It was a strange scene at the gas station. A brother and sister pulled their limping car to the air pump and quickly got out. Circling around the family car like bees, they pulled the air pump over the hood to the front right tire. They fed the pump a dollar in quarters and began to inflate until the air pump choked off. Smiling and very satisfied that the once flat tire was nearly bursting beyond capacity, they hung up the hose and noticed the sign, “One quarter inflates to regulation.” They shrugged and began to lumber their car out into traffic.
“Wait! Your other tires are flat! You need to fill them all!” I called.
Shocked and a bit annoyed, they responded, “Nah, we don’t bother with the back tires nor the front left. We can make it to the next destination on this one and then fill it up again.”
In disbelief, I shook my head. This makes no sense. Cars are designed with form and function. The car’s four wheels provide balance, efficiency and maximize safety. Likewise, money has essentially four functions designed to maintain, enhance and maximize the security of living. If all you saw was spending, in this analogy only inflating one tire, then that is how you would believe managing money is done. Strange as that seems, spending is how many people drive their financial lives. This is reckless!
In order to get a Learner’s Permit, a 16 year old will have to study and pass a written exam. To get a driver’s license, he or she will need to take Driver’s Ed and have many hours of practice with an older adult, parent or family member. Sadly, young people are sent out into the world with less personal financial training than what it takes to drive a car. Teachers assume parents impart healthy financial habits at home; parents assume their children are learning good personal finance in school.
Researching how to help young students Learn the Value of Money, there were countless websites with 7, 10, 12 and 15 steps to create a teenage budget. These are very insightful; however, allow me to offer an initial four-point approach to managing money: Fill all four tires.
There are four tires on a car and essentially, four main activities that maximize the value of money; namely, spending, saving, donating and investing.
Front Left Tire: Saving: Saving is putting money in a safe yet accessible place, such as a lock box, home safe, top drawer or with a trusted relative. Savings should be monitored but not used. It’s there to maintain financial balance. Develop your saving muscle; start with a light percentage of your income and work your way up to 20-25%. Be disciplined and maintain a healthy savings of equal to one year of your necessary expenses.
Front Right Tire: Spending: The value of money is not the printed bill itself but its purchasing power. Prioritize your spending. Decide what you need versus what you want. Avoid temptation and impulsiveness. Wait for and know what is a good sale. The “Spend Tire” loses air most quickly. Be vigilant. Budget your spending not to exceed 20-25% of your income.
Back Left Tire: Donating: This tire contributes not only to your car but also to the benefit of your community. Put 20-25% of your money aside to have available for someone in need close to you, or, if you see an organization that you want to support, you will be ready. The value of this money is intangible; you don’t receive anything in return but the satisfaction of knowing you are doing the right thing.
Back Right Tire: Investing: Putting air in this tire will help you down the road. The value of investing money today is the hope of it increasing in value in the future. Mild to No Risk investments are the best options. Open a savings account with no debit card access and deposit 20-25% of your income regularly. Investigate a Roth IRA which you can open once you turn 18 years old. The “Investment Tire” will feel the rise (growth) and the potholes (loss) of the road in your financial journey. Monitor this tire’s performance over time.
Oh, yes, let’s not forget the spare! An insurance policy (health, auto, home) functions as your spare tire. The spare is much thinner and lighter but is what you need to get you out of a jam. With insurance, you pay a little money each month for insurance so that in case of emergency, it’s there to get you through.
So, let’s rewind the tape. The siblings put four quarters and a dime into the air pump. They fill each tire with a quarter’s worth of air pressure. They are all inflated equally. The trunk is popped and the spare is inflated with the remaining dime. The car is balanced and they drive on smoothly, safely and confidently.
And one day, they will teach their sons and daughters the values of filling all four tires.