I didn't start my millionaire journey until I was 25 years old. I'll be 50 this year. With six kids, I am now faced with how to do I transfer what I've learned about money and wealth to my children. My wife and I have a chance to empower our children to have a more successful, prosperous and fulfilling life than we've had. I wish it was easy, but it's not.
Neither my wife nor I grew up in families with good financial habits. In fact, it was the opposite. Growing up in poorly managed financial households means that you don't have a good example of what to do with your finances. It also means, that when it comes time to educate your children, you don't have a good frame of reference to copy. You have to figure it all out.
My oldest child is now 20 and in his third year of college. My second son is 17. They've grown up with me working in the financial world for 20 years now and they know the basics. Earn money. Don't spend all your money. Stay out of debt. Live frugally. My oldest two boys both worked and saved up several thousand dollars to buy their first cars at age 16. These used cars should last them about 10 years without any issues. That's enough to get them through high school and college. They saved 1/2 the money, and my wife and I matched what they saved. Both cars cost around $6,000 each. One Honda CRV and one Nissan XTerra. My first car cost $120. It was all I could afford at the time. It came with 4 big dents, a broken transmission, and an engine that needed some work. Don't feel sad for me. I loved that car! I think I did a decent job helping my sons get their first cars.
But when it comes to multiplying money, I haven't done the best job of transferring that concept to my oldest two boys. 2020 is the first year I've worked on transferring the investing principles of becoming millionaire to my children.
As my wife and I've thought over how to transfer my millionaire principles to our children, we've had a whole new set of challenges to think through. The beautiful thing is that the principles that I used to become a millionaire work for anyone...including kids. Kids enjoy the benefit of starting earlier than us adults. Even though I missed some opportunities with my twenty year old son, he's still getting started five years earlier than I did. My seventeen year old is getting started 8 years earlier. Both of my boys and all of my children have the opportunity to become millionaires by age 30! That's 10 years earlier that I reached millionaire status! Crazy! I'm both a little jealous and a quite happy for them.
So how do you help your kids to become millionaires? I'm glad you asked.
Getting Teenagers Started on Their Millionaire Journey
Becoming a millionaire is really a lot simpler than it seems. I believe we overthink it and over complicate. While some people are pushing get out of debt and get on a budget, I believe the most important step is simply believing you can do it (make the millionaire choice), and getting started (get your money moving in the right direction). While I love a detailed millionaire plan, you can get your teenagers started with a "baby millionaire plan." A baby millionaire plan is pretty simple and includes 3 things.
Step 1 - Simple money framework for teenagers. Don't over complicate money principles for teenagers. Give them something simple that they can follow. A simple plan for teenage money is 30% spending, 30% saving, 30% investing, 10% giving. This helps your teenager learn to live on a limited amount of money (spending), develop a habit of saving for emergency needs or larger purchases (saving), investing (building wealth), and giving (helping others in need and serving God). This basic financial model is something your teen can take into their adult life.
Step 2 - Develop a Millionaire Mindset by Investing Early. Rather than focus on budgeting, help your teen focus on investing. Once they understand the principles of investing and building wealth, you'll find that they will shrink their budget to accommodate their investing habits. By putting 30% of their income into investing, they are automatically tightening their budget by 30%, and they are light years ahead of everyone else their age. If they keep that 30% as adults, they'll quickly reach their millionaire goal. The average American has a negative savings rate, and many financial advisors advocate for a 15% retirement investing rate. At 30% your teen is exceeding all the averages.
I wish I could say that I adopted this model with my first child, but sadly, we focused primarily on saving for his auto and college needs. 2020 has been our first year investing. For my oldest son, we chose to invest in silver. He was able to buy 20 ounces of silver. Why did we pick silver? Read my article "Is It Time to Buy Silver?" My seventeen year old son chose to buy stock and invested in Apple. He was able to buy one share of apple stock around $400. Within a few weeks, Apple's stock split 4 to 1, and now he has 4 shares of Apple. He's watching his stock weekly. It's fun when he comes to me each week with an update, "I made $30 on my stock this week!" We're also implementing the 30% framework where he is investing 30% of what he earns each week on the job.
Since he's only 17, he couldn't setup his own stock account. We setup a child account with me as the custodian on the account. We set the account up through eTrade, one of the market leader investing platforms.
Step 3 - Get Their Retirement Started Early! Start a Roth IRA for Your Teen.
As a parent, you can jump start your kids retirement by setting up and funding their Roth IRA. As long as your child works and has earned income, you are allowed to fund their Roth IRA up to the amount of money they earned or the Roth limit whichever is lower. For example: If your teen earned $1,000, you can fund their Roth IRA for $1,000. If they earned $5,500, you can fund their Roth for up to $5,500. A good way to get started is with a low fee Index fund like an S&P Index or Nasdaq Index fund through Vanguard.
This is an extremely powerful opportunity to impact your child's financial life since $10,000 invested in a 10-12% growth stock mutual fund by age 18 can mature in $1,000,000 at age 65. Whatever amount you decide, it will help get your teen interested in investing and improving their financial future.
The trick with all of these principles is to get your teen interested in investing and building wealth. Once they get a taste and vision of what this could mean for their future, they'll be all-in. You're just getting the fire started!