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Forget giving kids an allowance.
Pay your kids interest instead.
I'll share the system I used to engrain the power of compounding and business acumen into my kids.
Here's how it works and the results:
Pay your kids interest instead.
I'll share the system I used to engrain the power of compounding and business acumen into my kids.
Here's how it works and the results:
At around the age of 2 or 3, I explained to each of my kids the concept of saving money.
However, saving is not the main goal.
Making sure money works for you while you sleep is the most important component.
However, saving is not the main goal.
Making sure money works for you while you sleep is the most important component.
I showed them that they can let others use their money. In return they get paid for borrowing it.
To make it simple, I said, give me the money, I'll loan it out for you. You will receive 12% a year. Or 1% a month.
To make it simple, I said, give me the money, I'll loan it out for you. You will receive 12% a year. Or 1% a month.
Naturally it's easier for them to understand if they can visualize it.
So I setup a simple Google Sheet to track it. It shows:
- how much money they put in
- how much interest they earn per day
- how much interest they earned so far
- how much they have in total now
So I setup a simple Google Sheet to track it. It shows:
- how much money they put in
- how much interest they earn per day
- how much interest they earned so far
- how much they have in total now
You can download my Google Sheet template here: https://docs.google.com/spreadsheets/d/1gYE7bbu9lFbxIWQCGezq2H1aM9drrnL-EUm7YIiVsIQ/edit?usp=sharing
To them its like a bank account, but it keeps growing with a daily compounded rate.
They call it a "Loan Account".
They call it a "Loan Account".
As they get older and know how to access Google Sheets, its shared with them so they can check it any time on their own.
So where do they get money from for the loan account?
We don't give them an allowance. So they normally start with very little that they have in their fun piggy bank.
Typically they get money from birthday gifts, holiday gifts, and then odd jobs as they get older.
We don't give them an allowance. So they normally start with very little that they have in their fun piggy bank.
Typically they get money from birthday gifts, holiday gifts, and then odd jobs as they get older.
The outcome was amazing. The following are some of the results I noticed as they get older:
Result 1 - They're infatuated by how much they're earning per day, even if its $0.55 per day, that's a lot of money for a kid.
It also gamified it for them to add more money so that the daily earnings go up.
There is instant gratification of sort to see that on the sheet.
It also gamified it for them to add more money so that the daily earnings go up.
There is instant gratification of sort to see that on the sheet.
Result 2 - When their grandparents ask them what they want for their birthday, the typical response is "money".
That's because they'd rather invest it into the Loan Account and generate more money.
They have naturally built up that "invest it" mentality.
That's because they'd rather invest it into the Loan Account and generate more money.
They have naturally built up that "invest it" mentality.
Result 3 - Over the years it would become natural to think of money as income generating tool. Rather than a tool that's there to buy something as soon as you get it.
The incentive was flipped to invest instead of spend.
The incentive was flipped to invest instead of spend.
They spend it at times, but way more cautiously because there is a solid understanding of the impact it will have on their daily income.
Going from earning $0.55 down to $0.50 per day is no fun.
Going from earning $0.55 down to $0.50 per day is no fun.
Result 4 - They noticed that their daily earnings went up, even if they didn't add any money into the a Loan Account.
They naturally learned the magic of compounding.
They naturally learned the magic of compounding.
Result 5 - They focus on the long term impact of money, rather than a short term gratification it may bring.
This was an experiment many years in the making. I hope you find it helpful. If you did, retweet the first tweet to share thread.
I bootstrapped to $100M+ in profits across multiple industries. Follow me for more insightful threads and thoughts that helped me get there.
I bootstrapped to $100M+ in profits across multiple industries. Follow me for more insightful threads and thoughts that helped me get there.
