No Single Point of Failure: Optimizing the Three Major Financial Socialization Systems

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Lion Air Flight 610 took off on a calm October morning in Indonesia. Neither the captain nor the crew knew the plane was carrying a faulty outside sensor. 

Data from that sensor would lead to the deaths of all 189 people on board.

Five months later, the 157 passengers and crew of Ethiopia Airlines Flight 302 suffered the same fate for the same reason.

You may have heard what happened next. 

Boeing grounded its 737 MAX fleet soon after the second plane went down. Heartbreakingly, this timing proved too late for the 346 victims and their surviving friends and relatives.

And though raising money-smart kids obviously pales in importance to remembering both flights’ victims, there are important lessons we can learn from these aviation tragedies. 

“A single point of failure is an absolute no-no,” said one former Boeing engineer who worked on the MAX. “That is just a huge system engineering oversight. To just have missed it, I can’t imagine how.”

That unimaginable miss, that one faulty sensor, compromised each plane’s entire maneuvering system.

Boeing’s catastrophic error — reliance on the data from one outside sensor — was stunning because the company employs triple redundancy in many of its planes’ systems: 

“For the 777, Boeing’s twin-aisle intercontinental jet, engineers created triple redundancy for its computers, hydraulics, communications and electrical power. Perhaps the best illustration of the lengths the company was willing to go on backups was found in the plane’s primary flight computer. It was built with three microprocessors instead of one, and each came from a different manufacturer: Intel, AMD and Motorola, according to an account by a Boeing engineer.”

As with a plane’s flight systems, we need all three major financial socialization systems operating effectively and with sufficient redundancy in order to best ensure our kids grow up money-empowered. 

For us to help our kids avoid financial disaster, our systems must not contain a single point of failure. And where it’s possible, we should employ redundancies.

So what are the three financial socialization systems on which we rely? They are direct instruction, modeling and experiential learning. 

Direct instruction includes teachers’ providing financial literacy learning in the classroom. It also encompasses the home lessons we eloquently present to our kids. 

Another system is modeling, or leading by example. Since our kids are keen observers, we can demonstrate behaviors they can emulate. And to help build redundancies, we might work with extended family members (grandparents, aunts, uncles, etc.) to help demonstrate habits we’d like our kids to adopt. 

Experiential learning, the third system, is arguably the most important because the majority of us learn best by doing. Thankfully, redundancy is practically built into the process of learning via experience. By starting money-smart lessons early, kids will have a plethora of experiences with money. These interactions are all opportunities to learn by doing. 

And the power of one’s own experience is hard to overstate. For example:

  • Lessons about investing pale in comparison to your daughter’s buying a stock with her own money and enduring market fluctuations that twist her stomach in knots.
  • Saving up an allowance for eight weeks to buy a new skateboard imprints on a young brain more than an abstract home lecture about saving for a rainy day.
  • Telling your son the importance of charitable giving doesn’t hold a candle to his donating physical cash from his own stash (from what we call the “Share” jar) to a disaster relief program his school is running.

To be sure, research tells us that knowledge increases with financial literacy lessons in schools. In fact, recent findings by Carly Urban and her colleagues suggest that we can influence the holy grail of financial literacy lessons — behavior change — with classroom instruction.

However, the jury is still out on whether that knowledge lasts or those behaviors stick.

Of course, schools should teach money smarts. But counting on them to teach our kids financial lessons is tantamount to relying on one sensor to keep a plane aloft.

Remember, any single point of failure can be disastrous.

As we endeavor to build effective and redundant systems, we soon discover that as parents we have much more control over experiential learning and modeling.

For instance, starting an allowance with your kids from a young age allows them to learn and make mistakes. Thankfully, these mistakes will be made in a low-stakes environment. Researcher Ashley LeBaron puts it nicely, “Relatively, a 10-year-old makes $50 mistakes, a 20-year-old makes $5,000 mistakes, and a 30-year-old makes $50,000 mistakes. Therefore, allowing children the freedom to make and learn from financial mistakes at a young age protects them.”

And when it comes to modeling, starting early can be helpful not only for our kids but also for us.

If you’re like me, then you might begin the process of raising money-smart kids by needing to improve your own habits. I look at this very common scenario as an opportunity: You can refine your own behaviors by taking a money-smart journey with your kids.

For example, when I introduced a three-jar allowance system to my kids, I later created my own Save jar for a trip I planned to take with a good friend.

Also, when I set up their Share jars, I realized I needed to improve my own charitable game to be a better role model. So I began making more regular contributions to individuals or institutions I supported.

And soon enough, you might discover, like me, that the student has become the master. When we began discussing needs and wants as a family, I remember dropping and breaking my iPhone. I lamented that I needed to get a new one, to which my four-year-old smiled and retorted, “You don’t need an iPhone, Dad.” Touché!

As author Richard Bach says, “You teach best what you most need to learn.”

And so we can build a robust, money-smart machine fueled by modeling, experiential learning and direct instruction. With no single point of failure and redundancies built into our systems, we can help our kids’ financial planes stay aloft on their journeys to money empowerment.

John

For their invaluable editing help, I want to thank Erin Prim and my Foster writing collective editors: Caryn Tan, Lisa Dawson, Russell Smith, Amber Williams, Anthony Pica, Cassandra Ellis, Kim Ellis and Nick Drage.

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Featured image created using Midjourney.