Ep. 120 How to Teach Your Children to be Money Pros

I tell my boys that you don't necessarily have to go to college. This may raise some eyebrows out there. It's not that I don't want my children to go to college. It's that I want them to think critically about this choice. Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larson. If you haven't yet, get a copy of our book for free at our website nextlevelincome.com that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's episode, we're going to be talking about five tips to teach your kids how to be money pros. This is a re air of episode 82, which you may have already heard. The reason we're re airing it is because these five tips have been turned into a chapter. For a new book that you can get for free, go to nextlevelincome.com kids and you can get no problem parenting raising your kiddos with more confidence and and less fear. The book is on there. The five tips are on there. Take a look. And these are not only five tips that you can use to teach your kids more confidence and less fear when it comes to money, but also five tips and some information that you can use yourself. And hopefully you can use these not only to teach your children how to get one step closer to financial independence, but also you and your family as well. On today's show, I'm going to be talking about five ways to set your kids up for a lifetime of finance financial success. I'm going to be doing a solo podcast today, so I'm going to walk through this process with you also. If you're listening, go to our website nextlevelincome.com kids nextlevelincome.com kids and download our free PDF to follow along. As a parent, you may ask yourself, how do I teach my kids about money? What do you personally do with your children to set them up for financial success? I'm going to walk through five things that you can start doing today and teach your children about money dreams. Set them up for financial Success Before I get started, you need to have conversations about money with your children before we go through this process with them. You want to make it comfortable. In our household, we don't talk about specifics. This doesn't mean you have to talk about exactly how much money you make, what your net worth is, even though your children may ask you these questions, and as they become astute and say, hey, how much money do you have in the bank, dad? Hey, how much money did you get paid for that? How much money did we pay for that? You know, you can kind of speak in generalities, and that's okay to get started, but it's good to get them comfortable talking about these things. It's good to have your children understand that when you perform the work that you do as a professional or in your business, that that work produces an income, produces revenue that allows you to do things in your life, and that they can translate that into things like groceries, like when you go to the grocery store and it's okay to tell them what it costs for groceries. It's okay to tell them how much it costs to buy clothing, to go on vacation, to buy a new car. These things are important. And then they start to understand how much it is. So these five steps are going to allow them to build a process and a knowledge of money and allow them to start to understand the value of that money. Also, we're going to give you some more resources at that website, nextlevelincome.com kids, you can also get books. A little bright here, but you can get books like from my partner Dana Randazzo, for instance, the Boy who Lost His Wallet. So these are really good books that can allow you to start having these conversations with your children about money, and they're going to give you prompts to do it. And then as you walk through these five steps, it's going to make it that much easier. And this doesn't have to all be done at once. So let's dig in. Step number one, start a bank account for your children. Again. You can follow along on the PDF that you can download at nextlevelincome.com Kids, this is the easiest step. You can do it immediately. You can go right to your local bank that you bank with and you can start this account for your children. You're going to want to set up what's called a custodian account and take your children with you. Take your child with you when you set up this account. Let them get comfortable going into a bank in this day and age of sending these virtual digital payments using things like Venmo, Bitcoin, Apple Pay. We work with our babysitters, and we don't even pay them in cash anymore. We use Venmo or Apple Pay a lot of times. It's really Important to have children understand what a bank is and what a bank account is. That is also going to allow them the ability to deposit things like the money they get for their birthday, for holidays, or if you pay your kids an allowance. I'm going to tell you what we call an allowance in our household here in just a minute. They can deposit that there as well. The other thing that you're going to want to do is, is you are going to want to order what's called an accounting ledger. So this is off of Amazon, and if you go to the PDF in step two, pay your children, there's going to be a link for this. We've gotten away from having a balance checkbook and what the accounting ledger does, it allows you to put in the date, the description, the account, the payment for the deposits that you make. So step two, pay your children. We pay our children a dollar a day allowance, but we call it a salary. So our children know that every day they get a dollar. Now, what do they have to do for that dollar for that salary? This morning they unloaded the dishwasher. They vacuum, they do their own laundry, they clean up around the house. We have a pool. They scoop leaves out of the pool. They clean the pool. They do general family tasks. Now, what happens if they don't do those things? If they don't do their chores or their tasks, their daily jobs, they don't get their salary. If they basically, if they don't show up, it's the same thing. If you're at a job, you don't show up, you're probably not going to get paid. What about if they're disrespectful to their parents? Now you have a consequence. You can put a debit in their accounting ledger. If they're disrespectful, they might lose $5. They might have a pretty serious consequence if they leave the door open, if they leave the lights on. This is wasteful. In our household, we feel that that's a waste of resources. And we want to make sure that our children understand that there's a value attached to that. So as your children understand that there's a value attached to your time and your effort and your job and your business, and you get paid for that. They should also understand that if you're wasteful with money, you're losing that time, you're losing that value that you provided. So, you know, again, start an account, pay your children, use that accounting ledger. And it's really neat to see how competitive it is. Also, you can Pay your children in your business. You may be surprised to learn that once your children are about eight years of age, they can actually start working out there. So if you have a business, consider things like modeling. So if you're using a lot of photo stock, like we have a blog, we use a lot of pictures on our blog. That is an area that we can use our children for models. We can pay them for that service. Do you have company cars? I don't know what it costs you, but if I get my car detailed, it could be hundreds of dollars to have my car detailed. I'd much rather pay my son maybe a more modest amount of money, say $50 to clean and wash the company car and do that. We have Airbnbs. What about having your children manage your real estate properties or having a role in managing those, cleaning those? We pay cleaners somewhere between 50 and $150 to clean our properties. You can also utilize your children in that capacity. They can have a cleaning service. And our goal is to have our children work at least 10 hours a week. So that's only a couple hours a day. And there's a lot of things that can be done in that time. If you do pay your children through your business, work with your accountant, make sure you set things up properly. But once they have that earned income, what's great is you can do things like set up a Roth IRA that they can contribute to with this earned income. And that flows right into step number three, which is teach your children about investing. Number three, teach your children about investing. So we do a couple things. A few years ago, before our boys had Roth IRAs, what I would do is I would take my boys to the bank and let's say they made $30 in salary in their allowance that month. So they made $30. They had a, you know, kind of an average month. What I said was, the Larson family rule, our goal is to save 50% of what we make after taxes. Now, they're not paying taxes on that $30 cash that we transfer into that account. So for all intents and purposes, that $30 is after tax for them. But so they have $30. If they save 15, I will match that $15. So now I'm out of pocket $45, but my boys now have $30 in the bank, and they have $15 in their pocket that they can go spend. And I have the same incentive. For instance, if they get $100 for their birthday, if they put all $100 in the bank, they'll get $100 match for me, they put $50 in, they'll get a $50 match. So what happens is they get to spend that 50. They get $100 that's in the bank. And it's really neat when you have two children to watch them be competitive with their bank accounts. It's really cool. In today's age of very low interest rates, you get just barely over 0% at the bank. Seeing a few cents in a bank account isn't that motivating. But seeing your $1 deposited grow to $2 immediately is some nice instant gratification. And it's a really simple way. It teaches children how money can work for them if they save it. So that's really step one is to save. In the next level income philosophy, we talk about how to make money, how to keep money, and then ultimately how to grow your money. So this is really a keep strategy, like, let's figure out how to save your money before we start to grow it. Once you're at that stage where your children have earned income, you can set up a Roth ira. You can set this up through a lot of different brokerages. We use Vanguard. I've been using Vanguard since I was in college, since I was 18 years old myself. Very comfortable with it. But you can set up one of these custodian accounts with almost any of the larger online brokerages that are out there. And what we do is the money that they earn that's then deposited via paycheck into their bank accounts, we automatically pull that out and put that into their Roth IRA on a regular basis. So they never really get to touch that, but they get to see it. And here's how we do paper statements. So those paper statements come in, it has their name on it. So both of my sons get their statements every month. They open them and they get to see the amount that their account has grown over that month, over that quarter, over that year. And then the conversation that we have around that is, how much money did you make this month in your salary? So if it's $30 like in the previous example, they can then look. And some months they may earn $100 from their investments, from the growth that they see. The next question may be, well, Chris, what do I invested in? There's a lot of options out there. I note in the PDF that our money or the boys money goes into a Vanguard Target retirement account. It's very easy. We're talking about fairly low dollar amounts. So this is a really nice diversification. I'm not really going to get into how to pick those strategies. There's a ton of information out there that you can use. But again, step three, teach your children how to save, how to invest. Today's show is sponsored by Money Insights and their investment optimizer strategy. In my book, I share how I use the same strategy starting over a decade ago to invest my money in two places at one time. This strategy has been used by the wealthiest for generations for estate planning, minimizing taxes, preserving wealth, and increasing stability for their investments. Now you can do the same thing. In addition, you can build a plan to build an emergency fund, pay for college, fund a business plan for retirement, and ultimately optimize your total financial picture. To find out more information, check us out at the banking link@nextlevelincome.com Number four, start a business with your children. So once your children understand the importance of banking, of earning money, of investing, we're going to take this to the next level. The first business we started with my children was a jump rope business. So this was a few years ago. I went online, I did some research, and you want to look at products that have a demand and that are easy for your children to understand. But what we did was we bought the supplies, we bought jump ropes unassembled from China for about $2 per unit. And then what we did, the boys assembled it, assembled those jump ropes. And then we go to CrossFit. We go to a CrossFit gym and almost everybody uses a jump rope there. And they would come on the weekends, on Saturday mornings, which they always would, they'd come with us and they would offer jump ropes for sale for $10 a piece. So they were making an $8 profit per jump rope. And they'd usually sell two to five jump ropes in a morning when they would normally just be sitting there doing nothing or playing on their iPads. So it really taught them a few different things, how to identify a need or demand putting an upfront investment into a business because they had to borrow about $100 from me to get started. Number three, this is really important. I've been in sales for almost my entire life, certainly my entire adult life. And what they learned was they had to communicate with people. They had to communicate the value of what they had, of what they were doing, also accounting and borrowing. So they borrowed that $100 from me. They had to account for their sales and they figured out what their profit was. And then they also got to figure out what their profit was versus what their salary was. So what they were getting paid at home and then what profit there was. And let's take that weekend where they sold five jump ropes. So they went home with $40 profit split two ways. So they got $20 apiece. And that was for less than an hour's worth of time when they were really sitting there playing video games for about 50 minutes of that hour and they walked out of there with $20. And, and we said, all right, boys, you have a business now. You made $20 in one morning. How many days would that have taken you? And you know, the answer is it took them about three weeks to make that in their day to day business. So that's a very impactful lesson for children. And then they now understand that they don't have to go work for somebody to make money. They can actually create a business with a product that's in demand and work for themselves. So we've gone through four steps now of how to teach your children about money, how to turn them into money pros. After we've become comfortable having those conversations with our children, what is the biggest financial decision that children, as they become adults, are going to make? Probably the choice of going to college. My boys talk about when they go to college. When they say that, I always ask them, why are you going to go to college? What are you going to study? I think in today's world, the financial equation of going to college is vastly different than it was 40 years ago or even 20 years ago. Forty years ago, the cost of college was about 10 times less than it was when I went to college. Today it's about 10 times more. So in two generations, we've increased the cost of college like 100 times. It's incredible to see how much it's increased. And, and it's my opinion that it doesn't make sense for a lot of children to go to college if they don't know what they're going to do if they're not learning a skill. There's a great article that I referenced in the PDF and I tell my boys that you don't necessarily have to go to college. This may raise some eyebrows out there. It's not that I don't want my children to go to college. It's that I want them to think critically about this choice and I want them to understand the financial ramifications. Now, my younger son, he loves Legos, he loves to build, he loves cars, he wants to design cars, he wants to go to school, he wants to be an engineer, and he wants to design cars. That's his dream. That's probably a good option for somebody to go to college, learn how to engineer, learn the programming and learn those skills. Although I don't know what's going to change over the next 10 years. He may be able to figure that all out online by that point and design a car before he even gets to college. But in today's day and age, I'm assuming that that's a pretty good option. My older son, he wants to go to college and play lacrosse. Now, do I want to pay $50,000 a year for him to go play lacrosse in college? I prefer him to get a scholarship. That would be fantastic. He also is considering being a Navy seal, so perhaps a Naval Academy or an option like that would be a good choice for him. But my point is that there are options outside of just college. As a parent, I believe it's our responsibility to teach our children the roi, the return on investment of college. And again, this may not be something you're comfortable with at this time. This is why I'm having this conversation. You need to be able to understand, if you invest, say, $100,000 in a college education, what is the value, what is the financial value going to be to your child that spends that $100,000, whether that's your money that you've saved, whether that's in the form of a college loan, for instance, that they take out. The fact of the matter is we do have the resources for our children to go to college. However, let's assume it's going to cost $100,000. I want my boys to be able to understand if they took the $100,000 and went to school, what that would yield, what dividend, what result that would yield for them, what return that would yield for them. I also want them to understand if they knew how to invest that money, what it would become. Now, you may be thinking, yeah, Chris, but if you go to college, you're going to make a million dollars more on average than that person that didn't. Well, college is good at picking winners. Colleges are really good Ivy League schools. They pick winners whether they went to college or not. Some people self select. When they don't go to college, they decide that that's not for them. They're not going to get any value from that. So it's really an imperfect system and it's a really imperfect equation. And here's why. If you didn't go to college for those four years and you worked and you took that $100,000 and you invested it, you would have more than a million dollars at the end of your lifetime. So I would argue that most people are actually worse off financially for going to college, and they would be better off spending those four years in an apprenticeship working, developing a sales skill, learning how to invest, how to buy real estate and create value, and then determining whether it's worth going back to college at that time. Then you may be saying, well, there's some cultural advantages to going to college, and we can get into some of those nuances. But the bott as I say, it's not what you learn in college that makes college worthwhile. It's what you learn outside of college, outside of class, that makes it worthwhile. So whatever your family's choice when it comes to college, make sure you don't just assume that college is the only choice for your children. Be sure you look at all the options out there, all the financial choices and I have a couple great articles on our blog that talk about how to pay for college using real estate. Also how to pay for college without using a 529 plan. Our family personally loves using cash value life insurance for this purpose. So I've went through the five different steps of teaching your children to be money pros. Number one, start bank accounts. Number two, pay your children. Number three, teach them about investing. Number four getting into advanced level start a business and number five finally, teach your children how to determine the return on an investment. In this case, we're talking about college because being a parent is a constant learning process, especially when it comes to a topic as complex as money. Be sure to make money conversations comfortable in your family and by following these five steps, you can be sure that you will be well on your way to raising young money pros. Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.