Talking About Personal Finance to Low-Income Parents

Recently I was asked to gave a talk about personal finance to parents of kids who visit an afterschool programme in my hometown for kids from very poor families.

I should actually write a separate post about the afterschool programme itself: how it finances itself, how it’s run, what impact it has on the local community and how in slightly over a decade it managed to reduce school dropout rates in the town from 50% to 2-3%. This is good news and a huge deal. Note to all those engineers at Daimler, Ferrari, Bosch etc.: this is what you should compare your job with.

A friend of mine runs the programme (some of the FIWE 2018 attendees met him) and he called me one day and asked me to talk to the parents about personal finance – how can they save money even though they have ridiculously low incomes, what can they do to earn more money etc.

These people are poor. Not the kind of “poor” you see in Germany for instance where people on very low incomes get their rent paid (for them to live in an average flat), money for food and…cinema vouchers. No, some of the people we’re talking about live in slums without electricity. They don’t have flatscreen TVs. In fact, mathematically they can’t afford to live. They get some money from the state but not enough to survive on. Others have minimum-wage jobs.

Just like so many people in this country, they get their income from “alternative sources”.

What approach to take

I accepted the invitation. I pretty much always say yes if this guy asks me to do anything. Luckily he mostly asks me to go to wine tastings. That’s his second passion when he’s not busy saving the world.

Then I started thinking about the content and I realised that it wasn’t going to be easy.

I mean: put me in front of bankers in Frankfurt, engineers in Munich or online marketers in New York. I would put together a talk about mustachianism, real estate and index investing, happiness and geographical arbitrage quite easily and I’d be prepared for any questions. I’m not an expert in any of these areas. I might not be able to answer every question, but I would be prepared for many of the reactions and could explain my point of view on all those things pretty well.

But how should I construct my presentation for these people? Huge challenge!

Anyway. The night before the talk I sat down and finished my presentation. It took a few hours and a lot of revisions.

Some context

Although these people don’t really work, they do all sorts of things to make money. They’re not in the business of stealing (if they do, they’re good at it), but they go out to the fields and collect corn from the ground that the combine harvesters missed (and then sell it), they collect whatever scrap metal they can find (to sell). They might have a family member who works in Germany or Italy (or has “alternative” income sources there).

They all smoke. Few exceptions. I don’t think they drink water. Mostly fizzy drinks, energy drinks.

When you see their kids, they’re constantly drinking fizzy drinks and eating cheap crisps. Or both. At the same time. Even energy drinks. It’s quite interesting to see them in the shop.

A couple of weeks ago I went to the dentist with some kids (including the kids of these parents). I was helping out a local charity that took all the kids for a dental checkup. It was pure horror. I nearly cried when I saw how destroyed their teeth are.

I suspected that beforehand so I took my kids with me as well so they could see what happens if you eat sweeties and don’t brush your teeth. Rotten, black teeth! Many, many rotten teeth and pain! It had an impact I’m telling you. Oh boy…

The talk

I turned up. I had about 15-20 mums in front of me. Some of them were breastfeeding their babies.

They had no idea what to expect. Neither did I.

I started off by telling them about an adventure I went on with my kids when I took them to ride a combine harvester while in action harvesting corn.

Sidenote: If you want a fun day with your kids, hitch a ride with the nearest combine harvester and maybe take a beer or two for the driver. Priceless.

The point of the story was the corn that’s left on the ground. We see poor people following the combine harvesters with their horses and carts collecting the leftover corn all the time.

I asked the parents how much they have to work to collect it and how much they can sell it for. They were experts. Nearly all of them new the black-market value of corn: 0.50 Romanian lei per kilo (€0.10).

Then I showed them some pictures of piles of plastic bottles and aluminium cans lying by the roadside. A standard picture in Romania.

I asked them if they knew the price per kilo for this recyclable packaging. To my surprise, nobody knew.

This is a big deal, because a kilo of plastic costs the same as a kilo of corn, while a kilo of aluminum cans costs four times that.

So my message to them was: why don’t they collect recyclable materials as well? They’re more valuable than corn and it’s much less effort since there are companies that can pick the stuff up from their doorsteps. They wouldn’t have to go far to collect them and they wouldn’t have to go anywhere to sell them.

Cutting out stupid expenses

In the next part of my talk I gave some examples of expenses the parents normally have, namely cigarettes, fizzy drinks, bottled water, crisps, a car, sweets and taxi rides. I calculated how much would they save if they cut out those expenses and invested the money instead for 10 years. (Sidenote: Of course I know there’s not much point in talking about investments to these people. I decided to do it anyway because there are easily accessible, high-yield Romanian bonds).

I presented them in this order:

Cigarettes (€16,000)

I began talking about price of cigarettes. Their reactions were quite interesting. They immediately told me they’re all smokers and asked me whether I’m serious in thinking that anybody in the room would stop smoking. Of course I wasn’t… How could I hope such thing?!

Fizzy drinks (€7500)

I like to have a coke once in a while and I do enjoy it. The amount of fizzy drinks consumed in the neighbourhoods where these people live is very high though. How do I know? I see what they buy in the shop and simply by the packaging lying on the streets. You just have to walk once down a Romanian street to get a pretty good picture of the products consumed there.

And all those fizzy drinks have a price tag. 

Bottled water (2600)

I calculated that you can save quite a lot of money by drinking tap water. It’s a nobrainer everywhere where the tap water is safe to drink. Sidenote: The town got €3 million in EU money to install a brand new water cleaning system. The work was done by Germans. The tap water is great. We only drink tap water at home (when we’re not drinking wine or beer). FIWEers can testify to that!

Crisps (€4200)

I got some approving voices here.

Car (€30,000)

I saw some jaws dropping at that price tag (based on my calculations for 10 years). It’s a mystery to me how some of these people can afford a car but yes, some of them manage. Maybe we should all learn some frugality tips from them.

Sweets (€5200)

I showed them some pictures of the kids’ teeth. I talked about how bad teeth could cost a fortune during the kid’s lifetime. Interestingly, they started having a long discussion about the fact that state health insurance doesn’t cover kids’ dental expenses, about how expensive and mean the dentists are. I learned that their kids’ teeth are bad because of genetics. I showed them a picture of my kids’ teeth and explained that our kids eat sweets every day (but not all day) too and that we brush their teeth twice a day. We came to the agreement that the kids could enjoy chewing carrot sticks as much as they do eating sweets…which would help the parents save some money too.

Taxi rides (€5600)

An average taxi ride in this town costs about €1.50. I calculated five rides per week. Yes, these people use taxis regularly. And boy, they love them! They started an extensive discussion about how great they are, how comfortable and what a good idea they are. I wasn’t very popular when I showed them a picture of myself bringing our kids to nursery by bike trailer.

The grand total

All in all, my calculations added up to €71,000. This is how much someone would save by cutting out all these expenses and investing the money instead. To my surprise, before I showed them the end total, one person actually added the numbers together and arrived at a fairly accurate result. They all looked rather surprised.

Time to invest

After that I showed them that Romanian bonds currently sell for €0.20 each, they pay 5% interest and you can buy them at any post office. You don’t even have to have a bank account or internet connection. I also showed them how compound interest works.

The best investment

I asked them what they thought the best investment would be and I told them what my father told me (he was a tractor driver and worked in agriculture for about 40 years): the best investment is investing in your kids’ education.

We also talked about this brilliant graph (you can read the article here):

At the end of the talk, I told the parents about my school experience and how the best part of it was meeting people who pulled me up and being among people who were striving to build a future and had dreams.

We also talked about the fact that not everybody needs to go to university and that craftsmen can be paid very, very well and have a fulfilling career.

My last point was that nobody can really sto you setting yourself bigger goals, having dreams and being successful. In my opinion this is valid for both children and parents. You shouldn’t simply accept your current situation if you’re not happy with it.

Some of the mothers didn’t agree with me because they claimed that they don’t have time (some of them have a job). Then I asked them how many hours they watch TV a day. The discussion suddenly came to an end.

What I learned

Generally, it turned out to be more interactive than I expected. I’m not sure I’ll have much impact or any impact at all. I feel that these people simply accept the situation they’re in. They mostly expect the system to give them the money or help they “deserve”.

One theme that came up over and over again was the fact that “others” are the problem. “Something else” is stopping them, pulling them back. “I don’t have time”. “It’s genetics”. Lack of initiative. Lack of “Yes I can!”

It was a good lesson for me. I don’t know what the solutions is. I doubt I found the right stories and the right wavelength to communicate with them. That’s something I could learn though.

What would you talk about in this situation? I’d love to hear your thoughts.