Episode 53. We want to break the cycle of generational poverty, but we don’t know how (Part 1)

Transcript

Download the full transcript PDF

[Interview] 

Ramit Sethi:  [00:00:04] How old is your oldest? 

Austin:  [00:00:05] Six. 

Ramit Sethi:  [00:00:06] And you both said that she’s spoiled.

Annie:  [00:00:08] We didn’t have anything. So we’re overcompensating both of us, because I don’t want them to go through what we went through.

Austin:  [00:00:14] As kids, there was times where the water wasn’t there, there was times where we didn’t have groceries for the week.

Annie:  [00:00:20] For me, there was only situations where money was never there. So I never learned what to do when you do have it, or more importantly, how to appropriately allocate it, or how to budget.

Austin:  [00:00:34] I remember going through that. And that’s not what I want for her.

Annie:  [00:00:37] I never learned any of that. So we’re repeating the same pattern because we don’t know how to handle money.

[Narration]

Ramit Sethi:  [00:00:46] Austin and Annie wrote this in their application to speak to me. They wrote, “We want to break the cycle of generational poverty, but we don’t know how.” Today, I want you to hear what it’s like to grow up without learning about money, and how that can trickle down from generation to generation. Austin and Annie are in their 20s and they have two small children. They grew up poor. And even though their income has gone up, they still treat money like they did as children. They don’t know how to change the way they feel about money or the way that they behave with it. 

Today, I want you to listen to them describe how they grew up with money and how it’s affected them. And my hope with this episode is that it helps you develop some compassion for people like Austin and Annie. I can guarantee you that while they were growing up, nobody was talking about compound interest or IRAs. When you don’t have enough to eat, you’re not talking about that kind of stuff. And those lessons, those feelings about money often persist through the next generation. 

Now before I talked to them, I reviewed their conscious spending plan, which you can get a copy of at iwt.com/episode53. Austin and Annie are high earners in a low-cost of living area. And if they were truly aligned with their money, they could actually be in an amazing financial situation. But they are saddled with these invisible scripts from childhood, and they’re passing down these negative money lessons to their kids. Today, I want to try to help them break that chain. Welcome to I Will Teach You To Be Rich. 

[Interview] 

Ramit Sethi:  [00:02:29] Can you think of a recent time where you and Austin were not on the same financial page?

Austin:  [00:02:34] Probably two, three weeks ago or so his parents had given us a call said that they had a special. Basically, they were already going on a cruise. It wouldn’t be a buy one get one free. If they invited a couple, then it would be basically you just pay for my flight. His all would be free within the fine print. It still came out to roughly I want to say 3500 as a ballpark, but maybe it was like 4500 somewhere in there. So it’s not a small ticket, especially for something that’s an unexpected expense. He pretty much put his foot down immediately and said no. I got flustered and then it made me want to dig into it more.

Ramit Sethi:  [00:03:14] So what were your reactions when you were both on the phone? What did you both say?

Annie:  [00:03:20] He said nothing. He was quiet. I physically had the phone on speaker in my hand and he was on the other side of the couch. So he, I believe, got a look on his face, but he didn’t really say anything. I didn’t commit. So at that point, I told his mom we would talk about it knowing it was more than likely a no.

Ramit Sethi:  [00:03:34] What was the look on his face?

Annie: [00:03:37] Probably irritation I would describe it, more of like, “Again, we’re doing this?”

Austin:  [00:03:41] I remember that night very well. And my look was more so I was frustrated because I knew I was going to have to let Annie down about my answer. Probably I felt it was one of the worst decisions we could make.

Ramit Sethi:  [00:04:03] Okay, so, Annie, you hang up the phone, and then can you walk me through the conversation that the two of you had about this vacation?

Annie:  [00:04:15] I asked him why or I more so said, “What do you think?” Tried to play out some scenarios like maybe we could work extra hours here or make payments instead of paying it all at once, just things to maybe make it seem more realistic or that it could be kind of gauge the situation. He was pretty quiet for most of it. He more so just contested certain points and why they weren’t realistic. Working more when I’m already spread thin is not realistic. Just the fact that I’m having to poke holes in it so much and force it means it’s probably not a good idea to begin with, which I know but at the time I was not thinking rationally.

Ramit Sethi:  [00:05:00] You think it’s unrealistic to want to take a vacation? 

Annie:  [00:05:02] That soon? Yes. 

Ramit Sethi:  [00:05:04] Is it irresponsible? 

Annie:  [00:05:07] Yes. 

Ramit Sethi:  [00:05:08] Do you think that when the two of you talk about money, this pattern replays itself?

Annie:  [00:05:14] Over and over again, absolutely. We point the finger at one another. It’ll be a, “Well, you had this expense, and you had this expense.” And then somehow that’s where we landed, like here’s how we got to where we are when in reality, it’s an accumulation of things over time.

Austin:  [00:05:35] It’s usually the same conversation. There’s usually more bickering most of the time. The conversation does tend to go the same direction on both sides. Annie says this, I say this, then I say this and Annie says this. And we do point the finger at each other. That’s the hypocrisy behind it, and it is frustrating.

[Narration] 

Ramit Sethi:  [00:05:57] Austin and Annie admit that they spin in circles when they talk about money. This is so common. Every couple has its patterns. They fight about how one person loads the dishwasher or how messy the other person leaves the bathroom sink. We have those same patterns with money. But it’s compounded by the fact that most people don’t even know much about money. 

You know how to load the dishwasher, you know how to clean the dishes, but most people have a very rudimentary understanding of money. So they’ll argue about some random $3 question, never understanding the big picture of what actually matters with their finances. Let me try to understand more about their dynamics with money now. 

[Interview] 

Annie:  [00:06:44] He is the, I don’t want to say cheap because that has a negative connotation to it or a negative impression, but he is one of the most money conscious, usually, especially out of the two of us.

Ramit Sethi:  [00:06:58] What does that mean, “money conscious?”

Annie:  [00:07:00] He is a lot more aware of something realistically than I am. So he’ll second guess it before I will or he will be more cautious. I’m more trigger-happy. So I am a lot more impulsive in general. He tends to want to look at all of the whole picture before he’ll make a decision.

Ramit Sethi:  [00:07:17] And impulsive means what?

Annie:  [00:07:19] You jump before really thinking through the consequences of the action. 

Ramit Sethi:  [00:07:24] You do that? 

Annie:  [00:07:26] Frequently.

Ramit Sethi:  [00:07:28] What’s an example?

Annie:  [00:07:29] If I go to Target, which is probably not the best place for me to go, but if I go to Target, he will go with me on purpose so he can hold my hand, which is sweet, but he is trying to get me away from the [Interposing voices 00:07:42].

Ramit Sethi:  [00:07:41] What is this shit? How many relationships has Target ruined? 

Annie:  [00:07:45] When I go without him a little bit more, because I’ll come back and he’s like– I won’t show him the receipt, obviously, but if I just put $400 on my credit card that I didn’t need to and then the bill comes in at the end of the month and I don’t have as much money as I normally do or he notices me being more conscious in certain areas or careful because I spent $400 more than I needed to a week ago, and I do that twice a month or so, then yes, it’ll cause a bickering. But otherwise, we don’t typically argue about it.

Ramit Sethi:  [00:08:11] Right. Aside from you hiding receipts and not telling him and then having to cut in all other areas of life, it’s totally not an issue. 

Annie:  [00:08:11] It’s that. 

Ramit Sethi:  [00:08:11] Annie, what do you get at Target? 

Annie:  [00:08:17] Honestly, usually stuff for my kids. Not that that’s a justifiable thing, but clothing for them or toys. 

Ramit Sethi:  [00:08:30] We know that. We know. That’s always the first answer. Every mom says it. That’s code for? What’s that code for, Annie?

Annie:  [00:08:37] It’s an excuse. It’s a way to not take responsibility. I’m trying to justify it.

Ramit Sethi:  [00:08:41] You’re trying to say, “I’m a good mom.” 

[Narration] 

Ramit Sethi:  [00:08:46] You can hear more about the psychology of shopping at Target in Episode 31. And in that episode, you’ll hear the exact same phrase too, “I buy stuff for my kids.” Short version, there are too many people who use Target as a joke for spending on the things they love. You know the people who share memes about how they went to Target to buy some detergent. They walked out with $500 worth of stuff in their cart. Ha-ha, only it’s not really a joke, because Target cannot be your rich life. 

How can buying random commodity junk at a retail store be your rich life? It can’t. A rich life has got to be bigger than that. More on this in Episode 31 of this podcast, which you can get at iwt.com/podcast. Now, I want to understand more about how Annie describes herself with money. 

[Interview] 

Ramit Sethi:  [00:09:38] I am surprised, Annie, that you described yourself as impulsive, but you are the one who manages money in the relationship. And you’re scrunching your face up. Can you describe what your face just did?

Annie:  [00:09:52] I knew you were going to say something about it because me thinking about it, it sounds just unrealistic and silly. It’s a contradiction. It doesn’t make any sense for me to be doing it.

Ramit Sethi:  [00:10:04] Do you think that you are impulsive?

Annie:  [00:10:11] I think so.

Ramit Sethi:  [00:10:13] Do you think it’s possible that’s a story you tell yourself?

Annie:  [00:10:16] Yes.

Ramit Sethi:  [00:10:18] Why are you smiling?

Annie:  [00:10:21] I need help working through these things so I can get to the root of the cause to figure out why I’m doing it. I’m a person that needs to know why. If I know why, I can fix it. I can’t fix myself here, but I want to fix everyone else. So if I can figure out why I’m doing it wrong, I can fix it.

Ramit Sethi:  [00:10:40] Is that why you came to me? 

Annie:  [00:10:43] Yes, I need to be more strict and I need to plan better for everything, which means putting money away and sticking to a strict budget, and not deviating from an amount I set or just avoiding maybe Target or a store like that all together until I can learn how to not do those things.

Ramit Sethi:  [00:11:03] Do you think that you can learn it? 

Annie:  [00:11:05] Yes. 

Ramit Sethi:  [00:11:06] Yeah, I do too. I love how quickly you said, yes. I totally agree. It’s a skill. It’s a skill like anything else. And money can be learned. And what I actually love about the skill of money is that a lot of it can be automated. 

] 

[Narration] 

Ramit Sethi:  [00:11:24] Do you notice that Annie talks to herself like a parent talks to a child? You need to clean your room. You need to do your homework. I need to be less impulsive. I need to be more strict. In a way, it’s very childlike, and obviously, it’s not working. I shift to ask Austin about how he manages his money. I wonder if he uses automation.

Austin:  [00:11:50] When I have money in the account, I forget to pay the bills. That’s why she takes over most of the finances is because I’ll sit there and I’ll pay the automatic bills that come out. But then I look and I’m like, oh, I forgot the past two Wi-Fi payments or oh, I forgot my past two phone payments.

Ramit Sethi:  [00:12:11] How is your Wi-Fi bill not automated?

Austin:  [00:12:16] So I don’t do auto bills. I don’t I don’t like them.

Ramit Sethi:  [00:12:18] Say the T word. You don’t like it because what? You don’t–?

Austin:  [00:12:20] Because I don’t know what’s going to be in my account. So I don’t want something auto pulled out of my account and make me have an issue. 

Ramit Sethi:  [00:12:36] Trust it.

Austin:  [00:12:36] No, I don’t.

Ramit Sethi:  [00:12:37] Financially speaking, what happens if you forget to pay some of these bills?

Austin:  [00:12:41] Then I have a lot larger chunk come out all at once or I start accumulating late fees from the companies that have them. 

Ramit Sethi:  [00:12:49] And sometimes your credit gets affected if you pay your credit card late. One late payment can dramatically ding your credit. It can take a long time to repair that. So a lot of bad things can happen. So tell me more. Why do you not feel comfortable setting these things up on automatic payments?

Austin:  [00:13:10] I don’t trust myself that I will have money in the account at that time. But one way I’ve combatted that, if say the bills $91 or even if it’s just $90, bill’s 100 bucks. The bill is $80, the bill is 100 bucks. And always in my head if the bill is like 90, 80, $70, something like that, I automatically bump it up to a lot higher of a number when I’m trying to budget in my head to see how much money is in the account. So if I pay a bill that’s $91 and I pay it, in my head, I count it as 100. 

Ramit Sethi:  [00:13:52] Where did you learn that from? 

Austin:  [00:13:53] I don’t know. I don’t know if I learned it in maybe school, maybe talking with a family member, maybe my bank previously. It’s just something I’ve done. It’s easier to add the numbers that way. And I know I’m exaggerating the numbers a little bit. When I then see my account after the bills are paid, there’s a little bit more like, oh, I’m going to have $35 left. And when I actually go and look at the account, oh, you’ve got $85, not 35.

[Narration]

Ramit Sethi:  [00:14:28] This is fascinating. Austin has developed a little trick to feel in control of his money. And a lot of us do this. For example, some people will stash an extra 10 bucks in their winter coat to surprise themselves next season and feel good. I don’t mind the tricks, but it’s also a bit of a red flag for me. It’s a gimmick. Sure, rounding up might work, but that’s not really the way to properly manage your money. 

[Interview]

Ramit Sethi:  [00:14:58] What are some other ways that you might describe yourself? Choose any way you like. 

Annie:  [00:15:05] Unrealistic, controlling. I don’t know how to phrase it. It’s probably a really hard question for me is how do you describe yourself. That’s the one I would struggle with the most.

Austin:  [00:15:21] It’s frustrating. It’s embarrassing. I’m 26 years old. I can completely tear your car apart, put it back together easily. Give me a day. Not a problem. Come to money, I don’t know what those words on my paycheck mean, but I know what those numbers mean. I just put zeros to make sure I’m all right. I don’t know the financial terms. I’m not versed in that. That’s the opposite of where I was in school. I didn’t have anything to do with it. So a lot of it term-wise is new. I need certain explanations.

[Narration] 

Ramit Sethi:  [00:16:01] When I work with my students, I never like to hear them beating themselves up. I never like to hear them saying things like, “I know I’m irresponsible. I know I’m bad.” I don’t want that. That’s not the way to treat money. That puts you in a smaller position than money. It almost makes money your parents. “I know I didn’t please the money. I know I didn’t do the right thing. I’ll try to be better tomorrow.” It’s almost childlike. What I want us to be able to get to today on this call is for you to really acknowledge what it is you want from life, what do you want to use money for? 

[Interview] 

Ramit Sethi:  [00:16:43] Austin, same thing for you, and then the two of you together. And then we figure out how to make your money serve you. Money doesn’t control you. You control it, you tell it where to go. And sometimes you might have debt. It might take a while. Sometimes you might be ahead of the game. But I don’t want you being children to the parent of money. Money serves you. You don’t serve it. Annie, how much do you make per year? 

Annie:  [00:17:11] 54,000. 

Ramit Sethi:  [00:17:15] Austin.

Austin:  [00:17:16] About 67,000 without incentive and about 75 after incentive.

Ramit Sethi:  [00:17:24] Okay, if we add up the two numbers you gave me, it’s $129,000 per year. 

Annie:  [00:17:31] Wow. 

Ramit Sethi:  [00:17:32] Annie, what’s that look on your face about?

Annie:  [00:17:35] The same look I had yesterday when filling out the spreadsheet. I had just said to him earlier, where the hell does it go?

Ramit Sethi:  [00:17:43] Tell me more. 

Annie:  [00:17:44] It looks way different on paper. We look comfortable or we should be more comfortable than what we are realistically and in our actual finances. But on paper, if I were to read that, I would think we were fine. You’ve got a couple making almost 130,000 a year in a moderately-priced state. We’re not in California. We’re in Kansas. The cost of living is significantly lower. Makes me wonder what else is– again, it’s the onion. I feel like there is more contributing to this than just a couple of extra Target trips. 

Ramit Sethi:  [00:18:22] Yeah.

Austin:  [00:18:23] We’ve made a budget numerous times and it– 

Ramit Sethi:  [00:18:26] How long does it last? 

Austin:  [00:18:28] Every time we make, when we look at it, we think the same thing, “Damn, where’s it all going?” And we set this budget and I don’t know if something happens and we don’t follow through, but it doesn’t seem to last very long.

Ramit Sethi:  [00:18:44] Well, first of all, I hate budgets. You probably need to change a few things, and we’ll talk about that. But this is actually lesson number one. If something doesn’t work for you, stop beating yourself up and find a different way to achieve the goal. So how many times have you tried to do a budget? Many times and it doesn’t work. And so what was your reaction to that? What did you both tell yourself? 

Annie:  [00:19:09] That it wasn’t going to work. 

Ramit Sethi:  [00:19:13] “We’re bad. We’re irresponsible. We need to buckle down. We need to try harder.” Does any of that feel good? 

Annie:  [00:19:23] No. 

Austin:  [00:19:24] No.

Ramit Sethi:  [00:19:26] No. So we start from the place of lesson number one. If something doesn’t work, let’s stop beating ourselves up. Let’s find a different way to achieve the same goal. Budgets don’t work. You give up after a month and a half. This probably sounds familiar because you’ve done this, right? Yeah, they’re nodding. You don’t need somebody to come in here and tell you to stop spending at Target. That’s not what’s really going on here, probably some things much deeper than that. 

[Narration]

Ramit Sethi:  [00:19:57] I’m not a fan of budgets. They’re backward-looking, they make you feel bad, they’re hard to do, and frankly, they don’t actually tell you much. Budgets are also one of those things that people beat themselves up about, “I really should keep a budget.” That’s something virtually every American tells themselves at some point. 

I’ve noticed that a lot of people believe that this mythical mystical budget will somehow magically fix all their financial problems. But in my opinion, it doesn’t work. I use something different, a conscious spending plan, which lets you decide where you want your money to go in the future. And it even provides specific guidelines for different categories like guilt-free spending, saving, and investing. You can get your own conscious spending plan at iwt.com/episode53.

[Interview] 

Annie:  [00:20:53] Just very, very poor family growing up, or at least before I was adopted– this is a long story, but just very, very poor. Didn’t have money for lights necessarily or know what we were eating. So things like seeing a picture hanging up on a wall was non-existent. 

Ramit Sethi:  [00:21:11] Really? 

Annie:  [00:21:12] Yes. There were times where we just didn’t know what we were going to eat just due to the fact that there wasn’t money.

Ramit Sethi:  [00:21:20] How long did this go on for?

Annie:  [00:21:22] The first 12 years of my life.

Ramit Sethi:  [00:21:25] Wow. And then what happened after 12?

Annie:  [00:21:31] I was adopted by my mom, and she owns a law firm. So to say the lifestyle change was overnight is not an exaggeration. Things shifted for me. My lifestyle couldn’t have been more opposite from his. 

Ramit Sethi:  [00:21:52] How did that affect you looking back in terms of finances? When you think about the first money messages that you received growing up as a young child, what do you think those money messages were?

Annie:  [00:22:05] There was not a lot of financial literacy to go off of from that point, it was necessities. So there was not enough money for the basic necessities to begin with. So then you’d start crossing off and prioritizing which ones were going to take precedence versus the ones that were still needed. But if you’re paying rent, you have the actual house, if you’re paying the electricity to the place that you’re no longer in because you’re evicted, that sort of situation.

Ramit Sethi:  [00:22:31] I don’t think a lot of people understand the type of trade-offs you make when there really is not enough money.

Annie:  [00:22:40] And you realize what you really don’t need what you do need.

Ramit Sethi:  [00:22:44] What else do you take away from your childhood in terms of finances?

Annie:  [00:22:48] I didn’t learn anything. I didn’t actually learn important lessons. There was only situations where money was never there. So I never learned what to do when you do have it or more importantly, how to appropriately allocate it or how to budget. I never learned any of that, or when I started to it was too late. And that’s why I’m having to undo things.

Ramit Sethi:  [00:23:10] What did money mean to you in the early part of your childhood?

Annie:  [00:23:15] It was a burden. It was a choke because there was always an argument.

Ramit Sethi:  [00:23:20] When you would look around at other people who had money as a young child, what are the things you remember?

Annie:  [00:23:28] Freedom or my perception of their freedom, the newest toys, name brands, anything of a status symbol, experiences, boats. I grew up in Southern California, Palm Springs to be specific in Palm Desert, so country clubs, nice food.

Ramit Sethi:  [00:23:49] From your perspective as a young child who did not have money, what did people with money do?

Annie:  [00:23:57] Anything they wanted, go on trips, so go on vacation, shopping whenever they wanted without restriction, or having to look at tags or add things up, going out to eat more often than not.

Ramit Sethi:  [00:24:14] So now with that additional layer of understanding that you have, knowing how much a restaurant costs or a vacation, etc., what do you see about how adults spend money that you didn’t see as a child?

Annie:  [00:24:30] They plan for it and no strings attached. As a kid, it looked like they just swiped a card and called it even not understanding if that was a credit card or debit card or anything like that. So it seems like there’s more to it than what immediately meets the eye.

Ramit Sethi:  [00:24:47] Pretty observant. Would you say that you plan for expenses in your life? 

Annie:  [00:24:55] Some of them. 

Ramit Sethi:  [00:24:57] What do you not plan for about a vacation?

Annie:  [00:25:03] A vacation would be one of those things.

Ramit Sethi:  [00:25:05] You don’t plan for that? 

Annie:  [00:25:07] No. 

Ramit Sethi:  [00:25:09] How about $400 at Target?

Annie:  [00:25:12] I don’t plan for those trips either.

Ramit Sethi:  [00:25:16] What do you make of that?

Annie:  [00:25:19] I’m not doing as well as I hoped to be. And definitely, some self-sabotage going on.

[Narration]

Ramit Sethi:  [00:25:29] What an interesting response. For a kid with no money, it’s easy to mythologize what having money would mean. To Annie, it meant buying whatever you want. And when I asked what she learned as an adult, she says that those people with money plan for things. But when I asked her if she plans for the spending in her life, she admits that she doesn’t. Annie is earning a lot more, but she hasn’t yet changed the way she treats money, the way she feels about money, and the way she thinks about money. Now, I’m wondering how Austin was raised. 

[Interview] 

Ramit Sethi:  [00:26:07] Can you just summarize what happened in your childhood as it relates to money?

Austin:  [00:26:15] My parents made sure that we had food on the table and we had clothes on our back. We had a roof over our heads. We went to school. There was times where power was out, there was times where the water wasn’t there, there was times where we didn’t have groceries for the week. We ate at grandma’s grandpa’s every night. There was times where we just didn’t have it. And there was a lot of things that we weren’t able to do that all the other kids were able to do. 

I think one of the larger issues with that is the particular area I lived in. I was in the school district, unfortunately. I wasn’t far enough out that I was out of that school district. And that particular school district in our area was the school district that they had the huge houses, the kids came from money. Their parents were the doctors and the lawyers and they had the money. They were very prominent in our community. Their names were plastered across our community. 

And then being the low kid on there where everybody was like, oh, you’re you and looked down upon and bullied because of that, there was a huge like, oh, that’s how that happened to me. And I remember going through that, and that’s not what I want for her. It got so bad. I know when I was a kid that my father actually left to go overseas, he was a civilian contractor working in Iraq and Afghanistan for years while I was at home. 

So he worked over there for years at a time. He would be gone for about six months, come back for two weeks, six months, two weeks. He did that for eight years, 10 years. And I don’t want that for my kids and I don’t want that for Annie. I don’t want that for us. I don’t want that on me.

Ramit Sethi:  [00:28:12] It sounds to me like both of you had some difficult childhoods when it came to money. Sounds like you just did not have healthy role models talking about money. 

[Narration] 

Ramit Sethi:  [00:28:28] Suddenly, the money part of their situation starts to make sense. It makes sense why they hardly save any money and why they don’t invest. It also makes sense why they’re spoiling their daughter. I’m not saying I agree with their decisions, but at least we can start to understand them. You know why I wanted to talk to Austin and Annie on this podcast? Because I think a lot of people hear stories about people making bad money decisions, and they judge them for being stupid. “How could you not save any money? How could you not know you’re supposed to invest? Why would you spoil your daughter like that?” 

I feel that way sometimes. We all do. But Austin and Annie are courageous enough to let us into their lives, including their childhoods, to help us see the effect of how they were raised. Sometimes we just haven’t been exposed to different money ideas. Again, I can guarantee Austin and Annie never had people around them talking about compound interest. If you don’t know where your food is coming from, you’re not talking about a Roth IRA. 

So I have a lot of compassion for them, especially since they’re now passing on their negative money lessons to their daughter. If they can get this right, I think they can change the trajectory of their lives and their future generations. But if not, they’ll pass a generational lack of money on to their daughter. 

[Interview]

Ramit Sethi:  [00:29:56] How old is your oldest? 

Annie:  [00:29:58] Six. 

Austin:  [00:29:58] Six. 

Ramit Sethi:  [00:30:00] And if your daughter were here and I asked her, “What do mommy and daddy do with their money?” What would she say? 

Austin:  [00:30:08] What money?

Annie:  [00:30:10] Now that’s what he told her. He always told her, we have nothing. So she won’t ask. We’re sure with me she’ll say, “They pay for my gymnastics and they buy me toys, and we take trips, and we go places.” And she’ll start listing stuff off, “They buy me clothes.”

Ramit Sethi:  [00:30:28] And you both said that she’s spoiled. 

Annie:  [00:30:32] Yes, they both are. We didn’t have anything. So we’re overcompensating both of us.

Ramit Sethi:  [00:30:35] Because what? Because why?

Annie:  [00:30:39] Because I don’t want them to go through what we went through.

Ramit Sethi:  [00:30:43] So therefore you buy them toys.

Annie:  [00:30:45] Overcompensate and buy them things they don’t necessarily need, yes.

Ramit Sethi:  [00:30:49] What are the ramifications of raising a spoiled child? She’s six now.

Annie:  [00:30:55] Oh, I’m ashamed of it. And for me, it’s a shameful thing because I didn’t realize how bad it is.

Ramit Sethi:  [00:31:01] When did you realize how bad it was? 

Annie:  [00:31:06] Probably about a year ago, six months ago, she started to expect things and move to more of an entitlement like “Well, I always get this. What do you mean I can’t do this right now?” I took a step back, and then that’s when I fully assessed that I had created a, or we rather, I think more so me, but created an unfortunate situation that is contributing to financial issues.

Ramit Sethi:  [00:31:32] Well, if I ask either of you, do you remember your parents talking positively about money or teaching you something positive about money, Austin, what would you say? 

Austin:  [00:31:44] No. 

Ramit Sethi:  [00:31:45] Annie. 

Annie:  [00:31:49] Very later on, haphazard or passing comments of, “You should invest. Make sure you save for retirement.” Nothing in-depth.

Ramit Sethi:  [00:31:57] Just out of curiosity, if I asked your six-year-old daughter the same question, what would she say?

Austin:  [00:32:06] I don’t think she would have anything to say about being positive.

Ramit Sethi:  [00:32:11] When was the last time you told her no? 

Austin:  [00:32:17] Her or me?

Annie:  [00:32:19] Yeah, I’m usually the one that won’t tell her no. He will usually tell her no, but I think that’s because I usually do not tell her no.

Ramit Sethi:  [00:32:29] So she asked daddy and daddy says no, so she goes to mommy. Okay, time tested. Kids are smart. And so what’s an example where she played that game with both of you? 

Austin:  [00:32:43] This was probably about four months ago, three months ago, we were in a store. She wanted to do something. I don’t remember if she was asking for a toy. I don’t remember if she was asking for a ride. Whatever the case in point that she was asking for, I remember the price of it was extremely high. We could not afford it obviously right then and there. We would need to look at the account, figure out what we had, and it probably just needed to wait a couple days just to make sure everything is clear, that we’re good to go. 

But I think me or Annie responded with maybe the wrong response to her because whatever she had said the next day at school, she was talking to her teacher and she came home with baskets of food. And I was like, “Annie, where did you get this?” 

Annie:  [00:33:37] That was hilarious. 

Austin:  [00:33:40] “Where are you bringing home food from?” And she’s like, “Well, the teacher gave it to me because we have no money.” And I’m like, “What do you mean?” I’m like, “You guys eat every meal. You guys are more than fed. We have food in the house. There’s never been a meal missed. You have everything. Why did the teacher give you this? Why is it coming home with you?” And talking with the teacher, somehow in Annie’s mind, we had no money for anything. And at what point does it become too much for her to understand the adult side of it?

Ramit Sethi:  [00:34:23] Annie, you said it was hilarious. Austin, I don’t know how you read that situation as hilarious. Did you?

Austin:  [00:34:26] I was embarrassed. It was a flashback. It brought me back and that’s one of the things I don’t want at all to happen for our kids. I will go without food before they will go without food. I know that. And for the school to do that, that just brought me back to when I was a kid. And not only that, it’s okay, now, when other kids are going to see her walking out with all these baskets of food, what are they going to say to her? How was she going to take that? Are they going to bully her for that? Is she going to be embarrassed? How was she going to feel because of decisions me and Annie have made as the adults, as the parents? 

What negative impacts are we showing her, are we giving her because of a decision we made? And maybe if I spent five more minutes in my explanation about it, of trying to explain it to her, or maybe I said it different, maybe I was more blunt about it, maybe I brought it down to her level more, who knows? But maybe it wouldn’t have happened that way. It was a very embarrassing moment. And it was not a proud-parent moment. 

Ramit Sethi:  [00:35:44] Annie, can you understand that he did not find that basket of food example hilarious at all?

Annie:  [00:35:51] Yes, because we briefly– we didn’t fight. We had a brief argument about it because I had the exact opposite reaction. I laughed it off, not realizing that it had pissed him off initially and that it was going to be a thing. 

[Narration] 

Ramit Sethi:  [00:36:09] The way they both reacted to this so differently is quite interesting, especially Austin, who literally tells his daughter that they have no money, yet he’s shocked and embarrassed when she comes home with free food from her school. I don’t think Austin has yet made the connection that talking about money with your kids is normal and even positive. 

But how could he make that connection? He never had a role model do that with him. His only experience with money as a kid was negative, even depressing. Now you see how these money messages can be passed from one generation to another. To all the parents out there listening, I would ask you to consider what money messages you might be invisibly communicating to your children. Listen in as I try to gently talk about this with Austin. 

[Interview] 

Annie:  [00:37:02] It has nothing to do with her. In my mind, me paying bills is completely opposite realm from her. She would have nothing to do with that.

Ramit Sethi:  [00:37:09] Exactly, and that is my point. When was the last time you talked to your daughter about money?

Austin:  [00:37:14] The conversations about the money, I try to leave that after she’s in bed or maybe she’s taking a nap or maybe she’s playing, watching the movie to playing with friends.

Ramit Sethi:  [00:37:24] Austin, I heard you mention and I heard Annie mention that you tell your daughter that you don’t have any money, is that true? 

Austin:  [00:37:36] Yes. 

Ramit Sethi:  [00:37:37] And why do you do that?

Austin:  [00:37:43] It’s easier to give an excuse than to tell her the truth. It’s easier just to give her an answer that she can’t question and poke holes into and make it so I have to talk about it to her because as is, I’m uncomfortable with money, I’ve always been, it’s just how I look at it. And if I can get her to just leave the question alone, then it go away.

Ramit Sethi:  [00:38:15] Do you see any connection between you telling her you have no money and her going to school and coming back with a basket of food? 

Austin:  [00:38:23] Yeah. 

Ramit Sethi:  [00:38:24] Austin, this is the key. This is the key to the whole thing. Finish this sentence for me, please. I leave my daughter out of money discussions because– what?

Austin:  [00:38:42] I’m embarrassed or ashamed to talk with her about it. And there’s a lot of it I don’t understand still. So if I don’t understand it, how can I explain it to a six-year-old if I can’t even understand it?

[Narration] 

Ramit Sethi:  [00:39:11] That answer is not really working. It’s an answer based out of fear. I don’t know about money, I’m embarrassed about it, I’m ashamed, and so I don’t want to engage with my six-year-old daughter. So I’m just going to tell her we don’t have any. Austin wants to protect his daughter from the pain he felt about money. So he avoids talking to her about it. What he doesn’t realize is that until he takes control of money himself, he can’t change the cycle. 

[Interview] 

Ramit Sethi:  [00:39:44] Right now you make $130,000. You have $0 in savings. You have $68,000 in debt. If your daughter understood these numbers like she will in a few years, what would she say about the two of you?

Austin:  [00:39:59] She’ll be disappointed. 

Annie:  [00:40:02] I’ll also say disappointment.

Austin:  [00:40:04] Confused because they don’t make sense.

Ramit Sethi:  [00:40:07] In a few years, she will be able to process this stuff. And we do not want to set an example for her the same as the example that was set for both of you when you were younger. This is exactly how things get passed down generation to generation. That’s why I’m having this conversation with you. That’s why it is so important for me. 

You have the opportunity to change the trajectory of your kids’ lives and their kids’ lives and their kids. This is a very pivotal moment where you get to change the way you think about money, the way you manage your money and you get to show that to your kids and talk about it every week. It’s not something to be afraid of. It’s something to celebrate. It’s something to talk about, something to engage with your kids and with each other on.

Annie:  [00:41:05] That is what I’m afraid of is that we are not teaching our kids anything. We’re repeating the same pattern. We’re just peddling and putting our money away before we have a chance to have it be as bad as our parents had it with us. But we’re not setting a good example either. And I think that’s what’s sticking to me is we don’t know how to handle money.

Ramit Sethi:  [00:41:26] It’s not taught in school. And if it were taught in school, it probably wouldn’t be taught very well. You can’t expect teachers to know all this stuff. You didn’t have role models to explain this to you. Sure, there’s a lot of free information out there, but how do you know what’s good and what’s not. And it frustrates me because I don’t think anyone should have to become a financial expert to learn how to deal with their money. So that’s the reason I wanted to talk to you because it matters for the two of you and it matters for your kids. 

[Narration]

Ramit Sethi:  [00:41:56] I really enjoyed speaking to Austin and Annie today. And in Part 2 of this episode, which will air next week, you’re going to hear me get much more tactical. How do you help a couple start to change the way they think about money when they’ve thought about it a different way for so long? You’re going to hear me talk about gas prices, you’re going to hear me talk about spending, you’re even going to hear me suggest to them that they might be millionaires and see how they respond. It’s quite surprising. 

So if you would like to get a conscious spending plan for yourself, plug in your numbers and follow along. I would invite you to do that. It is quite illuminating. Go to iwt.com/episode53, that’s iwt.com/episode53 to get a copy of the conscious spending plan, which you can use for your money.

Thanks for listening to I Will Teach You To Be Rich. I’m Ramit Sethi. Please follow the show on Apple, Spotify, or wherever you listen to podcasts. If you haven’t read, I Will Teach You To Be Rich, my book, pick up a copy. You can get it at any bookstore or library, and it will show you the specific tactics for how to build the I Will Teach You To Be Rich system into your personal finances.