I agree that parents should tell their kids how much they make. Even better, bring them in on the budgeting process, explain how much of their paycheck goes to taxes, etc.
I was raised not knowing any of that -- my mother absolutely hated talking about her finances with me. So I never really had a clue what a reasonable wage or salary was, or how much I would actually lose to taxes, or what a reasonable budget was... and of course, none of that stuff was taught in high school, either.
Even with the FAFSA, etc., I remember being told to just sign it and my mother would insist on taking the form and going to fill in the blanks herself.
I think that parents talking to their children about this kind of thing provides them with a healthier financial barometer overall, which would be useful when they start getting pounded with credit card pre-approval letters out of the blue.
Edit: Even now, as a 29-year-old adult, I have no clue what my mother makes, what (if anything) she has for retirement, what she inherited from her father last year, the status of the house she lives in, etc. She just won't talk about that kind of thing because it "has nothing to do with me."
As a child, it can be a handicap, but as an adult, it can be massively stressful. I can understand the need to be independent (especially as a single mother), but money is just a sensitive topic when there isn't a lot.
I'm in favor of this sort of disclosure in principle, but I have a (perhaps uncommon) problem with it.
I don't want to disclose my income because my kids are unlikely to ever earn what I do - and I don't want them ever to feel bad about it, and I don't think the budgeting aspect would be very useful/instructive given that it's "not normal".
We have lived far below our means, and I'm a known cheapskate. While my kids know we're "comfortable" the frugality seems to have rubbed off. They're savers (agonizing over substantial purchases, delaying gratification) and when they earn wages or get monetary gifts it goes in the bank rather than into clothes/gadgets/cars. I'm proud of that. They recoiled at my hints that they might consider a college major that would lead to a decent wage, claiming that they don't care about status buying and owning stuff. I hope it lasts beyond youthful idealism.
So here's the thing. If I show them my salary, it's likely 3X to 4X what they'll ever earn (based on median wages for college grads) so I can't show them "reasonable". I can show them some sort of freak-show budget with >60% going into savings, but it's still not likely to be very useful to them.
Part of me wants to share this info, and I'm happy to hear other opinions, but on balance it seems like it could do more harm them good. They're already financially wise for their ages. Maybe I should just show them our bills? Then they'd at least know what it takes to run an average home.
My dad earns 2.5x my graduation salary (which in France is a huge difference - I'm 31 now). Don't worry about your kids knowing the figures, I've always rationalized about my father: He's from a business school (earns more than engineers), he explained me stuff about fluid mechanics theory (=He's smarter than me), he had 30 years of experience when I had 0.5, he manages 150 people when I would be incapable of that, and most of all, if your child isn't that rich, you may have 3 kids when he can adjust to having 2 or 1 if necessary.
If anything, knowing the figures will help kids plan their life accordingly and with more anticipation; the only drawback is I'm not good at holding secrets and a few friends have known about my father's salary.
The most important is probably something your kids already know: My father has a belly, and that's the result of long years of stress; In other terms he paid his wealth with his health.
Why not be frank about it, if they're old enough? Tell them just what you wrote here and be honest about why you make so much and why they should not take that as a "normal" salary. Maybe talk in terms of percentages -- rent/housing this percent, expect taxes to be this percent, food this percent, etc.
As a child (rather than a parent), for me, this:
1. Reinforces that saving is something everyone should be doing no matter what their income.
2. Helps reassure me that parent is making and saving enough to retire.
3. Gives me passive reinforcement in knowing that other people are also budgeting [despite whatever they make].
I'll never match my grandfather's income. That's fine.
I didn't understand the need to be frugal, when I was young, because of this. But dealing with my own money and my own jobs, gave me hands on experience with the value of being frugal. This went well with their sharing of their own experiences - the value they got out of being frugal.
The lessons sunk in well. It's not just "savings are good" and a list of abstract rationalizations - savings feel good because I absolutely get it why they're good to me even this moment.
Understanding my grandfather's wealth taught me other important things beyond frugality, however:
I was able to learn from my grandfather's success about managing money - the value of compound interest, savings, calm and diverse long term investments. The dangers of panicked short term day trading.
I was able to learn from my extended family's failures with managing money - putting all their eggs in one basket, throwing good money after the bad, the disadvantages of lending to family - really underscoring what these mistakes can inflict on people, losing more money than I'll ever earn.
All the frugality in the world won't secure one's financial future if you can't resist shoving a retirement fund all in on the housing market. Or into a tech bubble. Or any number of baskets you couldn't see were going to come to an end eventually.
I am really struggling to follow your reasoning. Why can't you explain exactly what you just said here to your kids? Explain to them why you are so frugal (I imagine you either want to be prepared for any down swing in finances, or to retire early? Whatever your reasons are, tell them!)
I think the key is to always explain your thinking process to your kids. That is the important part, and that will translate no matter what their future earnings are.
My reasoning came from my concern that they'll somehow feel less satisfied with their economic status someday if they struggle to get ahead and fall short. I admit this may be entirely wrong; I may be "projecting" based on my own minor but lingering discomfort from being told (as an adult) what my Dad's peak earnings were (more than mine..).
I think you hit the nail on the head with the comment that it's explaining the thinking process that's most important. I've long had a goal of being able to retire early, and that has driven much of my frugality. For most people, the key long term financial security is living below your means, and that's really the message I'd want to communicate - not that you need to earn a ton. I can also explain that my savings are intended to last through 30+ years of retirement (one can only hope..) with some cushion against a market crash, etc. This seems like the right approach to sharing our finances - and how the relative balance of income, expenses, and savings all factor into my goal of early retirement.
I realize now too that part of my discomfort in sharing income information comes from the fear of either showing off, or seeming excessively materialistic - but with this approach of "goals driving behavior", it need not seem that way at all.
It sounds like you've already done a great job instilling the virtues of budgeting and the value of money. I don't think you need to share your salary.
If you still had young kids, you could share instead your budgeted amount. Just don't even consider the savings income as being in the picture.
I think the strength of the lesson is to go from "wow, that's a lot of money on the table that I can touch," to "wow, almost all of it is gone due to overhead."
A secondary lesson is the concept of private information, formation of trust with sensitive sharing, and the harm in gossip.
You sound like my parents. Though, they left the monthly budget lying around and I'd browse it on occasion. From that, I now know that I'll never earn near what they made. As well compensated as software development is, managing big projects for oil companies pays better. Especially when you get options and the economy is booming.
That's fine. I still earn enough to live very comfortably off half my income. I'm perfectly happy with that.
If you have a high salary and live far below your means, then you have substantial savings. Do you disclose your overall assets / amount of savings to the kids? If you have savings and kids do you want to gift the maximum each year, and do you discuss estate planning and such?
I think annual income is just a single metric in a much larger equation which should be discussed by every family. E.g. the realities of what support you might need in the future, or what support you might be able to provide.
My Dad (early 50's) has made more than I'm ever likely to (late 20's). He was always very circumspect about it, as it sounds like you are, but as I just became a father (and for some other reasons as well) he recently decided to share some hard numbers with me. I don't know how I feel about it, but I don't think I'd have been any worse off for not knowing.
tl;dr As someone in a similar position to your kids, I think your reasoning is sound.
It strikes me as odd that you would think that your kids are "unlikely to ever earn" as much as you have, or even less than a third as much. I'm curious about your basis for that assertion. Perhaps you're American, and it's grounded in the increasing concentration of wealth. Or perhaps it's just probabilistic. But in any case, isn't it better to share all of that with them?
My parents were incredibly insistent that my sister and I understand how they did their personal and business finances and it's among the best things they taught us (neck-and-neck with how to cook).
They ran their own business until I was in my mid-20s, so during school holidays we would often go with them to work. In addition to us helping out in their warehouse, they also used to get us to do things like writing up the deposit slips for incoming cheques to take to the bank.
They seemed like menial chores at the time to keep us busy, but it really did help us understand how the whole thing worked. They essentially showed us "this is how we do it and why" rather than saying "this is how you must do it" and considering nothing like that was taught to us at school, in hindsight I am very grateful for it.
So yes, definitely bring your kids in as much as possible on finances - even the most basic things like budgeting to live within your means is essential.
> So I never really had a clue what a reasonable wage or salary was, or how much I would actually lose to taxes, or what a reasonable budget was... and of course, none of that stuff was taught in high school, either.
A few years ago in Guatemala I bumped into a bunch of American final-year dentistry students who were volunteering down there. They were all around 22-24 and extremely friendly, so we got to talking.
It eventually came out that they all knew they were going to make ~$120k a year when they started work, but they had no idea what that meant. One guy admitted he had no idea if he'd be driving a Porsche or a civic on that salary, and another wondered if he could buy a house outright, would have to get a mortgage, or wouldn't be able to afford a house at all and would rent in a share house his whole life.
I honestly believe their parents had done them a massive disservice.
Reaky you goto University and have no idea what a $120k sallary means - unless your a trust fund kid i can't realy belive that espesialy for medical degree.
And Clasic 911's are quite afordable and you dont get the massive loss you do on buying a new one.
With leasing,you can afford pretty much any car you like(unless you start talking about ferraris of Bentleys) if you make an ok salary[1]. My only experience is in the UK,but I am certain that if you made $40-50k a year you could easily find a leasing plan that would let you afford the monthly payment on a Porsche - even better if you pick one that's a few years old, then it's really easy. You couldn't buy it outright, you probably wouldn't want to pay off the rest of the car at the end of the lease,but yeah, you could absolutely do it.
define "afford". lots of people see that they have around $300 left over every month after paying rent, food, verizon and cable tv, and drop that directly on a $300/month BMW lease. can they afford that?
I was hoping there would be an obvious answer. I guess I could rephrase the question this way: "is it common for people who make ~120k/year to drive a Porsche?" or "if you'd have a median income of all Porsche owners, what would it be?". I just want to get a general idea.
It's definitely not common. Partly because $120k doesn't go as far as you'd think if you live in a nice city, and partly because not everyone wants a Porsche. If you're into cars, and really wanted one, you could be driving a used 911 on that salary (if your other bills/expenses are reasonable, and you go with a tame model.) The thing to remember about expensive cars though, is the high cost of ownership. Insurance will cost more; Parts will cost more; Repairs will cost more; Tires and gas will cost more...
Engineering is the process of making trade offs to accomplish specific goals. Budgeting is the same thing. At 120k you definately have enough money for a porche. However whether you can "afford" it depends on what trade offs you make.
You could easily afford at least a boxter at that price and I don't think a 911 would be too much of a stretch[1]. It really depends on your priorities, though (i.e. do you also want a really nice house/condo, boat, cabin on a lake, etc.) But I would say anyone making $120k/year who wants a Porsche definitely has one. (We are only talking about financial restrictions/opportunities, of course.)
See @simantel stat above. Almost no one earning just $120k / year is driving a Porsche. There's not as much disposable income in a $120k/yr wage as you might think.
Just because not many people making $120k/year aren't driving a Porsche doesn't mean that they can't afford one. In his first question sysk asks if people making that much can afford one. Later, he rephrases the question as, do people making that much drive them. The answer to the second question is no. But I still believe the answer to the first question is yes.
How is it possible for someone to survive okay on $40k/year, but if they earn an additional $80k/year (maybe an extra 40k/year after taxes?) they can't afford a $50k car? As I said, it comes down to priorities. (We're assuming that they don't live in NYC. I don't think it's fair to use that as an example for car affordability.) Even if we assume 80k/year as the baseline, that's about $20k/year extra after taxes. Can you buy a Porsche with cash without saving any money up? No. But if you save for a little bit or get a 3-5 year car loan it's easily affordable. So as I said, I believe that anyone who makes that much and wants a Porsche can easily make it happen.
There's as much disposable income as you're willing to dispose of. I live comfortably on less than 20k a year. If I had a 120k/yr job but otherwise maintained the same lifestyle I could totally drive a Porsche, but my inclination would be to give it away or save it instead.
Few would consider money "disposable" if you had to make sacrifices for it.
@zaroth probably has NYC/SF in mind, where most $120k+ salaries probably are. Pay $40k tax (fed+state+local), at least $30k for rent+utilities, and you're left with $50k for food, clothing, gym, social expenses, travel, and everything else. Out of that, you'll be paying for gas, tolls, insurance, maintenance, and parking. Parking alone will run you $5-10k (unless you're okay with street parking and having that sweet ride scraped up end to end by a truck next week). You could do it, but not because $120k is Porsche-driving income.
I really can't understand the mentality of hiding financial information from your kids. I learned about budgeting and how to allocate your money at the same time I learned about what money was; the two concepts were inseparable for me. My parents always shared their thought processes when they would decide to spend money on things. They showed me how they were saving for retirement, and what things they were considering when deciding how much to save.
We would often have family budget meetings, where we could all make our cases as to why we should spend more on one thing than another. Of course, my parents always had the final say, but they would listen to me and explain why they made the decisions they did (sorry, your sister's braces are a higher priority than your PowerWheel car).
Because of this early exposure, I never had the same financial problems my friends did, even when I was a very poor student and recent grad. I never accumulated credit card debt, nor did I buy a car that was too expensive for my budget. I always saved for retirement, starting with my first job. Budgeting and money management is just second nature to me.
I can't think of a single argument as to why you would want to hide this valuable learning experience from your kids.
Fair enough, I guess I could have imagined arguments... I just don't feel they are very good ones. Your kids are your family, they are going to pick up on any shame and embarrassment you feel, and hiding the details isn't going to make them not see that in you. Explaining the actual situation might actually make them feel better, rather than their own guesses as to why their parents are ashamed and embarrassed.
Same with shielding your children from difficulties; they are going to sense things, and their imagination will be worse than the reality. Tell them your problems, but do so in a way that conveys your confidence that you can overcome them. You are teaching them about life, which is really just a series of difficulties that you overcome.
Not sure I agree. When I was a child I knew my family was struggling, but had I actually been burdened with knowing how far behind we were on paying for housing etc I might have had a nervous break down. There is some information that may be to heavy for a kid
I thank my parents for shielding me from the dollars we didnt have. Only know looking back do I realize how tight times must have been. Sharing that yoke with the children would have hurt all of us a little.
Yeah, I guess I wasn't thinking about people who are really struggling. There might be a point where it is bad enough that it would be too heavy for a kid.
> I can't think of a single argument as to why you would want to hide this valuable learning experience from your kids.
To avoid financial information being compared between families. This already happens via secondary signals, like clothes and possessions, adding direct financial comparison makes the poison stronger.
A better way is to make a toy budget based on allowances.
You're so right. I don't want to raise them to live in a fantasy bubble (when I have kids, that is). The world is a big bad place; I'd rather prepare them, than shield them.
Not to sound disrespectful to differing opinions, but I can't see a single good reason of not exposing your kids to the realities of life (money or otherwise) when they're old enough (starting from 8-9 maybe).
I am not who you asked, but I don't know much about my parents' finances, either.
If I had access to that information I could make educated guesses about how to care for them as they age. Are they able to retire? How long can they live before they are out of money? How much do I need to have saved by the time they are X years old to ensure they are cared for?
Unless I was going to let them live on the street, it's something I must consider.
Well, more than the salary (which I do suspect is low), I would like to know her retirement/medical budget since she's heading for retirement and her family has a history of very heavy medical issues (Parkinson's and Alzheimer's).
This is why I'm especially skeptical of her assertion that is "has nothing to do with you." It _does_, because if/when she needs help, of course you're going to want to be there. Still I can't think of a way to say "It is my business because it's possible that one day you will have dementia and I'll have to pay for someone to care for you all day."
Sure, the assertion is fallacious. Pointing that out doesn't actually change anything, though. You can't force intimacy (and sharing otherwise private/sensitive information can definitely qualify if you feel that way) where it's not welcome. The 'problem' (if you see it as one) is that sdrothrock's mother doesn't see them as an ally on this front. That's what'd need to change.
When you hit a certain age, it does have something to do with you. At some point you may need to take financial or physical care of your Mom. That said, it's not an easy topic to broach. But better to do it while she still has her wits. (I've taken care of one parent, and perhaps have another on the way. Much easier to sort through stuff while they still can explain it.)
This is all very well when finances are good. But a friend of mine grew up poor, and their mother held back nothing in telling them exactly how broke the family was. To this day they are extremely jittery about all things financial - I think there is such a thing as too young to be worrying about money. But when you're a young adult, absolutely.
Even now, as a 29-year-old adult, I have no clue what my mother makes
Hey, my wife doesn't know how much I make. But nor does she care. If she asked, I wouldn't hide it :) It is unusual to know other people's income in the culture I grew up in and live in here in the UK though, so it's not too bizarre.
I was raised not knowing any of that -- my mother absolutely hated talking about her finances with me. So I never really had a clue what a reasonable wage or salary was, or how much I would actually lose to taxes, or what a reasonable budget was... and of course, none of that stuff was taught in high school, either.
Even with the FAFSA, etc., I remember being told to just sign it and my mother would insist on taking the form and going to fill in the blanks herself.
I think that parents talking to their children about this kind of thing provides them with a healthier financial barometer overall, which would be useful when they start getting pounded with credit card pre-approval letters out of the blue.
Edit: Even now, as a 29-year-old adult, I have no clue what my mother makes, what (if anything) she has for retirement, what she inherited from her father last year, the status of the house she lives in, etc. She just won't talk about that kind of thing because it "has nothing to do with me."
As a child, it can be a handicap, but as an adult, it can be massively stressful. I can understand the need to be independent (especially as a single mother), but money is just a sensitive topic when there isn't a lot.