With access to a global customer base through the internet and social media, kids are getting rich at a younger and younger age. Haven’t you heard of Matthew Zuckerberg (Mark’s brother) who invented Toddler Wall – a new social media platform for babies? He was 3 when he got his first round of funding which made him a millionaire. So how do you raise kids with this kind of money?
Wait, that title threw me off. I actually wanted to talk about how to introduce the concept of saving money to kids – and I’m obviously an expert because my wife and I don’t have kids. Maybe I should go back and delete the first two paragraphs and start over….
Teaching kids how to handle money is important. Otherwise, they might grow up like Vince Young who had to take a $1.9 million dollar loan because he didn’t receive a paycheck during last year’s NFL lockout. The kids and money topic came to my mind because I was hanging out with my family last weekend and chilling with my nieces and nephews (two girls – 5 & 4, and two boys – 3 & 2). They asked me about my blog and how they could start saving and investing for the long term – ok, that’s not true either.
While I was there, the 4 year old girl brought me her My Little Pony doll. I told her how awesome it was and that was that. Only later did I find out that she bought the doll on her own with money she saved up by doing chores! After I learned that, I wish I paid more attention to her bringing it in! I asked my brother how they taught her about money and that’s the main point of this post.
She receives a base weekly commission for doing her chores, and then she can make additional money each week by doing extra tasks. Notice how I use the term “commission” and not allowance. I picked this up from Dave Ramsey because he emphasizes the point that you shouldn’t just give kids money (too much like welfare) but they should earn it even at a young age. Kids allegedly cost $250k to raise anyway, so you don’t need to provide welfare to them!
When she receives her commission or any other income, they have her divide it into 1/3rds, with equal amounts going to spending, long term savings, and college. The spending category goes for short-term items she wants to buy, such as the My Little Pony doll. The long term savings is for bigger items like a car, and college savings category is for… well, college.
Here’s the cutest part of the story, they let her pick what she wanted to save up for and she’s currently into My Little Ponies so she decided on a large pony. Every time they were in the store, she’d ask to walk buy the toy aisle to make sure her my little pony was still there! My brother and his wife decided it’d be best to go ahead and buy the toy just to assure it’d be available when she went to buy it.
After she saved up her $40 after numerous months, it was time to go buy the pony and reap the benefit of her savings (I guess they took the other pony back). The toy now means even more to her because of what she went through to get it. There’s even evidence that adults need this to be happy. The evidence states that ultra-rich people aren’t happy with purchases because they don’t get the positive feelings that come with saving up and buying something. They can buy whatever they want and it means nothing to them. Add one point to the “better to not grow up rich” side.
They’re starting her off with a great methodology that work equals money, which equals savings, which equals buying what you want with cash. She doesn’t use the kiddo credit card; she walks in with a roll of Benjamins and delivers (or maybe George Washingtons). As she gets older they’ll evolve the process and add in addition element such as giving.
For all of you parents, do you do something similar to teach kids about money? For you non parents, were you raised in a way that has helped you financially now? Enlighten us in the comments section!