May 4, 2011

Teaching Children to be Frugal: A Necessary Skill for the 21st Century

(excerpted from Thriving in the 21st Century: Preparing Our Children for the New Economic Reality)

‘Tis a Gift to Be Frugal

Good old Ben also praised frugality:

In short, the Way to Wealth, if you desire it, is as plain as the way to market. It depends chiefly on two Words, INDUSTRY and FRUGALITY: i.e. Waste neither Time nor Money, but make the best Use of both. He that gets all he can honestly, and saves all he gets (necessary Expences excepted) will certainly become RICH: If that Being who governs the World, to whom all should look for a Blessing on their honest Endeavors, doth not in his wise Providence otherwise determine.
You’ll give your children a great advantage by training them to be frugal. The word “frugal” has negative connotations for some people, but even 200 years ago, smart people like Benjamin Franklin knew that being frugal is an asset. Let’s clarify what frugal means: being careful with expenditures, not buying things you don’t really need, and taking care of what you do have. It doesn’t mean being cheap; in fact, people who only buy cheap goods usually end up spending more time and money replacing those cheap goods when they fall apart. A frugal person can recognize quality, and knows that a quality item lasts much longer than its “cheap” counterpart. (See “Teaching Children to Recognize and Appreciate Quality” on page 364.)

To be frugal is to be thrifty. Thrift was once considered a positive attribute, falling out of favor when America became a society of consumers in the mid-20th century. But there are still frugal people around; their thriftiness helped some of them become rich.

Billionaire investor and philanthropist Sir John Templeton and his wife began married life by living very frugally. They cut expenses as low as possible, bought used furniture (items no one else bid on) at auctions, and only ate at restaurants when they could eat dinner for 50 cents (this was during the 1930s). They did these things in order to stick to their goal of saving 50% of their income. In The Templeton Plan, co-author James Ellison explains,

The fact is, however, that John Templeton was not poor even then. He had a good income and a solid investment portfolio that was steadily growing. Some acquaintances might have regarded his approach to money, housing and the conveniences of life as somewhat eccentric, if not socially unacceptable. After all, the circles that Templeton, the investment counselor, frequented were characterized by big money, big houses, big cars, and big consumer spending in general. But Templeton was not one to live by society’s more superficial values. He followed his own inner dictates and his developing religious beliefs. footnote

And so a radical philosophy of thrift became a deeply rooted part of Templeton’s way of life. He became convinced that success was closely connected to saving, a belief that he has never stopped practicing.
Templeton was not the only wealthy person whose fortune was due in part to thrift. In his ground-breaking books based on his study of American millionaires, Dr. Thomas J. Stanley wrote that despite the stereotype of the free-spending, luxurious millionaire lifestyle we see portrayed in movies and television shows, many millionaires are actually very careful about how they spend money. They also use strategies such as clipping coupons, refinishing and repairing possessions instead of buying everything new, and buying in bulk. In The Millionaire Mind, Dr. Stanley noted:

People in my audiences often ask why a millionaire would clip coupons. It’s not just to save fifty cents today—it’s how much can be saved and invested over a lifetime. The typical affluent family in America spends over $200 a week for food and household supplies. That’s more than $10,000 per year. During an adult lifetime in current dollars, it translates to between $400,000 and $600,000. If you cut off just 5 percent of this amount, between $20,000 and $30,000, and invest it in a top-ranked equity fund, given the rate of return during the past few years the amount earned would have been $500,000. (96)
I’m not suggesting that all or even many of our children will become wealthy by being frugal (though if you teach your child to be frugal and he grows up to be a millionaire, he’ll handle the money better than most would). But the frugal millionaires Stanley studied illustrate the wisdom of being frugal and investing the money saved by being that way.

Teaching frugality to our children will benefit them once they’re grown up and making their way in the global economy. They’ll learn to live simply, thus experiencing less financial stress in the future. In a world where they’ll often be between jobs, frugality could make the difference between financial stability and financial trouble. As writer Charles Jaffe once said, “It’s not your salary that makes you rich, it’s your spending habits.”


Carol J. Alexander said...

The quote about Templeton hit the nail on the head, Barb...our lifestyle is socially unacceptable. Our furniture doesn't match, our flooring is in need of replacing, and our kitchen cabinets need redone. But what our neighbors fail to recognize is that we have more than grass mats, a mud floor, and boxes to put our belongings into. In fact, we have more belongings than we have room to store them.
Thank you for this excellent post. I'm forwarding it to our married son, who, I think, could use the reminder.

Barbara Frank said...

Glad you liked it, Carol. It takes a while and some maturity before it becomes obvious...btw that Templeton book is a good one for young people :)

Anonymous said...

I am a 28 year old wife and stay at home mom. My parents are very frugal and taught me by example but I found that when I started making my own money I didn't take that information with me. These last few months though, I have put limits on my spending and it is very freeing! We are working on being debt free by spring! Thank you for all your helpful information. My kids are still young, but it is good learning for me and how to lead them through their young years and later in life too.

Barbara Frank said...

Thanks for sharing your experience, Rebecca. Freeing is a very good word for it :)

Like your parents, I taught my kids to be frugal but now that they're adults, not all of them have followed suit. But they're learning through experience. Glad to see you've figured it out. Good luck to you and your family!