“Working to help parents raise money-smart kids.”
Hello friends!
I just returned from my first trip to Idaho to visit my brother. He just moved there from San Francisco. What a wonderful place for hiking and for a trail runner like me! The altitude difference (a mile high in the valley) was a nice challenge. 🏃🏻♂️
It’s also nice to return to Southern California at sea level. I missed the tropical storm that brought us some much-needed rain. I also missed the minor earthquake that gave SoCal a little jolt.
— 1 —
Exponential Growth: It’s not easy to grasp that a 7.0 earthquake isn’t two times stronger than the 5.0 earthquake that recently rattled LA. It’s 100 times more powerful! A 7.0 does more than jostle. It destroys.
Similarly, neither we nor our kids are wired to easily comprehend how we can become multi-millionaires by starting our investment journey early to take advantage of exponential growth by, in the words of Vanguard founder John Bogle, choosing to “stay the course.”
Just as it’s not obvious to most of us mere mortals how a logarithmic (exponential) scale like the earthquake-measuring Richter scale works, it’s not obvious how powerful the Rule of 72 can be. For the uninitiated, the Rule of 72 states that by dividing 72 by the annual growth rate, we can calculate how quickly our money will double. For example, divide 72 by a 7% growth rate and discover that our money will double in about 10 years. It’s a way to quickly discover the power of compounding.
For example, while it might take you thirty years to accumulate a net worth of $500k, if the market returns a consistent 7%, it will take you only 10 more years to double your money. And assuming a consistent growth rate, (a big if, of course) your money will double again in another 10 years.
Now, you’re a multi-milliionaire! 🤯
“Something that grows exponentially can become so valuable that it’s worth making an extraordinary effort to get it started.”
– Paul Graham, co-founder of startup incubator, Y-Combinator
And while Graham is referencing exponential growth in great businesses, his point should resonate with us because he’s really talking about investments. Our extraordinary effort should be directed at helping our kids start investing as early as possible.
The difficulty in grasping compounding is that the growth feels fairly flat for much of the journey.
The sooner our kids begin, the sooner they can take advantage of their best friend in the investment process: time. And, the sooner they can move up the curve.
So go ahead and print out the compounding chart we make available in our parent pack of useful downloads. Better yet, print a poster-size version and put it in your kid’s bedroom!
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The Wants Folder: Manisha Thakor shares a useful strategy that we can employ with our kids in this article from The Cut.
“I even make different folders on my phone for things I might like to buy — one for artwork, one for outdoor things, one for kitchen items, one for furniture. I so enjoy looking through those photos. It’s like curating my own coffee-table book of things I want in my life. But also, it helps me realize that you don’t always need to buy them.”
– Manisha Thakor, author of MoneyZen: The Secret to Finding Your “Enough”
I like this idea and even started my own “Wants” folder this week. I’ve shared this approach with my kids as well. (One of them suggested using Pinterest!) Thakor’s folders naturally pair with The Waiting Period strategy I’ve shared with you before in my book and in this post. For anything you or your kids might want, have them wait a week (or two) to make sure they actually want it.
I employed The Waiting Period in my own life when I wanted to be sure a pricey shoulder bag that I had been eyeing made sense to buy. I discussed this with Joe Saul-Sehy on The Stacking Benjamins podcast [41:20].
The Waiting Period and the Wants Folder are tools we can use as we work to move our kids away from conspicuous consumption and toward controlled consumption.
BTW, I’d like to extend a “Tip-of-the-Share-jar” thank you to PodFriend Bobbi Rebell for recommending this piece on LinkedIn.
— 3 —
The Obstacle is the Way: I notice many parents today trying to clear their kids’ paths of any conflict. I worry, though, about what I call the “curse of the conflict-free childhood.” Isn’t overcoming difficulty a skill we want our kids to learn? Aren’t we better off if our kids learn to deal with the lemons life launches at them? (And learning to make lemonade. 🍋)
I think every parent knows this to be true, while we are simultaneously clear-cutting our kids’ paths. When I accompanied my daughter selling duct-tape wallets door-to-door years ago, it took a lot of effort not to intervene when the sales calls weren’t going so well. 😂
“The world is constantly testing us. It asks: Are you worthy? Can you get past the things that inevitably fall in your way? Will you stand up and show us what you’re made of?”
– Ryan Holiday, author of The Obstacle is the Way
An allowance is an invaluable tool because it helps you introduce obstacles through artificial scarcity. Sure, you could indulge your kid and buy them both the My Colorful Unicorn play set and the scooter she desperately wants, but providing an allowance – her own money – forces her to make difficult choices. And while we know the choice is low-stakes and seemingly inconsequential, it’s a difficult one for her.
If we let our kids hack through the obstacles of the consumer jungle, they might just learn a thing or two about controlled consumption (from idea #2 this week) on their own.
And we all know experience’s qualifications as a teacher. ✅
As always, don’t forget to enjoy the journey!
John, Chief Mammal
P.S. Please consult with a financial or investment professional before engaging in any decisions that might affect your own financial well-being.
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