Want your kids to never worry about money? Do this.
Have kids? Want them to never worry about money? Then don’t
give them anything, birthdays and holidays aside. Let me showcase what I mean. I have to start at the beginning and start with describing the situation through your eyes.
Most adults are stressed out about money. And why is that? Well, in a nutshell because you haven’t been taught how to invest and make your money work for you. You have been taught how to get a good job, and from there the assumption is that the rest should take care of itself. But that will only work for a handful of super high-paying jobs. It’s very difficult to earn yourself rich. It’s much easier to invest yourself rich.
That being said, look at the diagram below. What do you notice? Even though the same amount of money was invested monthly and earned the same rate of return, you got wildly different outcomes when you changed the timeline.* It’s time that makes the fortune. Not how much is invested or your rate of return. Time is the most important factor.
To a lot of adults this information looks dismal since most don’t start investing until they are in their 30s or 40s. Who cares if you have have $2.5 million at age 85? That’s not motivating! But imagine if we were looking at these numbers, in the table above, through your child’s eyes. If you started learning about investing when you were four you would have one heck of an advantage. Your child could have a million dollar net worth by forty, and, what’s even more important, is they would know how to manage and grow their fortune.
So, if you want your child not to stress about money as an adult, start teaching them now. Children love learning about money. Money has very distinct components: There are numbers and formulas, but it’s the habits that create the fortune. For example, you don’t need to teach a kid about gingivitis to have healthy teeth. You only need to build the habit of flossing and brushing twice a day. The same is true with investing, the habits that build the fortune.
Let me show you how I teach my son, Jack. He’s four. To start, I employed the principle: Delayed satisfaction. In a sense that’s what investing is all about. Giving up a little today, for a lot tomorrow. (This is very hard for lots of grown adults to do. Just check out the sway of the sale.)
There are endless examples of how you can do this in your everyday life and the more you can employ this principle, the better your child will be at investing. A couple of examples of delayed satisfaction include: a lollipop after the haircut…buying a treat at the grocery store but waiting till after dinner to get to eat it.
Ideally you want to extend the timeline between work and reward. When extending the timeline I use stickers and visuals to show Jack his progress. Here’s a picture of what I have on my fridge right now.
With children there are so many milestones that there is always something to work towards. Jack just entered pre-K and for him to do that he had to learn to wipe his own booty. So, once he does it, perfectly 20 times, he earns some trucks for his soldiers. He loves getting a sticker and counting how many more he needs.
He has been working on it a month and is about to claim his prize. Does this sound like too long of a timeline to you? If it does you can start with smaller timelines, but I encourage you to build up to it with very extended timelines. Jack only has excitement around this, not frustration.
Now just in case you’re wondering where I came up with this important principle, the truth is I stumbled upon it. Over the last seven years I noticed a pattern in my clients that struggled the most. Every single one of them, no exceptions, said that their parents “gave them everything they ever wanted. Eventually.”
The interesting thing about these clients was the only consistent thing that united them was the commonality between their parents. That’s where the similarities ended. They came from wealthy families, middle-class families, and strapped-for-cash families. The earning power of these clients ranges from $50,000 to $250,000. But all of them had trouble holding on to their money, vanquishing the opportunity to invest.
So, end financial stress forever. It doesn’t matter what age your kids are now. It’s never too late to start. Of course, this is only the beginning, but becoming a master investor is no more difficult than learning this very first principle.