My 16 yr old cousin just recently got a part-time job at a restaurant working in the kitchen as a busboy. He asked me for advice on how to handle his money because he "wants to be rich like me". I was very taken aback at this statement and asked him why he thought I was rich. He stated well, you have a nice house, a nice car and alot of other nice things. I decided I should really open his eyes because he apparently is incorrect in what he considers rich. To make it simple to a 16 yr old, I tried to break our conversation down into sections.

Cars: He wants me to go to the car lot with him so he can by a new "phat" ride. I then proceeded to explain that new cars depreciate significantly when they drive off the lot. His response, why do so many people buy new cars? This is a good question but I did not have a good answer for him. I explained some people are actually paying cash for their vehicles and some people are financing them. When you finance a new car with debt, you usually end up owing more than the car is worth, especially if you put no money down or roll over another loan. Lesson: Save up and pay cash for a good reliable used car.

Debt: I asked him how would he like to always owe someone else money? He said he would not like that. I told him that is the way it is when you have debt. You always owe someone money as long as you are in debt. I told him if you finance a home or an education, it is different because you are using debt for an asset that can better prepare you for the future. The one debt you should always avoid is credit card debt. Credit cards are fine if you have the discipline to pay them off every month. Lesson: Only use debt to acquire assets and do NOT carry credit card debt.

Savings: This one was pretty easy because thankfully, his parents had already told him about this one. Although, they only explained plain old ordinary savings accounts. I took it a little further and described investing and retirement accounts. He has about $500 saved right now but once he saves $1500, he will invest $1000 and leave $500 in the bank. Lesson: Make your money grow outside of regular savings accounts or your purchasing power will decrease as inflation eats up any interest you earn.

To summarize our conversation, I told him looks can be deceiving. That person driving that "phat" ride could be in debt up to their eyeballs. Another thing is not trying to keep up with the "Joneses", which is funny because his next door neighbors last name is Jones. They also have a "phat" ride. I also advised I am not rich and I am far from it. If I had taken my own advice that I gave him, I would be in a much better financial position.

So how did I do? How would you have handled this? Anything else I should tell him?
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  1. Anonymous // August 5, 2007 at 5:41 PM  

    Bronx Chica...You did very well with explaining it to a teenager! Hopefully when he grows into a man, he'll be thanksful for your talk in finance. Oh, got you from Boston's girl website. I'm a regular along with Madam X's website.

  2. SingleGuyMoney // August 5, 2007 at 8:28 PM  

    Thanks for the comment Bronx Chica and thanks for visiting my blog.
    Maybe once he's rich, he'll take care of his cousin that gave him great advise.

  3. Anonymous // August 5, 2007 at 10:39 PM  

    I think you did a fine job explaining this to him. For the life of me, I can't understand why an age-appropriate personal finance class is not a requirement in middle and high schools.

    This brings up a question I wanted to ask you about your net worth post, but I hesitated because I didn't want to sound like a jerk.

    In all seriousness, have you considered selling your car? If it's worth $29k, you could sell it and buy a nice reliable car for $9k, increase your net worth by 40%, and create a real "teachable moment" for your cousin in the process.

    Keep it up! Your blog is terrific.

  4. zacharyfruhling // August 5, 2007 at 11:09 PM  

    Awesome! Get him set straight while he is still young enough not to put himself in a bind from the beginning!

  5. SingleGuyMoney // August 6, 2007 at 6:04 AM  

    No debt for me:
    Thanks for visiting my blog.
    The value of my car needs to be adjusted. I'm sure if I sold my car, I would still owe money to the bank. I will adjust my house and car values at the end of the year.

  6. Anonymous // August 6, 2007 at 7:43 PM  

    You handled it very well. My little brother got into the "I have to get it now" mode and is still in debt. Of course, he wasn't the type to listen to big brother...

  7. Worry Wart // August 7, 2007 at 1:41 AM  

    I wish that someone would have explained all of this to me when I was younger. I like how you broke it down into terms that he could relate to!

  8. Anonymous // March 18, 2008 at 11:54 PM  

    This is great :) You clearly told him all he needs to know now to get his foot in the door. Even if he only takes home the knowledge that he want to owe nothing, he's taken home a HUGE gift that will carry him far.

    I experience the same sort of conundrum when talking to my little sister. At 19, she makes a ton of money and spends it all. After this got her into trouble a couple of times (overdrafts, late fees, etc.), she called me to ask how she could be "responsible" with money like I am! I was so flattered but also humbled - I have been in debt for almost three years and will only be out this spring (!!!!!!!!).

    After explaining all of what I KNOW to her, however, I think she'll start to take those lessons on as a good knowledge base to rely on for future financial decisions. My hope is that she doesn't up taking the same road I did :D I can hopefully help her do everything I didn't when I was her age - so that she can prosper forever.

    Thanks for this post!

  9. Anonymous // April 28, 2008 at 10:48 PM  

    In a follow up discussion with your cousin, I would take a deeper dive into your comment on education as an investment. Indeed, education IS an investment - and should be treated as such. Granted, I am a strong believer in a liberal arts education as a grounding - but the the fact of the matter is that in these days of $30K+/year tuition a BA in English probably isn't the soundest investment.