I was fortunate to grow up living and working on a farm. I hated every day of it! It was a family farm that my Dad and his brothers ran as a family. All of them had full-time jobs, and the farm was something they did on the side. They had my cousins and I all working on the farm growing up. We got paid a set rate, and each year, we got a quarter raise. I was 15 when they sold the farm, and it was the best day ever!
Looking back on the experiences and life lessons I learned on the farm, they were essential in developing who I am today. I never wanted to do that kind of work again! Just kidding. It gave me a strong work ethic and knowledge in many things I would not have received any other way.
The greatest life lesson I learned was how to make my income work for me. The family kept half our wages in the farm account set aside for each cousin. Each December, they would pay us an 8% interest rate on what we had in the account. Every December, I would look forward to receiving this check. I would usually spend it. My brother was wise and would continually reinvest his. He understood compounding interest a little better than I did.
The Plan
A few years ago, I devised a solution to teach my Niece and Nephews a similar lesson. I do not have a farm to work on, and we don’t live close enough for them to do anything at our house. So the only thing left in my mind was Christmas or Birthday gifts. My wife would not be happy if she couldn’t give Christmas presents. So that left Birthdays.
I did the math and thought that if they received $300 a year from age 10 to 17 and 8% interest, they would receive $2,592 on their 18th birthday. Each year they would receive an interest check on the balance in the account. Their 11th birthday would be $24, and their 17th birthday would be $168.
Involve Others
Involving the grandparents and parents made it manageable, so it wasn’t a significant investment. We will end up paying $1,664 over nine years. It is a little more than we would have spent on birthday gifts for them, but if it teaches them the importance of investing, it is worth it.
Not all of you will have three parties interested in participating. Maybe you are parents or grandparents. I would encourage you to try it for $150 each. If money is tight, completely replace gifts with this. The kids then could purchase something they want with the interest money.
Find a way to make this work for you. My parents, brother, and sister will pay us the $800 for each kid on their 18th birthday. My wife’s family prefers to pay us $100 each birthday, so they don’t have a large payment when they turn 18.
Learning Investing Produces Income
We print out the above birthday card each birthday and send them the interest check. The numbers are small enough to be manageable for parents and grandparents. They are also large enough for the kids looking forward to yearly birthday checks. There will also be a significant amount when they turn 18. It is eye-opening when you realize it only takes $2,400 to produce $192 in yearly income.
I get that no bank pays 8% interest. The point is to get the kids to understand investing. Many investments average an 8% interest rate. Remember that the rate often goes up and down, but it will average 8% if you are in it for the long run.
Additional Reading:
See how 10k at birth can provide both a car at 16 and a house down payment at 25 https://interestingdollar.com/teaching-kids-money-how-investing-can-provide-passive-income/
If you are looking for conversation starters for your kids, check out https://www.bluetreesavings.com.