It’s indisputable: children are the future. If we don’t teach our youngest how to earn, save, and invest money, our future (and theirs!) could be in a boatload of trouble. What are you doing to help teach your kids, grandkids, or even great-grandkids about money? It’s not rocket science. Even if you’re not the savviest investor, a few simple lessons can result in smart lifelong financial decisions. (We’ve also come up with a fun way to give our youngest investors real-life investing experience. Look for details later in the article.)
A great place to start is by teaching them about compound interest, one of the most exciting concepts in investing! Show the young people in your life how just $1 invested today can grow and compound to a much larger amount over time, and that the more time it remains invested, the larger it grows. Use the rule of 72 to find out approximately how long it will take to double your money. Simply divide 72 by the rate of return. For example, a 10% return will double your money every 7.2 years.
Even some adults might be surprised to discover what a difference it makes if you start investing at 30 years old versus 50 years old. Just by giving your investment those 20 extra years to grow, you will have the option to stop working at 70 if you want to! While 70 seems a long way off for someone who’s 15, 25, or even 35, flash some of these numbers by your kids and they’ll soon get the picture: At 10% interest, $1 invested at age 30 would grow to $45.26 by the time you’re 70; if you invested your $1 when you were 50, it would grow to only $6.73; but, $1 invested at the age of 10 will have grown to an incredible $304.48. Wow! This is why I taught my four kids about investing money at an early age. I really wanted them to see and understand the growth potential. When you first invest, it seems painfully slow. To get my kids excited about it, we would look at a compound chart together so they could see how it works. For the past eleven years, I’ve been able to use our first fund, ROI Strategies, as a fun (and true-to-life!) investment exercise for them.
ROI Strategies is one of our investment funds that was designed to help highly qualified candidates purchase affordable, single-family homes through a “rent to own” model. This fund saw most of its activity right after the 2008 recession solving a problem for families who were temporarily unable to get a mortgage from a bank but were actually very qualified to be homeowners. Although this fund is currently closed to new investments, it still runs today and earns a high 8%+ return. It was a good fund to help acquaint my kids with investing.
Now, my kids couldn’t invest their money for real, so we just put the numbers on a spreadsheet. They would actually save money by giving it to me, and I would in turn track it as if they were earning the average annualized return in ROI Strategies. They were thrilled to see how much their “investment” grew every month while they were sleeping.
I struck a deal with my kids early on. I had them sign a contract stating that if they agreed to save a certain amount per month, which increased as they got older, I would seed each of their accounts with $1,000 plus whatever they had saved at the time. It worked very well to help my kids not only see the value in investing and saving, but also to build the habit of saving money every month.
My kids kept this up for many years, and still save and invest at varying amounts today. It’s hard to calculate exactly how much they all saved throughout the 11 years, since most of their money eventually moved into real investments, but I do still have the spreadsheet and was able to roughly calculate that they’ve probably earned a collective $62,924 in their sleep from compounding alone. I’ll count that as a parenting “win”!
I believe financial literacy is a sorely missing component in our education system. It’s so important that a young person understands how money works before setting out into the world! That’s why, years ago, I joined the board of Junior Achievement, a non-profit financial literacy organization. In addition to supporting Junior Achievement, we have been a big sponsor through The Hayek Group, a Nevada-based organization named after Austrian economist Friedrich Hayek. The Hayek Group raises money to implement Dave Ramsey’s Foundations in Personal Finance curriculum here in Washoe County high schools, teaching teenagers how to make sound financial choices.
It’s strange and scary that this knowledge from elders is often neither passed down to youth nor taught formally in school. If you feel the same, I highly encourage you to support either of these organizations through a monthly donation, and of course, to start passing the torch of knowledge to all the future adults in your life.
Here’s one more fun rule I used with my kids when they were growing up: the Two Week Rule. If they wanted to buy something, they had to let us know and then wait two weeks. That saved lots of money because, most of the time, that impulse purchase was forgotten two weeks later. If not, it meant that they really wanted it, and it was a meaningful purchase for them.
I mentioned earlier that we’ve devised a way to help your children and grandchildren have a real life investing experience. It’s simple: A child gives money to a parent or grandparent, who then puts that money into their account with one of our investment options. We’ve done this for a few investors now, and it has been a hit for the whole family! The child can track and watch their money grow, but more importantly, it gets them excited about their new-found investing habit that will hopefully last a lifetime.