“Working to help parents raise money-smart kids.”
Hello, friends!
I just published my newest essay, “No Single Point of Failure,” and I’m excited to share it with you.
So for this week’s “3 Ideas to Share and Save,” I begin with this piece. I then highlight two women featured in it whom I’ve been fortunate to interview on my podcast.
Without further ado, let’s dive in!
— 1 —
“No Single Point of Failure”: As a warning, the story that leads off my new essay might be difficult for sensitive readers to process since it involves the loss of life. However, this account illustrates an important concept that I believe can increase your chances of raising money-smart kids.
“No Single Point of Failure”
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 flight’s 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?
Click here to continue reading.
— 2 —
Mistakes Are Relative: If you finished reading my new essay, then you’ll know I pulled a quote from one of my terrific podcast guests, researcher Ashley LeBaron:
“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.”
Through this statement, LeBaron underscores the importance of starting your money-smart learning program early. Of course, your kids are going to make mistakes. However, younger kids will almost certainly make lower-stakes mistakes, which are much less likely to lead to long-term financial damage.
This reason is one of many to begin your family’s money-smart journey early. But honestly, I’m not sure I can think of any points that are better than this particular piece of advice.
If you want to dive deeper, then LeBaron and I discuss many other important topics in our conversation, including:
- Kids feel the financial stress whether you discuss it or not, and not talking about finances can make matters worse.
- Financial socialization: “the way that we come to have the behaviors and values that we do”
- Decoupling chores and allowance
— 3 —
Does personal financial education work?: In my latest essay, I write that the jury is still out on the long-term effectiveness of personal financial education.
The holy grail of financial education is, of course, not education for education’s sake; rather, it is the acquisition of good financial habits. Behavior change is the key.
I was fortunate to have one of the top personal financial education researchers, Carly Urban, on my podcast. Her findings suggest a causal link between students whose states mandate a personal finance course to graduate high school and improved financial habits.
Urban and her colleagues saw significantly fewer defaults and increased credit scores for those students who were required to take a course. Though not definitive by any means, Urban’s research hints at a correlation between financial education and financial behavior.
This is potentially good news, as efforts to bring personal finance into the classroom are gaining momentum after several years of stagnation. In fact, eight states now guarantee standalone personal finance courses. Florida passed such legislation just this year, becoming the biggest state to do so thus far.
If you’d like to know more about the status of financial education in your state’s schools, then check out the Next Gen Personal Finance annual report.
And for more from Urban’s mind, you can give our conversation a listen.
Here are a few key points we cover:
- Better understanding student debt in context and what is manageable
- The wisdom of private college counselors (the folks hired to help students with their higher education searches) and test prep
- Urban invites you to email her if you would like an objective review of any financial literacy research that makes you question the concept’s effectiveness.
I hope you enjoyed this edition of “3 Ideas to Share and Save.” I bring you this complimentary content weekly because I know you are interested in helping parents raise money-smart kids.
So I have a favor to ask. Do you know someone who might benefit from this newsletter? If so, then please share it. Thank you!
And until next week, enjoy the journey!
John, Chief Mammal
P.S. Please consult with a financial or investment professional before engaging in any decisions that might affect your own financial well-being.
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