I can designate) of my monthly paycheck and year-end bonus went into my 401k. For the past few months, I've been putting in 77%. http://www.madfientist.com/front-loading/ Compared to that, siphoning off a few percentage points seems small. It's about framing.

aj_yooper

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ch12, thanks for the link to the presentation for 12 year olds!  Nice summary.

JPinDC

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I'd also hit them with shockingly simple math.

I'm 27 (also probably slightly older than your target), but the shockingly simple math post is what hooked me in the beginning, and I always go back to it when I need motivation.

AlanStache

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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM.  Are they withdrawal rates?  Or some sort of percentile market failure probabilities?  I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me. 

curlycue

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So, what are your goals, to give a great talk?

Or to change the financial history of the next generation in your family?

If you want to have the next generation change/or improve/establish good financial habits - i.e. "behavior change" then one lecture isn't going to cut it, in fact, a lecture format will likely have no impact.

Imagine everyone in your country, community and family is fat. You give a lecture explaining how you cut calories and started to exercise and lost and maintained weight. However, those people like donuts and binge watching Netflix. After the lecture, many people may start eating veggies for a week, or they may buy them at the grocery store and watch them rot in the fridge. They will likely buy a bike with intentions of riding it, buy a tread mill for the same thing, or get a gym membership - but after a few weeks, with their busy schedules, they will go unused.

So you are up against two things: individual behavior change as well as community pressures. If you do not have a long term plan to address both of those, your lecture will have no impact, even if you are super charismatic and good at presentations, which is sounds like from the "spreadsheet" suggestions and such that the lecture will not be.

I would recommend that you make concept - financial independence/strength for the next generation of your family - a long term project in which they only participate in if they jump through hoops. For example - it MUST be practical - like a really fun hook, then they must have some sort of committment/investment on their part. So keep the intro talk very general and fun - the basic article that was in the news about retiring before 30 - then working only with those who want to do it on individual plans where they support one another. Some will fall off the bandwagon but that is OK. Some won't start at first, however, will see the success of others and want to join. You will need regular social support (this is why there are support groups for difficult things like lossing weight (Weight Watchers - people think it was successful for counting calories, but everyone knows you need to count calories, it is the weekly accountability and social support that defines it) and Alcoholics Anonymous.

Those young adults are like donut and Netflix addicts. To get them to give up their iPhones, foreign vacations, leased cars, eating out is going to be difficult. I would do things like start a competition:
1. Everyone joins some sort of investing portfolio of their individual choice, and have the competition be not who make the most profit, as that fluctuates, but who socks aways the most $$$ for the year while they learn about and explore the world of investing
2. Variations of educational and practical - do not teach any subject without doing the practical - i.e. don't teach about investing, help them to get started investing. In the U.S. we thing about teaching a lecture. You may want to get them with a 30 second hook on compound interest, but go the other way - get a group of them together who want to invest and have the group help each other.

The steps to behavior change are debated, but about seven steps. The first is awareness (most Americans are not aware of how stupid they are with money), the second is knowledge. Most people do not get past step #2, knowledge, despite good intentions to stop smoking, go on a diet, or get financially stable. You have five more steps to go through, and they are much harder that step #1 and #2.

I would also not leave the leadership to this to yourself. I would give them ideas and incentives for them to organize themselves and have you act as a motivator, advisor, catalyst, and partner. Only work with those who are interested. Don't worry about the others.

I wish so much that my family had done this with me. Beginning with helping me learn how to do my taxes when I started working. I even asked but I don't think they had the knowledge to do so. Having a mentor years ago would have helped, but I'm not complaining, just commending you for helping the next generation of your family.

If you set it up right they will come to you as the "maven". They will all be starting jobs and wondering if they should join the 401(k), buying new cars, getting mortgages, etc. over the next few years. If you set yourself up as the cool older relative who can help them with those things, then they will all be coming to you for advise.

What you are doing is amazing and I really commend you for it.

frugalnacho

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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM.  Are they withdrawal rates?  Or some sort of percentile market failure probabilities?  I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.

They are return rates you get on your investment.  Impossible to know how the stock market will perform, so you can see all the different case scenarios ranging from 1% returns to 15% returns.

For example if you get a 15% yearly return, and save 50% it looks like you will reach FI in 12 years.  If you only get 1% return and save 50% it will take more like 28 years to reach FI.
« Last Edit: June 12, 2014, 08:22:10 AM by frugalnacho »

AlanStache

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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM.  Are they withdrawal rates?  Or some sort of percentile market failure probabilities?  I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.

They are return rates you get on your investment.  Impossible to know how the stock market will perform, so you can see all the different case scenarios ranging from 1% returns to 15% returns.

For example if you get a 15% yearly return, and save 50% it looks like you will reach FI in 12 years.  If you only get 1% return and save 50% it will take more like 28 years to reach FI.

thanks - that makes total sense.

netskyblue

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All good ideas, but I will caution you.  How much do they HAVE/EARN right now?  I knew about all this stuff in my early 20s, but I was making about $11/hour at a professional job, paying rent and student loans (mine were MUCH MUCH lower than most of today's crowd, <$100/mo) and was struggling for grocery money.  I didn't have a smartphone, my old school flip-phone was on my parents' plan, and I didn't have internet or cable.  I did have a car payment then, but it was ~$125/mo for an old beater.

I would have loved to save loads of money, but I just barely made enough to cover my already mustachian lifestyle.  8 years later, I'm still at that same job, but making $18.99/hr...NOW I have enough money to start saving (plus student loans and car are paid off). 

It's rough at that age when you really don't have the money.  It's too easy to think, "I'm never going to have enough money to save like that" and give up, and quit living frugally.  Plenty of people start using credit cards.

A strong support system, notions of frugality, and accountability for my spending are what got me through.  I had a goal, there were people around me who knew my goal, and who I could tell "I saved X much," or "I didn't cave and buy X today."

slugline

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I really hope you're able to come back and do a follow-up post on how these sessions were received.

I really think that any personal finance "school" is incomplete without a discussion of the social aspect. Who their friends are and what is considered "normal" among their peers will have an impact on their future. 

And the impact of their choice of relationship partners/future spouses cannot be understated. Good luck!

deedeezee

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How competitive are they, and how often do you all get together?

As a conclusion, I would offer up a contest of sorts, as I agree with the great suggestions from PPs on competition.  How many can track their spending for the whole year (or until you next meet)?  How many can reduce spending by 5%?  10%?  More? How many opened retirement savings, or started putting money in every month?  How many save at least 25% of their income?  Or whatever.  You could even form them into mini-groups of 2 or 3 that will help each other along. 

In my family, "bragging rights" would be reward enough, but you could also offer more concrete rewards if you wanted.  "Financial bad ass" t-shirts or something.  This gives them a call to action at the end.

nawhite

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Is extrinsic motivation really the goal here? Personally, if I were saving to win some family competition, I wouldn't last. I'd save for like 5 years tops and then I'd fall off the wagon when I realized it was just some "stupid family competition." The best you'd get out of them long term would be to stay debt free and maybe do a standard retirement savings rate.

Intrinsic motivation is the only way to make a generational change in your family. Each person needs to know why they personally are saving/cutting spending/investing. Be it to live an awesome FIRE, to give millions to their children, to take ridiculous vacations every year, or to donate tons to a charity they care about, they need to know their own motivation. This is the same thing as trying to get a spouse on board with mustacianism. If the spouse doesn't have their own reasoning for going through with it, they wont no matter how much you encourage them.

curlycue

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How competitive are they, and how often do you all get together?

As a conclusion, I would offer up a contest of sorts, as I agree with the great suggestions from PPs on competition.  How many can track their spending for the whole year (or until you next meet)?  How many can reduce spending by 5%?  10%?  More? How many opened retirement savings, or started putting money in every month?  How many save at least 25% of their income?  Or whatever.  You could even form them into mini-groups of 2 or 3 that will help each other along. 

In my family, "bragging rights" would be reward enough, but you could also offer more concrete rewards if you wanted.  "Financial bad ass" t-shirts or something.  This gives them a call to action at the end.

+1 Love it!

rosaz

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One thing that helps me as a relative young'un is calculating the dollar amount I need to save now in order to retire one day earlier. Obviously to do this you need to make a few large assumptions: the age at which you'd otherwise retire, average rate of return, and your final salary. But given that, you can easily calculate backwards how much you should save today to quit work one day earlier. For me, with my assumptions, it's about $25. So that gives me a rough but concrete time trade-off for each dollar spent, which helps me prioritize.

Of course this works best if they already have full-time jobs that they don't absolutely love :)

homeymomma

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This may be a bit beyond where they are, unless they already hold jobs and pay rent, etc. But I wish someone had explained to me how to "save" properly. Instead of looking at short term goals first, ie that trip to vt to visit friends, a new blouse, you have to look at long term goals first, then work backwards.
#1 spend less than you earn, on your basic living necessities.
#2 put money toward retirement first, the longest-term goal
#3 then think about other big, long-term life goals like home ownership
#4 then think about shorter term life's goals, like travel, or owning a car
#5 nope, you probably don't have much left over for buying expensive clothes and buying drinks at the bar every night. That's ok. You'll have all the other stuff that's really important to you, while your friends look on in amazed jealousy.

I'd never recommend this approach with teens or college students, but for a twenty-something young adult who is out of school, I don't think it's too crazy. I'm 27 and saw the light around age 25, after already using the time before then to make a few big mistakes. Better early than too late!

ch12

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All good ideas, but I will caution you.  How much do they HAVE/EARN right now?  I knew about all this stuff in my early 20s, but I was making about $11/hour at a professional job, paying rent and student loans (mine were MUCH MUCH lower than most of today's crowd, <$100/mo) and was struggling for grocery money.  I didn't have a smartphone, my old school flip-phone was on my parents' plan, and I didn't have internet or cable.  I did have a car payment then, but it was ~$125/mo for an old beater.

A strong support system, notions of frugality, and accountability for my spending are what got me through.  I had a goal, there were people around me who knew my goal, and who I could tell "I saved X much," or "I didn't cave and buy X today."

Your salary then would be close to the salary I would've had if I'd become a bilingual youth counselor for at risk kids like I could've. I was pretty close. It was a fork in the road. Even with a meager starting salary, it's still possible to save $5. And using foot-in-the-door is a good tactic when it comes to impecunious youths.
http://en.wikipedia.org/wiki/Foot-in-the-door_technique
« Last Edit: June 12, 2014, 07:19:31 PM by ch12 »

Strawberrykiwi75

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I would tread very carefully here if I were you. Do they want you to talk about their finances? Did they ask or did someone else?

If they asked, that's bloody fantastic! If not, you want to go in slow. They are adults with their own money and priorities and won't appreciate being told what to do.

Anyway, if I were you I would probably talk to them not about retirement (as that seems so far away we can't really relate to it (Im 24)) but about having control over their money so that they can achieve anything they want to. Like buy a house young. Travel the world. Start a business etc etc etc. You could mention early retirement as an example. Having enough money to be in control of the lifestyle they want to live- you could even ask them what they want to achieve in the next few years?

The example of investing for 10 years and then leaving it to tick along is a great one. Also show them the simple math. Teach them how to use credit cards correctly. Show them what a budget looks like- this is something people NEVER learn unless a family member shows them. I know because it's part of my job. All these young kids are finishing college and being tossed out into the real world with very little practical common knowledge because these things are not taught at home. And that's where you come in :-)

Good luck, I hope it goes well! Let us know how they react :-)

MrsPete

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Issue #1:  Basic, basic question:  Did these 20-somethings ask for help/instruction on this subject, or did you and some of the other adults decide they need it? 

Here's the thing, if I were a 20-something anticipating getting together with my same-aged cousins on a Caribbean island, sitting down with my uncle to talk about retirement would not score high on my list of interests.  I might be extremely interested in the topic (and in my early 20s I was actively reading everything I could concerning money management, frugality, investing), but I wouldn't welcome a forced lesson during a vacation. 

I don't deny for a moment that the lessons are needed -- but I question the timing.  Instead, I suggest that you set up a private online blog to be shared between you and these 20-somethings.  This would allow you to share good information and articles with them, and it would allow them to ask questions.  Also, it will allow them to do it at their own pace and on their own timetable.  I suspect your message would be better received under such circumstances.

If you move forward with these plans, I would include retirement as a topic -- but one of several topics.  A young 20-something is going to be more interested in his immediate needs:  Emergency fund, buying a house, preparing to support a family.  At that age, I was more concerned about frugal living, making every dollar count, and ways to live on less than I earned -- so I could save and so I could live a better lifestyle.  Retirement should be considered along with these things.  I was concerned about retirement savings by my mid-20s. 

Issue #2:   If you wait 'til age 20, it's much, much too late. 
« Last Edit: June 13, 2014, 06:54:26 AM by MrsPete »

plainjane

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I think first you need to think at the emergency fund level, planning for expected expenses (eventually x will need to be replaced, that isn't really an emergency - this can even be a frivolous item)

then talk about FU money

FI is going to be a pipe dream for most of them right now, and it's really just an extension of FU money.

NinetyFour

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Is it possible for you to ask them some "pre-assessment" questions ahead of time to see where they are regarding financial literacy or even financial status?  Gathering that information a couple weeks ahead of time might help you tailor your talk.

It's a little late, but I wonder if you could ask them to, between now and the 4th of July, to keep track of every penny they earn and every penny they spend.  Then you could discuss the consequences of these spending habits.

And I like the idea of a contest of some sort after the gathering.  Or perhaps you could offer some financial incentive for them to save X amount or X percent during the next year.

I also like the idea of hitting on the rule of 72.  And showing how compound interest can be one's friend (when saving) or one's enemy (CC debt).

Hope it goes well!

annann

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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM.  Are they withdrawal rates?  Or some sort of percentile market failure probabilities?  I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.

The chart shows how many years you will need to work (before having enough $ to retire) based on % saved.  If I recall the chart correctly, you work 40 years at 15% savings and it gets longer for each lower percentage with the lowest percentages saved showing off-the-chart number of years worked.

homeymomma

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I've been thinking more about this question since yesterday. I realized if there was one thing that should have been explained to me earlier in my life, it would be compound interest. Posters are saying it's above their head and it may indeed be, but (still) no one in my family has ever explained it to me, and that seems like a major oversight for any young person facing retirement down the line with no fall-back of social security.

Perhaps having them figure out a small number that they could reasonably save each month, even if it's $50, and plug it in to a calculator. You could explain some of the basic assumptions that go into the calculator, the, let them run different numbers to see what time can do with their money. Then tell them how they can do it, starting now, as soon as they get a first paycheck! Open an IRA, put money in just like a bank account, and watch the magic happen.

I really don't know if it would work if they're not in that place mentally to think ahead... I think we all reach that place at different times. But the idea of making money without doing anything should appeal to most people.

frugalnacho

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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM.  Are they withdrawal rates?  Or some sort of percentile market failure probabilities?  I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.

The chart shows how many years you will need to work (before having enough $ to retire) based on % saved.  If I recall the chart correctly, you work 40 years at 15% savings and it gets longer for each lower percentage with the lowest percentages saved showing off-the-chart number of years worked.

way off base.  the x-axis is your savings rate.  The graph lines he was talking about refer to your annual return on investment.  If you earn 15% on your investments every year you will obviously have a very different graph (and FIRE date) than if you only get 1% return on your investments.

NumberCruncher

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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM.  Are they withdrawal rates?  Or some sort of percentile market failure probabilities?  I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.

The chart shows how many years you will need to work (before having enough $ to retire) based on % saved.  If I recall the chart correctly, you work 40 years at 15% savings and it gets longer for each lower percentage with the lowest percentages saved showing off-the-chart number of years worked.

Nah, the savings rate is in the X axis (Y axis is working years). I think the different lines on the graph are withdrawal rates. If you want to have a 1% withdrawal rate, you need a bigger stash to make that happen in the same amount of time (higher savings rate).

cbgg

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I assume the under 20 set has asked you to do this?  In that case, I'd send out an email askign them for questions.  This will help you get a sense of their current stage and their interests.

Don't start with the MMM stuff unless they are fairly advanced.  Too extreme.  People have to get some basics under control first before MMM talk becomes plausible or interesting.  They may be living paycheque to paycheque and need basics.  They may be amassing money and need help with investing.  Tailor your talk as needed.

Some of the basics I think are key are (very JD Roth inspired)
 - spend less than you earn.  If you don't know how much you currently spend or earn, you better fix that problem.
 - no one cares about your money more than you.  Learn to manage it yourself.
 - Debt = no.  Just don't do it.
 - Be critical before you follow the herd.  This can often apply to things like buying houses, investing, lifestyle inflation, etc.
 - When cutting expenses, know your "big 3" and work on them first.  (Usually housing, transportation, and food).
 - Investing, compound interest, etc is powerful stuff.  Learn the basics and put it to work for you now.

AlanStache

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Can someone explain what the 1,2,3,4,6,10,15% lines represent on this chart, reread the original post and is not explained or I am still three shots of coffee low this AM.  Are they withdrawal rates?  Or some sort of percentile market failure probabilities?  I understand the core concept -save more-retire non-linearly-earlier, but this chart has never been clear to me.

The chart shows how many years you will need to work (before having enough $ to retire) based on % saved.  If I recall the chart correctly, you work 40 years at 15% savings and it gets longer for each lower percentage with the lowest percentages saved showing off-the-chart number of years worked.

Nah, the savings rate is in the X axis (Y axis is working years). I think the different lines on the graph are withdrawal rates. If you want to have a 1% withdrawal rate, you need a bigger stash to make that happen in the same amount of time (higher savings rate).

I reworked the original plot, it shows years to fire vs savings rate at different market rates of return with constant 4% withdrawal rate.

plots are in a new thread
http://forum.mrmoneymustache.com/welcome-to-the-forum/fire-plot-for-given-withdrawle-rate-savings-rate-and-market-return/#new

Carbonero

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I really like blanblah's idea of having them present some of the concepts or give then some application (running some numbers on their own). "Only what the learner creates is learned" is a principle I have use in designing training programs. If they have to generate something, the concept will sink in WAY more than just listening to someone "present".

Malaysia41

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Update:

We have a facebook group set up for the get-together.  This is where the conversation started.  Admittedly I started it, but it was predicated on hearing one of them complain that she'd never been taught anything about finances ( even though I KNOW she knows concepts like the rule of 72 - I drilled them into her brain).  The other two seem really eager.  And now, my sister and mom have asked to get in on the convo too :). 

Thank you for your wisdom so far.  Considering what you've posted, I have requested the three tweny-somethings (and sister) do the following:
1. create an account on mint.com, enter in financial accounts + put in a budget. 
2. download mint app to phone and, if they are feeling totally fired up, track expenses from now til 4th July.
3. pose questions for discussion in the FB closed group.

At Roche, I plan to start with the $2M question (If you won lottery $2M ... etc ) and in doing so get an idea for what their goals are (this is an easy over-beer-n-crab convo). 

I agree with many of you: their motivation needs to come from within them; I need to understand what they want before I go into any graphs or rules of thumb.  At that point, those who are interested can deep dive with me into compound interest and FIRE charts, my story, MMM story, etc.    We can discuss as much as they like, as long as they like, and I will encourage them to continue conversation after vacation -online - between us or in user forums such as this - and find FIRE oriented people to surround themselves with when they get back home. 

I've been thinking a lot lately about intentions.  They are powerful.  When I'm unsure of what direction to take, it is often instructive to check in with what my intentions truly are. In yoga, it is customary to state an intention at the start of practice, something like joy, creativity, authenticity, wisdom, connection, action, etc. I find these feelings creep into my life afterward. Lately, a yoga teacher explained that intentions are not specific goals but rather how we wish to experience life.  I like that.  Maybe, sometime during the week of the 4th, we can take a step back from finances and discuss their intentions overall, not just what to do with a $2M windfall but how they want to experience life.  Getting their $ in order is just a first tactical step.  I want to do everything I can to help them get themselves past that first step and on to living life the way they wish to experience it.

I will keep updating. Thanks again.
« Last Edit: June 14, 2014, 05:28:37 PM by Malaysia41 »

Carbonero

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I really like blanblah's idea of having them present some of the concepts or give then some application (running some numbers on their own). "Only what the learner creates is learned" is a principle I have use in designing training programs. If they have to generate something, the concept will sink in WAY more than just listening to someone "present".

ChrisLansing

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A lot of good ideas.   

I would ask if any of them want to retire at 35.   That may shock them, and they may not have ever considered ER but it might get them thinking.    Of course they may not have sufficient income to retire at 35, but it's a way of opening up the conversation - do you really want to work your life away until you are old and gray?   Even people with modest incomes could get out of the rat race much earlier than usual if they do the right things.     Even if they aren't interested in ER they may see what their money can do if managed well.   

Keep the fb page open after the reunion so the discussion can continue.