The Story of Goldilocks and the Three Retirement Contributions

Goldilocks and the Three Bears

By Jen Smith, The Millionaire Mommy Next Door

Once upon a time, Goldilocks went for a walk.  Pretty soon, she came upon her bank.  She asked the bank teller for her retirement account balance and when she was shown the number, she wept.

Goldilocks returned home to assess her budget and see where she could come up with some extra money to make regular IRA contributions. She thought about quitting her latte habit. $3 saved per day could grow to $177,706 in thirty years.

“This idea is too soft!” she exclaimed.

So she returned to her budget and considered cutting her housing and utility expenses in half by downsizing to a much smaller home. $1200 saved per month could compound into $2,389,653 in thirty years.

“This idea is too hard,” she said.

So she returned to her budget and took aim on her transportation costs. If she sold her car and used her city’s excellent public transportation system instead, she could save $780 per month. In thirty years, her retirement fund could blossom into $1,553,275.

“Ahhh, this idea is just right,” she said happily. Goldilocks sold her car, walked back to her bank, and made a contribution to her retirement account.

Thirty years later, Goldilocks retired, and lived happily ever after.


For illustration purposes, results were calculated at 10.00% ROI compounded annually. The actual rate of return is largely dependent on the type of investments you choose. Over the most recent 30 year span, from January 1, 1980 to December 31, 2009, the compound annual growth rate (annualized return) for the S&P 500, including reinvestment of dividends, was 11.29% (source). Total savings are calculated in actual dollars (not inflation-adjusted). A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually (from 1925 through 2008).

Talent And Desire Are NOT Enough: What We Must Learn To Achieve Our Goals

The traditional view of achievement assumes that results come from a combination of talent and desire. Therefore, when you fail, it must be because you are not talented enough or that you don’t want it bad enough. However, failure also occurs when talent and desire are abundantly present — but optimism is missing!

Why is optimism an important ingredient for success? What makes some people view the glass as half full while others see it half empty? How are depression and pessimism related? Are optimists born or made? Can we unlearn pessimism? What can parents do to help their children grow optimistically?

My family, at least three generations deep, suffers from a genetic predisposition towards clinical, chronic depression. It would be fair to say that I didn’t always have the happiest of role models when I was growing up. I’ve never been diagnosed with depression (other than PMS-related symptoms). Why did I escape depression while many of my family members did not?

A therapist, who my entire family visited when I was a teenager, suggested that I had learned to cope by taking on the role of “hero child” in our dysfunctional family. The hero child is the one who fantasizes that if she accomplishes enough, then the whole family will be OK. The hero child is overly conscientious, over achieving, and constantly seeks approval. As the hero child of my family, it was my “job” to help everyone see the light and function well. I became our family’s cheerleader of optimism.

Then as a young adult, my experiences as an animal trainer and behaviorist taught me some useful cognitive skills. (Apparently rats, cats, dogs and humans tend to learn in similar ways!) I discovered how to avoid learned helplessness (giving up because you feel unable to change things) and how to reinforce my sense of personal control. In turn, personal control leads to optimism; and optimism can protect against depression, better your physical and mental well-being, and increase your level of achievement.

I’m reading a fascinating book: Learned Optimism: How to Change Your Mind and Your Life by Martin Seligman, Ph.D. Using evidence gleaned from scientific research done with dogs and people, Seligman demonstrates how optimism enhances the quality of life, explains how to break an “I give up” habit, and offers advice for parents who want to help their child(ren) become empowered by optimism.

What is a pessimist? Pessimists tend to:

  • believe bad events are enduring (will last a long time)
  • believe misfortunes are their own fault
  • undermine everything they do
  • get physically sick more often
  • get depressed more often
  • give up more easily

Optimists, who are dealt the same hard knocks, tend to:

  • believe defeat is just a temporary setback
  • believe defeat is confined to this one case
  • believe defeat is not their fault: circumstances, bad luck or other people brought it about
  • perceive bad situations as a challenge and try harder
  • do better in school and college
  • do better at work
  • do better in sports
  • exceed the predictions of aptitude tests
  • be more apt to be elected into public office
  • enjoy unusually good health
  • age well
  • live longer

How can I help my child learn optimism?

My daughter’s life didn’t start out well: she was abandoned at birth by a mother who could not/would not raise her; placed in a neglectful foster care situation for nine months; then uprooted from her native country to live in a place where very few look like her. In addition to these early traumatic events, maybe her birthmother suffered from depression during her pregnancy (aware that she’d have to give up her baby), which could have affected her developing fetus. When we adopted our daughter, she was emotionally withdrawn and shutdown.

What affects a child’s level of optimism? According to Martin Seligman, Ph.D., director of the Positive Psychology Center at the University of Pennsylvania and the author of Learned Optimism, there is evidence for three kinds of influences:

  1. How parents analyze and explain everyday occurrences: If my child hears me explain things optimistically, she will too. Optimism is learned. It is important that parents serve as positive role models.
  2. The form of criticisms a child hears when she fails: If they are permanent (“You always make such a big mess”) and pervasive (“You are a slob”), her view of herself will turn toward pessimism. If the criticisms she hears have a temporary and specific message (“Your room tends to be messy after you have friends over to play“), she will be hopeful, empowered and optimistic.
  3. The reality of her early losses and traumas: If her losses and trauma are permanent and pervasive, the seeds of hopelessness will be deeply planted. If they remit, she will develop the theory that bad events can be changed and conquered.

I am incredibly proud of my daughter’s strong spirit. She inspires me to see the glass as half full every day. Together, we practice optimism… and we blossom.

Considering the far-reaching and long-lasting effects that optimism has in all of our lives, I wholeheartedly recommend reading Learned Optimism: How to Change Your Mind and Your Life. It’s a national bestseller for good reason.

Financial Illiteracy: An Epidemic With A Simple Cure

How do we learn about money? 80% of parents surveyed believe that schools provide classes for their children on money management and budgeting.

Sorry to break the bad news, Mom and Dad — your kiddos probably aren’t learning personal finance in school. Our school system requires English, math and science, but not a practical life-skills class like financial literacy. Ridiculous, isn’t it? I am all in favor of a well-rounded education, but what good is it if students learn where Shakespeare was born, but not what a tax-deferred retirement plan is? Or that n2x, but not that if you use Payday loans, you could pay an outrageous 1560% in annual interest!

Once we graduate from high school, the vast majority of us are responsible for earning an income, establishing and maintaining a respectable credit score, balancing our bank account, and saving for our future. We deal with money decisions almost daily — yet we are taught nothing about personal finance in school.

Braun Mincher (Braun Media, LLC) is currently producing a feature-length documentary film which exposes the financial illiteracy epidemic in order to bring awareness to this important topic. Braun’s goal is to show viewers why taking personal responsibility for their own financial wellbeing is so important. He wants to expose how little parents and the school system are doing to prepare the next generation for this growingly complex and relevant topic.

Braun conducted over 100 interviews with a wide variety of people: students, parents, educators, consumers, government officials, celebrities and personal finance experts. I was honored to be one of his interviewees. Here’s a short video teaser clip of my own money-life story and response to his million dollar question: “If financial literacy education is so important, then why are we not requiring schools to teach the subject, especially considering the current economic situation?”

(Email subscribers, click here to view the video posted on my blog.)

Incidentally, I think it’s supposed to look like I’m sitting at my desk but the office I was interviewed in is not mine — naturally, my office is wallpapered with family photos, colorful Treasure Maps (aka vision boards) and cute puppies!

I’ve served as a volunteer Junior Achievement instructor and have taught students basic economic, personal finance and small business management concepts. The kids and their teacher loved the program. So did the parents — in fact, several of the student’s parents had their kids ask me pressing, personal finance questions for them. Yet the only administrators in my area interested in offering the course were those managing private schools. There is a pathetic 2.3% percent national market penetration at the high school level — and Junior Achievement classes are offered for free!

What about you: Did your parents pass along their financial literacy skills to you? Were you taught personal finance in school? Do you think schools should be required to teach money management skills? And finally, if the cure for financial illiteracy is so simple, then why aren’t we doing it?

Read my tips on how parents can teach kid’s about money management.

How to Make Money Management a Family Affair

We are raised to believe that talking about money is rude, embarrassing or boastful. But where has this belief gotten us? Without open discussion, money management often becomes a mysterious and difficult task, causing strife in our lives and relationships.

Our children learn from our example. If we behave as though money management is painful, secretive or confusing, we thwart our child’s financial future. Is this what we want for our kid? Of course not. We all want our children to acquire the tools necessary to power their own future financial independence. Few high school students graduate with any formal personal finance instruction — children receive the majority of their financial literacy from their parents. Modeling healthy personal finance behaviors is THE key to raising money-savvy children. What are you teaching YOUR kids?

Involving the entire family in financial discussions has many benefits:

  • Money is a sore topic for many families. Open discussion benefits our family relationships.
  • When the entire family is on board, keeping to a budget becomes easy. The family shares a creative, problem-solving energy and everyone feels empowered.
  • Kids think “outside of the box” better than adults do. They will surprise you with their remarkable insights and ideas.
  • Teach your child to save and invest now and you’ll take full advantage of the astounding magic of compounding. To accumulate $1 million by age 65, a 5 year old child only needs a one time contribution of $9875 OR a monthly contribution of only $57! Click here to learn the details.
  • Learning about money can be fun when it’s a family project. Spend some of your family financial meetings playing educational money games. See my list of suggested games below.

So grab your family calendar and schedule a “Money Monday” or “Finance Friday” or whatever works for you and your family. Block out an hour each month. Choose a time that everyone is likely to be relaxed, well-fed and free from other distractions. Consider making this a festive occasion — serve homemade cookies, offer a contest with prizes, or hold your meeting in a tent pitched in your backyard.

What can you do during your family finance meetings? Here are a few suggestions:

1)   Make and review your Treasure Map.
2)   Review your values and priorities, particularly as they relate to money.
3)   Delegate financial tasks to each family member as appropriate: have your youngest sort receipts; one can pay bills; another can reconcile bank statements.
4)   Brainstorm ways to spend less. Avoid blame and guilt trips! Instead, have fun with the challenge: offer incentives and prizes.
5)   Play games that increase financial knowledge and skills. Here are a few suggestions to get you started:

6)   Employ your kids. Give them a wage and valuable work experience for doing extra work around the house. Discuss budgeting and assignment of income into various categories such as: 10% invest / 10% save / 10% charity / 70% spend.
7)   Brainstorm ways to increase your family income with an in-home business. I started my first business at age 12 — a petsitting and dog walking service. I learned valuable entrepreneurial skills, earned money and had fun.
8 )  Invite your child to shadow (observe) you at work.
9)   Invite a mentor or entrepreneur to dinner and conduct an interview. Learn from those you’d like to emulate.
10)  Discuss ways your family can give back to your community. Volunteering not only serves others, it offers your children valuable work experience.
11)  Read age-appropriate books together:

Related books about raising happy, money-savvy kids:
Kids and Money: Giving Them the Savvy to Succeed Financially
How to Raise Millionaire Children

How do you feel about sharing your personal income with your children? Do you have any other family-friendly books or games relating to personal finance that you’d recommend? Do your kids receive an allowance and if so, do they work to earn it?

Parenting With Purpose: This I Believe…

Happy Mother’s Day!

While eagerly waiting for our adoption referral from China, we gave much thought to parenting. How would we raise our daughter to be strong and independent; sensitive and thoughtful; curious and happy?

Obviously, I don’t believe money is the biggest determination of a meaningful and joyful life. Success and happiness come from within, and more importantly, they take practice. How might we help her learn that life’s obstacles are not concrete barriers?

I wrote the following piece over four years ago; before we brought our daughter home. Like a business plan, it helps steer my actions in ways that I feel will result in success – for me as a parent, and for my daughter as a healthy, happy and contributing member of society. I think of it as my parental mission statement.

Our daughter turned four last week. I am pleased to report that she is blossoming into an affectionate, assertive, confident, and insightful little gal.  She makes this momma very, very proud.

Parenting With Purpose: This I Believe…

It isn’t about expecting or demanding obedience and conformity. It is about encouraging discipline, personal autonomy and individuality.

It isn’t about respecting authority. It is about respecting one another.

It isn’t about rules. It is about principles.

It isn’t about being quiet, not crying, and stuffing feelings. It’s about recognizing and appreciating the full range of human experience.

It isn’t about making my child do what’s good for her. It is about working with my child to help her learn to make the best choices.

It isn’t about teaching her how to live life to the fullest. It is about living life to the fullest while learning happens naturally.

It isn’t about blindly following directions. It is about following dreams, interests, and passions mapped out by child and parents together in a loving relationship built on mutual respect.

It isn’t about giving my child everything she wants, risking a false sense of entitlement. It is about helping her get what she wants through her own efforts.

It isn’t about spanking. It is about teaching her that aggression is never an appropriate way to resolve conflicts.

It isn’t about parents being martyrs. It is about parents modeling healthy personal boundaries.

It isn’t about “because I said so”. It is about open communication and the art of compromise.

And finally,
It is all about love.

Plan A and Plan B

In response to my recent post, Will your parents’ financial decisions leave you holding the bag?, Steve wrote,

I agree with the premise that a person’s retirement should be taken care of before saving for a child’s education, but saving enough for one’s own future seems to be a moving target.

When does a person ‘have enough for retirement’? I am 27, with a 6 month old baby. Besides $15,000 in student loans (@ 2.6% interest rate), and a mortgage, my wife and I are debt free. We contribute to our 401k’s up to the match, and we contribute $100 a month to a Roth IRA. Since we are so young, we feel secure in our ability to save enough for retirement, so we also contribute to a 529 plan for our child.

Even though we feel secure, anything could happen at any time. Maybe one of us gets injured, and we can not work anymore. Maybe this happens to both of us. We never know, therefore I am inclined to save more. But when is it enough? If I max out my 401k, is that enough? I am 27…I may have 60 years of life left…$15,000 will not be enough if something happens next year.

I struggle with the concept of taking care of myself first, then take care of others, when there exists so many potentially negative unknowns. If I am not saving for my daughter’s education…should I not be giving money to charity? Take care myself first, right???

What is the sweet spot for annual saving for yourself, vs saving/giving to others?

Yes, the future holds many unknowns, making it difficult to be completely accurate with long-term financial planning. This deep recession, for instance, has all but destroyed many well-laid plans. The key, however, is to plan for the best while preparing for the worst. In other words, create Plan A and Plan B.

Plan A is what you hope to have happen. You hope that you’ll remain healthy and able-bodied, fully employed, happily married, able to donate money to charity, and able to save for your child’s future as well as your own.

Are you saving enough? It all depends on how much you spend now and what you anticipate spending in the future. Plug your financial considerations and planned life events into a Lifetime Financial Planner software or an Excel spreadsheet and tweak it until the numbers work.

Plan B considers what could happen; the what-ifs. You, your wife, or your child might become ill or disabled. Your marriage might not last and your assets and income could be divided in half. You might join the growing ranks of the unemployed. You might hurt someone in a car accident, get sued and lose all of your savings and everything you own.

How can you protect your finances from catastrophic incident? Buy high-deductible insurance policies, namely disability insurance, term life insurance, personal liability insurance, health insurance. Maintain and improve your job skills. Run a sideline business from your home. Consult with an attorney for additional “what-if” planning.

Additionally, save as much as you can today while you are young. Use your youth to exploit the power of compounding growth. And stay far, far, far away from consumer debt so that if something bad were to happen, you and your family could afford to live on little income.

Where does charity come into play? This is a very personal choice. Until I knew that our financial future was firmly on solid ground, I chose to donate my time rather than my money. I’ve always served as a volunteer in one way or another and not only does this help others, but it improves my set of skills, introduces me to a network of new people, and makes me feel great. This crazy busy world needs more of the gift of time from volunteers.

Should you contribute to your child’s 529 Plan? Most of us have heard a flight attendant recite these words as part of their safety spiel prior to departure:  “Please secure your own oxygen mask prior to assisting children or others”…

Will your parents’ financial decisions leave you holding the bag?

Emma Johnson from MSN Money pitched me the link to her recent article, Will you end up supporting your parents?, and I have to confess, her article brought up very uncomfortable memories for me.

15 years ago, my mom and I started having conversations about how she planned to handle her retirement. She’d admittedly not been very savvy about her personal finances. I was often concerned about her financial misbehavior. Deep down, I knew she was counting on someone to rescue her: either a man or me.

My mom and I would often brush the tension away with good-natured ribbing. We used to joke about how when she was broke and too old to work,  my husband and I would build her an apartment in the hay loft above our horse barn, and when she became too old to climb the stairs, we’d haul her up with a hoist and pulley system. That was good for a few laughs — until she turned 59 and was diagnosed with a debilitating disease that forced her into early retirement.

She lost her business, her ability to work, her minimal home equity. With no savings set aside, she quickly became dependent on others. The stress of her illness and the burden of her financial needs ravaged the relationships between her and her boyfriend, and me and my siblings.

In her article, Emma Johnson asks difficult questions:

Will your parents’ financial decisions leave you holding the bag?

Is it ever too early to meddle in your parents’ financial affairs? Is it your responsibility to plan to care for people who are still working and able to save and invest on their own behalf? What if their financial needs compromise your lifestyle or your security? And what if your folks should have known better than to leave retirement to chance — and yet have?

Ultimately, my mom’s poor financial behavior became our burden, and while I was glad that I was able to help her, the situation caused undue stress.

Many of my coaching clients are parents raising young children, are deeply in debt, and have little or no money set aside for retirement. Yet most of these parents contribute regularly to their children’s education fund(s). While I appreciate the desire to provide their kids with a college education, I worry about their family’s future in the long run.

Take it from me — the financial burden of caring for your elderly parent(s) — ones who failed to save for their own retirement — is much more daunting than paying for your own college tuition.

So parents, please take care of YOUR financial future first. Then — and only then — contribute towards improving your children’s future. This is not selfish behavior; this is one of the most loving things you can do for your entire family.