How to Teach Kids About Money, Saving & Investing: Lesson 1

If you have kids or want to have kids, you’re going to love this series. I want to cover how to teach kids about earning, saving, and investing for their own financial independence. However, after I started writing about the subject it quickly grew to over 4,000 words which made it an ADHD person’s worst nightmare. I decided to break the topic up into manageable bite-sized portions and launch my first mini-series.

I am going to release a series of mini-topics on the most effective ways to teach kids the most important lessons on money including:

• Lesson 1
  • When to Start: What Age to Start Teaching Money Management Concepts
• Lesson 2
  • Exactly How I Taught my Kids Money Concepts
  • How to Start Age-Appropriate Lessons: Teachable Moments Are Worth the Wait
  • The Value of Hard Work & The Value of Money
• Lesson 3
  • Teaching Kids About Debt
• Lesson 4
  • Set up Rewards to Encourage Saving: Short Cuts Leave You Getting Short-Changed
  • Culpability in Energy & Resource Waste Around the House
  • Frugality and Accountability
  • Correcting Behaviors
• Lesson 5
  • Rewards & Consequences: Incentives Work Like Magic
  • The Average American is a Millionaire: They Just Spend Themselves Broke
  • Establishing a High Savings Rate
  • A Lifestyle of Financial Freedom
  • Passive Income: Income Independent of the Corporate Career
  • The Investment Bank of Dad: If You Can Make Them Bathe You Can Make Them Save
  • Inspiring Kids to Invest
• Lesson 6
  • Set Up Rewards to Encourage Savings
  • You Don’t Keep Everything You Earn.
  • Teaching Kids Money Management: The Keys to the Kingdom
  • Becoming a Financial Representative of Your Family: Managing a Portion of the Family Budget
  • The Envelope System
  • Value-Based Spending
• Lesson 7
  • What Stocks To Invest In For Kids
  • Paying Dividends
  • Compounding Success
    
    

Lessons If You Don’t Have Kids

If you can’t or don’t want to have kids, you can still apply most of these lessons to teach adults (with minor tweaks) that are not yet bought into FIRE. Even if you don’t have kids I hope you can hang with me for the next week or two when we get on to other subjects.

The Most Important Lesson We Can Teach Our Kids?

Why do we send our kids to school in the first place? To get a good education? Why do kids need a good education? Is our hope that it will lead to a good job? And why is a good job important to us? So that our kids will be financially stable? Provided for? Financially independent? Not struggling with the stress and worry of paying for their expenses and providing a decent quality of life for themselves and perhaps their own family? To be present parents for their own kids one day?

As many kids head back to school make sure you are teaching them the most important lessons of all.

Introducing A New Series

Why not give them the “end game” right from the beginning? Why not teach them about money management, saving & investing right from the start? After all, if they are not effective at managing money flow, no amount of money will ever create financial stability, let alone financial independence.

Lesson 1: How to Teach Kids About Money, Saving & Investing

My First Lesson to Become a Millionaire

When I was in high school my mom told me that if I saved $2,000 each year that I was in college and put that into an investment account I would have over $1/2 million by the time I reached retirement age.

As a teenager, I was naturally incredulous about her seemingly unrealistic claim. Being a calculus student at the time, fully capable of calculating out a simple compound interest equation, I decided to challenge her ridiculous assertion to prove her wrong.

I pulled up a spreadsheet and input the starting parameters.

• Principle contribution: $2,000 per year x 4 years = $8,000 total contrubution
• Interest rate:  9%
• Compounded annually
  
  
  

My First Compound Interest Calculation

I made a long list of ages that I hoped to live to. As I dragged the courser down the list of ages, I saw my answer materialize in the cell before me. As the text faded into view I saw that you would achieve a balance of $525,156.63 at the age of 67 (an all too common age for retirement in the US right now).

The reality of attainable wealth hit me for the first time in my life. $8k was an attainable amount for me to save and invest. I realized that I could be a millionaire by the age of 75 years old if I just put away $8k and nothing more, as long as I did it early enough in life. If I just set it, forget it, and let the magic of compounding go to work, I could be wealthy, at least in retirement if not in life.

When to Start

As we learn about money and the power of compounding interest in investments we all quickly realize that we wished we’d have understood this concept and focused on this concept at a younger age.

I knew that I wanted to teach my children the power of money and investing as early as humanly possible. But, I also knew form several attempts to teach my friends and family the life-liberating power of investing your way to financial freedom that not everyone was going to be responsive to this message.

Sharing Financial Concepts

Have you ever shared the concepts of FIRE with someone only to get a silent awkward stare-back? Have you tied to help someone with their finances only to be pushed away? As if to say, “How dare you talk to me about finance! Who the H#3!! do you think YOU are?!”

I knew I had my work cut out for me. After all, finance is supposed to be boring, right? And my son was young, so to teach him I had to make it simple and quick to understand. I knew that it had to be his idea or he would not be engaged. I knew I had to wait for a teachable moment. I knew I had to capture his undivided attention… but how?

I will have the answer in the next post when I show how I solved this problem and much more on teachable moments and the value of money in Lesson 2 of this series: How to Teach Kids About Money, Saving & Investing.

Keep the FIRE burning my friends.