What The 1% Teach Their Kids About Money

Hey there, real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Here's a hard truth. If you don't teach your kids about money, TikTok will. And guess which lesson it's teaching. Spend now, regret later. The 1%. They do something completely different. They don't give their kids money. They give them a system. And in this episode, I'm going to show you that system, the four bucket blueprint and why it creates independent, generous and financially confident kids while everyone else's are still waiting for their allowance and their allowance raise. This is building your money machine where we help you master your money, eliminate financial stress and live a life of choice. Because earning more doesn't make you free. A money machine does. And I'm your host, Mel Abraham, and I'm a money mentor, entrepreneur, cpa. But more importantly, I'm a dad that has traveled this financial freedom journey and I want this for you. Let's jump in. I had a young lady come up to me after I finished a big keynote at a big conference and she came up to me, she says, I have a five year old daughter at home. How do I make sure that I raise someone that is financially smart, financially literate, financially independent, but isn't entitled, isn't anxious, isn't greedy? At the same time, I'm afraid that maybe the money conversations will build entitlement and greed and everything. And so what would you tell me? And I go, that is such a good question. Because every parent has that question, or they should. And many of us parents were never, we were never taught about money. We didn't talk about money. Growing up in my household, you didn't talk about money. It was impolite. I still remember the day that my mom, this friend of ours came over. They drove a very, very nice car. I didn't know what, I didn't even know what the car was, but it was really nice, a sports car. And we're sitting across the dinner table from him and I look at him and say, how much money do you make? Like my mom Came unglued. Okay, yeah, that might have been a little direct and impolite, but I was a kid, what do I know? But we want to understand this and have conversations and everything. And here's the thing, if you aren't having conversations around money, with your child, around spending around those things, then they'll have the conversations elsewhere. And most likely it's TikTok. And what's TikTok going to teach them? It's going to teach them to spend now, regret later. Oh, just put it on a payment plan. Oh, you're entitled to this. And so all of a sudden they get a different set of values, a different set of character. And that may not be what we want. So I think we need to get in the game and, and be very proactive with our kids. And I'm going to tell you exactly what I did as a single full time dad raising my son from five and a half years old. I'm going to give you my system, the four bucket blueprint system that I used with him. And I think it turned out all right. He turned out to be do pretty good on it and he's got a good set of head on his shoulders and he's got good value. So here's what happened. When Jeremy was about 10, I wanted to teach him about money, but I didn't want to just give him an allowance for doing things around the house. He's part of a household. As part of that household, he had some chores, but there was some value add, things he could do around my business and some things like that where when he did them, he got paid a commission, okay. And so I wanted to teach him a lesson about one, work ethic, two, value creation, okay? In the sense that if he created value, helping with a project in my business, organizing things, filing things, shredding things, those kinds of things, he would earn money, okay? Because I didn't want him to just know how to spend money. I wanted him to understand how to earn, how to manage, how to multiply. And so it started with that and very, very fundamental, very, very simple. But then what I looked at is, okay, how do I have the conversations around things like save, give, invest and live. And the reality is that I created those four buckets and it became a ritual for us that every time he earned money, we would go through where it went and why. And it wasn't about the math, it was about building his money mindset and it was about the conversations that came with it. And so I'm going to break down Each of the buckets, the percentages, and exactly how we did it. So you can do the same in your house. All right? So if you're a parent, if you're soon to be parent, grandparent, okay, this is the way to do it because it starts a whole different conversation and you get a chance to really work with your kids to allow them to grow. So the first bucket is the savings bucket. This is the foundation. And the purpose of the bucket is to teach people patience, is to teach planning, and is to teach the idea of frugalness in doing it. So here's how we did it, is that 30% of every dollar that he got would go into this savings bucket. This became a bank for him. Okay? Now, it wasn't a lot of money at the beginning, so we just did it there in the house. And in order for him to get a feel for it, I said, the more you put in here, I'll pay you something called interest every month. And I paid, you know, 3, 5, 6, 8% interest just so he would get the flavor of why, you know, that his money is making a little bit of money. Okay? So kids, I think kids need faster feedback than Wall street will provide. So that's why I did it. And I would actually put higher interest rates in to reward him to do it. So bottom line is that if he saved $20, I would pay him one or two dollars at the end of the month. And that one dollar was everything to him. He's going, wait a second, I didn't do anything for that. I said, no, you did. You saved for it. And it was proof that his money could make more. And I still remember when Jeremy saw the balance going up, he says, well, my money made money. Yeah, okay. And that's how it starts. It's about the idea of what money is meant for and stewardship and everything. And we're not using those big words with them, but we're starting to shift them from a spending mentality to. And I want mentality to a stewardship and a balanced mentality in doing that. So the whole idea with the savings bucket was simply for. For him to be frugal and look at what it was that he was going. So he wasn't going to just go, cash in, cash out, cash in, cash out. And then the second bucket was the giving bucket. This was the heart of wealth. I mean, it really is to be able to have the conversation around generosity, to be able to have the conversation around gratitude, abundance, helping others. And here we allocated 10 to 20% of what he earned into that bucket. But here's the key. It can't just be writing a check or clicking donate. It has to be tangible. I really believe that. So when I owned the martial arts studio for 11, I had a school for 11 years. We did something powerful every single year. We gathered the kids together and we would build meal baskets for the families and for families that maybe have fallen on hard times. And if they had kids, we would get kids toys based on age appropriate toys. The kids would go out and pick out groceries and pack the baskets and decorate them. And then they came with us to deliver them. And the cool thing was, is that we delivered them anonymously. We didn't give them our names, we didn't represent the school. We didn't have our school t shirts on. It was literally the joy of creating something and then dropping the baskets off. And we never said who it was from. We simply said, this is from someone who cares. And when you have a chance, pay it forward. I hope this helps. And what happened next, really, I think, was beautiful. The kids throughout this, they. They found so much joy. This became one of the. Their favorite things to do every single year. They love packing them, they love giving them, they love seeing the families, they love seeing the kids grab the toys and see the happiness in their face. They realize that giving isn't. Isn't about losing something. It was about gaining fulfillment. And so the give basket, the bucket in this, in this formula, this blueprint, is huge. And so what we did is we would put money into the. Into the bucket, into the bucket. And then at the end of the year or end of six months, we would literally take and say, what cause what do you want to get behind? What do you want to do with it? That is a tangible give to someone else. Okay? Because generosity feels good. And when you give them that sense of it early, they'll carry it for life. They'll carry it for life. That leads to the third bucket. And the third bucket was the living bucket. That's the now. That's the now. The reason this bucket is so important is because it gives you an opportunity to teach them priorities. It teaches them responsibility. When Jeremy was getting paid, he then was paying for his own lunches. He then was paying for some of his own toys. And so, so. And I was running for some the things that he did, the tasks he did there around the business. I ran it through the business, that type of thing, and there was some things I did there. But. But the bottom line was for him to realize, you can't have everything today. So there are priorities. What really matters to you? If you take that money and you say I've got $10, I can't have everything there. Now mind you, he never went hungry. When I said he paid for his lunches, he always paid for his lunches. That became was a top priority. And I made sure he had enough money to take care of that and more, okay? But beyond that, he had to decide what was more important. So he would put the top priorities and use this bucket to fund those things and teach him about priorities. Maybe delay gratification a bit in the process. And so that this bucket got 40% of his earnings. This is, this is kind of the free money bucket for them where they can spend it on what matters to them, okay? But there was a rule, okay? There was a rule. Once it's gone, it's gone. No bailouts. Don't come to dad, okay? Because what we're teaching here is choices and consequences. So if they blow it on a $10 toy now and they gotta wait for the next payday, okay? No different than real life. If they want to buy a $25 game that they really wanted, then they may have to wait a couple paydays. Have the patience to do it. It's not punishment, it's practice. Okay? Because here's the truth. We don't want to protect our kids from every financial mistake. We actually want, want them to make them in a safe place, to make them early so we can have the lessons and we can have the conversations around it in a simple way. That leads me to the investing bucket. Now truth be told, I didn't bring the investing bucket in to the game until a couple of years later. So I was starting with three buckets. Then I brought the investing bucket in. And the reason I bought the investing bucket is because this is the multiplier. I needed him to understand that, look, you can't save your way to wealth. I've said this on other videos that there needs to be a portion that you're putting away for your future. Savings is for safety and frugalness and understanding that but for the future. And it's hard to teach kids about the future, but what you can start to talk about is options and freedom. They understand that. They won't understand things like retirement, but bottom line is that it teaches. This bucket is meant to teach them growth. It's get meant to teach them ownership of their life and their life choices. It's meant to teach them a longer term view and vision okay. And I started it around 10, 11, 12 years old. But you could have, you can actually start doing this, I think right around 10, 9, 10 years old. I haven't put 10 to 20% here. Okay, 10 to 20% here. Now there's something else that I did that was the game changer. Okay? Much like a 401k employer match, if you will. I told him that every dollar that he invested in this bucket, okay, I would match. So now if he took $2 and put it in this bucket, I put $2 to match it. So now all of a sudden, he saw the money was growing because it was earning something when we, when we invest it, but it was also growing because daddy, okay, was matching it like an employer might. Okay, so, so what you're doing when you do that and you use a matching system, and I, I did a skin in the game system with my son all the time. So when it came to buying his, his first car, I said, I will match your down payment, so see how much you can get for your down payment, and I will match it. But he needed to meet me halfway. There was no, I'm just going to buy it for you. And I live in a really nice area. And you know, there's a lot of, unfortunately, I think a lot of kids that they get handed a BMW when they, when they turn 16, and there's no appreciation, there's no gratitude, there's, there's, and there's attitude. And that's what I didn't want with him. Okay? So when you match, you're rewarding them. But more importantly, I think you're saying this, I believe in your future. So you invest in it and I'll invest in you. That's really the message. I mean, that you're, you're giving to them. And over time, they'll start to see that investing is about ownership. It's not about gambling. And then maybe, you know, instead of just buying the Nike shoes, you might take that money that's in the investing pool and buy a share of Nike or Apple or Disney. See, it shifts their mindset from. Well, it shifts and separates their mindset from being consumer driven to creator driven. And I think that this is kind of an important thing that we can start to build. And so. And you can do this. There's some nuanced things that you can do with Jeremy. What he was doing is he was working for me as he got older too. And so we opened up a custodial Roth IRA account. So the money that he was investing would go into custodial Roth and there was a match in there that I put in there for him. And so now that grows 100% tax free. Okay. So that's the thing that really starts to drive things. So let's just look at a quick example. Let's say your child earns $40 in a week. So $12 would go into the savings bucket and you would pay 3, 5, maybe 10% monthly interest on it to him. Okay. $6 would go into the giving bucket and they get a chance to choose the cause of the family to help. Okay, $16 would go into the living bucket. They get to enjoy the rewards of their work and make the decisions of the priorities. And then $6 would go into the investing bucket and I would then match it, which meant that there was $12 that goes towards ownership, if you will. So now the money isn't just math. It's a motivator. It's a system that rewards patience, purpose, progress and everything. This is the thing that really starts to drive the work that we do and what I did with Jeremy. Now once they start to earn real money, how do you transition from buckets or jars on a countertop to real accounts? Well, once they start earning real money, maybe they, they're starting, they got a paper route or a mowing lawns or babysitting or helping in the business like Jeremy did. You can upgrade from the buckets and jars to real accounts. So like I said, you can have a custodial savings account in for the save bucket. You can make it digital and they can watch the balance and the interest grow over, over time. You can create a custodial brokerage account because they're underage. They can't have their own account without you on it. And in that brokerage account, you can allow them buy fractional shares in companies like Apple, Disney, Nike, Google, you know, the things that maybe they like. It makes investing personal for them. Okay. And then if we put into a, a retirement type of account, I love the Roth ira, custodial Roth IRA because it's a powerhouse. Because they're so young, the amount of growth that they will receive is multiples like well over 100%. So they don't need a lot to make a lot over time. So if they earn income and they want to put it into a retirement type of an account, I would use a custodial Roth to allow them to do it. And it grows tax free for life. That, that sets them up tremendously down the road. Down the road. Okay, so that's the. That's the game we play. But the important thing is this. I'm teaching values. I'm teaching financial literacy, and I'm having conversations. And the conversations really start to drive their money, their money mindset and everything. And some of the conversations you can start tonight. Okay? Savings is about. What would it make? Make it worth waiting for? Okay? That. That's about savings. Giving is about, what could you use our help right now? What. What person, what family, what cause could use our help? Living is about. If you buy this, what are you saying no to? If investing is, what company would you want to own? Okay. They're questions that build not just financial literacy, but they're going to build the character in the process, okay? And let's be real, it's a whole lot cheaper, them learning those lessons now with you than later with a credit card. Okay? So here's how to get started. Here's the way I would do it. Okay? The first step is to pick your system. Jars, envelopes, buckets, Digital doesn't matter. But what does matter is to make it tangible and visible. They got to see it. Okay? The second step is to set your percentages. Start with 30% save, 10% give, 40% live, and 20% invest. Okay? The third step is to add incentives. Okay? Pay interest on the savings account, match investing dollar for dollar, two dollars for dollar one, half a dollar. It doesn't matter. Just add incentives to keep them in the game. Okay? Number four, have a monthly money meeting. Just celebrate the progress, talk about the choices, make it fun. Snacks, music, high fives, whatever it is, but make it fun and have the conversations. And number five, just keep the dialogue going. Ask questions, share your own lessons. Jeremy. As he got older, I would take him to my wealth team meetings at least one a year. He didn't understand all the numbers, but he could listen to the conversations. He could then ask questions. Because what they learn from you will then echo for decades. Okay? That's the thing. This was so important. I put a chapter in the book, in my book building your money machine that talks about skill sets before assets, okay? Because I don't believe that you. You ever pass on the assets unless you pass on the skill sets first. Okay? Because if they don't have the skill sets to steward what you have built in your wealth, they're going to squander it. There is. There is data out there that. That shows that by the second generation, 70% of the wealth is gone. Why? Because they transferred assets without the skill sets. Give your kids the skill sets. They need to save, to give, to live, to invest, to live a financially independent life. So they learn control, they learn confidence, they learn choice. Then that allows us to raise a generation that doesn't chase money, but creates meaning. Okay? I hope that this connected with you. I hope that this is meaningful for you and that you'll take it on and put this into your home, put this into your children's lives. Let me tell you the results. My son today is 35 years old. His wife is 32. They have two beautiful little girls, and they have four homes and a multimillion dollar net worth. Okay? The seeds that you plant in your children today can set them up for a wonderful life tomorrow because those seeds will be coded in your values, character, knowledge, and information. Okay? Because money isn't just math. It's a mindset. And when our kids learn to handle it wisely, they're not just building wealth. You're giving them freedom. All right? That's the game. That's the. The play for your kids, for you as a parent. And I'll tell you that it's one of my proudest successes is seeing the man he's become, the husband he is and the dad that he's being. All right? I hope that this is meaningful for you and that you found it valuable. And for anyone else out there that you know, that has kids, wants to have kids, do me a favor, share this out, because here's the thing. We raise a bunch of financially literate, independent children and we start to transform the financial destiny of lives forever. Generations. Forever. All right? I can't wait to see you on your financial journey and your path to financial freedom yourself also. But at the same time, let's make sure that we do this together on the journey. So make sure that you're subscribed down below and that at the same time, if you have questions or anything, send them to me. Let me help. Let me guide you on your path to financial freedom. All right? Until I get to see chance to see you in the next one. As I always say, always, always strive to live a life that always you. See you next one. Thank you for listening to the affluent entrepreneurship with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group group now by going to melabraham.com group and I'll see you there. And that's it for this episode of building your money machine where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcasts, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright and I want to help each and every one of you claim it. Thanks so much.