 Question: My wife and I are following your plan, and we’re in the middle of paying off our debts using the debt snowball. When we told my mother-in-law that by doing this we’d be able to pay off our house within 10 years, she told us that would be a stupid move. She couldn’t give us a reason why she thought it was stupid, but we couldn’t convince her otherwise. How can we explain things to her?
Answer: Okay, she’s telling you it’s a bad idea, but she has no idea why it’s a bad idea? It sounds to me like she’s the dumb one if she thinks you should behave a certain way, but can’t even tell you why. If someone can’t tell you why they have an argument against something, then they have no argument in the first place!
A lot of talking heads think it’s smart to not pay off your home. They’ll tell you things like it’s better to borrow money against your house and invest it in the stock market. What they won’t tell you is that there’s virtually nothing there by the time you adjust for risk and taxes. Why in the world would you take a chance on losing your home over something like that?
Another line they’ll throw out is that you don’t want to lose your tax deduction. This one’s really silly! If you have a $200,000 loan at five percent interest, you’ll pay about $10,000 a year in interest. Now, let’s also say you make $70,000 a year, and you’re in the 25 percent tax bracket. That $10,000 tax deduction is saving you $2,500 in taxes. In essence, you’re sending $10,000 to the mortgage company to keep from sending the government $2,500. That’s pretty stupid! You’d be better off to be debt-free and give $10,000 to some charity or your church. That way, you’ll save on taxes and do some good with the money.
By paying off your home, you decrease risk and gain a ton of security!
Question: How early should I start teaching my kids about money? Also, how do you feel about giving kids an allowance?
Answer: I think you should start teaching kids about money as early as you start teaching them about sex—which is the first time they show any interest. Make sure you keep it age-appropriate, and don’t over-answer questions when they’re young.
Neither of these things will amount to a one-time talk, because they’re both just parts of life. That means they’re ongoing processes that will last for years. If you have one talk at an early age with your kids about money, then they’re probably not going to remember a lot of it as they get older. If you have just one talk with your kids about sex at an early age, you’re liable to wind up with a bunch of pregnant teenagers!
To answer your second question, I hate the idea of an allowance for kids, because it makes the whole situation sound like welfare. We put our kids on commission at an early age. They had chores associated with certain dollar amounts, and if they worked, they got paid. If they didn’t work, they didn’t get paid. It was as simple as that. Then, they would split their money between three different envelopes—one for saving, one for spending, and one for giving—and we would teach them to do each one wisely.
Kids need to emotionally connect work to money at a young age. If you don’t teach them four major concepts—spending, saving, giving, and work—you’re going to have major problems by the time they’re 10 years old!
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