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07/10/2018 - Time Value of Decisions

This is part 1 of a two-part email.  Stay tuned for next time too!

Perhaps you’ve heard of the time value of money.  This is a concept that financial advisers and parents(!) try to impress upon young adults, making them aware that money invested early is worth more than money invested later in life. says: “The time value of money draws from the idea that rational investors prefer to receive money today rather than the same amount of money in the future because of money's potential to grow in value over a given period of time.”[1]

Get the money now, invest it well, watch it grow. Simple idea, right? The problem is actually setting money aside while you are young and not using it for more immediate desires.  It is common for young people to ‘understand’ the concept but harder for them to do it!  Utilizing the time value of money means that you have to deny yourself in the short-term to benefit in the long-term.  You also need to make good decisions with the money you set aside so that it will actually grow in value.

This concept really resonates with me.  I was raised by older parents who were part of the ‘Greatest Generation’ – those who lived through the Great Depression and fought in World War II.  My parents had experienced economic upheaval on both a personal and national level. They had “done without” on multiple levels, to an extreme that I and most of my peers will never understand. They knew at a gut level what economic uncertainty felt like and they never forgot as long as they lived. My parents were scrimpers and savers and re-users. They gardened for food (and canned and froze and dried everything in sight to store for winter); Mom made my clothes and made quilts for our beds. She saved scraps from old clothes to make new clothes. She saved colorful bits of newspaper to use as wrapping paper. She washed out plastic baggies to re-use for lunches.  They understood the time value of money because many of those early earning years were stolen from them – and they never caught up.

I was marked by their experience, in both positive and negative ways, I think. I was unique among my peers, because most of my peers were not raised by parents from that generation. Their parents were younger and had not lived during those years of economic uncertainty. They were the generation who had color television sets, two cars in the garage, and some free time for recreation. They raised their children to enjoy affluence and comfort. I saw my peers squander things that I could never imagine squandering; one part of me envied them and another part scorned them.

Reply - telling us ways that you have taught your children (or learned yourself) to implement the time value of money!