A number of months ago I was sitting in my living room reading The Richest Man in Babylon. It’s the story of a man that learns to save and invest and learns the power of his “gold” working for him. I had stopped for a moment, reflecting back on my own life and all the wasted years of blowing all the money I earned or was given. Shaking my head with regret and resolving to change, I was struck by a powerful thought. Why not teach my children the power of saving and investing now? (My three boys are 3, 6 and 7) What if, instead of being forced to save their money, they were taught that saving and investing could be exciting, and they embraced it?
I’ve long known that children will rise to the expectations or bar that you set for them. Since our children were young, we’ve taught them to sit quietly for an hour so they could sit through a church service, wedding or a meeting. As a result, from a little over a year old and on, they have been able to sit quietly for long periods of time. If children can be disciplined and trained enough to sit quietly, where else could the bar be raised? I could teach them to save and invest, I thought.
First, I’ve got to share a few things I had to deal with. When I was growing up, saving money meant having my precious cash taken from me and given to a dry, stuffy old bank that would send me a piece of paper once a year and tell me that my money had earned a few cents. That’s what I gave up buying a treat for. I hated banks because of this. Why give up some candy that I could eat and taste today for a piece of paper that said I had earned a few pennies of interest? Kids like to see, touch and experience things. Besides the really dry experience, today’s savings accounts yield basically nothing.
On top of that, what is the point of saving money? You can’t give children some abstract reason to squirrel away their money. You have to give them a vision that they can believe in and embrace. So I told Moses, my seven year old, that I would like him to pay cash for a house before he’s 18 and rent it out. I explained to him the implications of doing so, and what a strong place financially that would place him in. He couldn’t wait to get started and begin working with me.
Moses started with ten dollars. He’s very generous and had recently given all his money away as gifts and even donated money to an orphanage. I wanted him to work for his money so I told him that if he cleaned out a fish tank a neighbor had given to us, he could sell it. After scouring it out, he took some pictures of the tank and with the help of his mother, posted the tank on Craigslist. It sold in a few days. Now he had $25 dollars. I told him I wouldn’t sell him an old dryer for less than $40 so he was going to have to earn $15 more. After agreeing on 5 cents a weed, he went to town. A few days later, our yard had no more weeds and Moses had his $15.
The next stage
Armed with $40, Moses was very persistent in asking me about buying his first appliance. How was I going to do this? I didn’t want to just sell him an appliance for cheaper than I would sell it to the public for. When I get an older or slower moving appliance, I discount it down to the price that would cause it to sell within a day or two. That was it. I would sell him these exact appliances for the price I would normally sell them for, and then allow him to set a higher price. I sold him a really old dryer that still worked for $40 which he then sold for $60 a few days later. His mind was blown. His $40 had turned into $60. He then used the $60 to buy another and has been repeating this process ever since. Just recently I sold him a nice Kenmore Gas dryer for $80 and three weeks later it sold for $140. He’s up over $500 now and I can tell you that he views money as a tool to make more money. (It would be much higher if he wasn’t so generous towards others. Generosity will reap more reward in the long run then being stingy, I’m convinced.)
For now, his main responsibility is cleaning the appliances he purchases. He also hangs around me during the sale and delivery. I’ve been giving him more responsibility as he can handle it. Eventually he will be in charge of posting the items for sale as well. He’s already started finding good appliances himself using Craigslist’s item preview-image on the appliance pages to find the ones we usually sell. He can now read the brand name, price and part of the description. He looks for appliances all on his own initiative. It’s great to see his passion.
This is just the start. Over time, I will encourage him to start researching other items and bigger investments. I’m still learning and growing in my knowledge and understanding of money and investments. As I learn, so will he. Also, it’s worth noting that he’s still a kid, and my wife is very good about reminding me that. She helps me keep things in perspective.
How to get Started
First off, you need to be saving/investing yourself, for most of what children learn is caught rather that just taught to them. If you need some start up cash, start off by selling everything that you don’t actively use or need. I mean everything. Most of what is in your garage can and should be sold. Pick a few hobbies and enjoy those few, not ten. If you golf every 4 years, sell your clubs. If you use a boat once a year for a week, sell the boat. Have a garage sale every year. The point is, if you don’t have money to start with, sell some things. No excuses.
As far what to buy and sell with your kids, it can be anything. You can make money on just about anything if your patient. In the summer it’s as easy as going to garage sales where you will find a mountain of items to resell. Other times of the year, you will have to search Craigslist persistently, but you will find items. You might already an asset that you and your child can start making money with. The point is to teach them to save and how to make their money work for them so their money makes money. Buying items they can touch, see, clean etc is huge. The process needs to be as real as possible.
You might start off with the grand vision of raising a future Fortune 500 CEO, but don’t be surprised if you end up with a great relationship with your child as well. They will never forget the time you spend with them teaching them about life. It’s a wise investment.
I would love to hear your thoughts and stories of how you’ve taught your children how to save, invest or start businesses. It would be great to hear a few stories about how/what those people are doing now as adults having had such an early start.