Life is full of lessons. Some of them are formal lessons like learning algebra in high school. Others are things you learn on your own…like having to touch the plate to make sure it’s hot even though the waiter clearly told you 3 times that it was. We also learn financial lessons throughout life whether we realize it or not.
I’ve always been they type of person that saves money. I socked away my allowance as a kid and became a savvy saver and regular investor in adulthood. Then I began thinking about why I ended up being this way. I realized there were some random things throughout my childhood that helped to mold me this way.
Video games encouraged me to save money
Gamers of the world, rejoice! You have a new excuse when your parents say you play too many video games besides “but it helps me develop hand-eye coordination.” Instead you can tell them that it helps to teach you to save money.
Even back in the days of the original Nintendo, many games had in-game currency that you collected and could use to help your progress. It didn’t take you long to realize that the more you saved, the better off you were. Collecting 100 coins in Super Mario Brothers got you an extra life. Rupees in The Legend of Zelda would buy you upgraded shields and weapons.
As video games became more advanced, so did the things you could get for that currency. From games like Warcraft to Diablo to Skyrim, saving money or resources would eventually net you larger, more powerful (and frankly, more awesome) weapons and armor. Kids are impressionable. The idea of saving money for the cooler stuff is easily transferable to real life.
Saving for a car showed me the power of a 401(k) match
I distinctly remember going into summer vacation when I was 15 years old. My parents sat me down for a conversation about the whole car situation when I turned 16. They asked if I want to get my own car after I get my license. Like any teenager in reaching distance of the freedom of a car, I said of course.
They told me that if I got a job, they would match any money I saved for a car up to a certain amount. Being a 15 year old with no work experience, I was looking at minimum wage which was a whopping $5.15/hour at the time. But with the match, suddenly it would be $10.30/hour.
Little did I realize at the time, but this is basically how 401(k)s work. Work for your wages and get a match from your employer on whatever you save. It helped me to see the power of getting a match on your money because it essentially increases the amount of money you earn per hour worked.
The doubling penny opened my eyes to compound interest
For anyone who hasn’t heard it before, the effect of doubling a penny is pretty astronomical. You’re supposed to ask someone if they would rather have $1 million or a penny that gets doubled every day for 1 month. Most people would pick the million dollars, but is that really the best choice? (Spoiler alert: no)
The secret behind the trick is compound interest, which is interest that you earn on your principal and previously earned interest. While it starts out small when you first begin saving/investing (only $1.28 after 1 week in the penny example), it really adds up over time.
So what does a doubling penny get you after a month? Just shy of $11 million (no, seriously).
A graph in class will help me become a millionaire
When I was going for my MBA, I took a course on investing. I’ve seen a lot of graphs and diagrams over the school years but none of them stuck with me quite like this one.
It showed 3 hypothetical people saving for retirement at age 65; let’s call them Jane, Bill and Fred. They all received the same amount of investment return (in this case, we’ll say 7% per year). The only thing that set them apart is when they invested.
- Jane: Invested $5,000/year starting at age 20 and then stopped at age 30 ($50,000 total).
- Bill: Invested $5,000/year starting at age 30 all the way through retirement at 65 ($175,000 total).
- Fred: Invested $5,000/year starting at age 20 all the way through retirement at 65 ($225,000 total).
As you would expect, Fred, who invested the most money ends with the most: over $1.5 million. The one finishing with the second highest total is obviously Bill who invested 3 times as much money as Jane who…wait…
At 65 years old, Bill finishes with $744,567. Jane? Despite investing $125,000 less than Bill, she still finishes with $789,191, or $45,000 more than him. How is that possible?
It’s all in the timing. The longer your money is invested, the longer it has to accumulate compound interest. Hell, look at the difference between Bill and Fred in this example. An extra 10 years of saving more than doubled the money earned in the end.
This example was such an eye opener for me. It stressed the importance of saving as much as you can as early as you can. A dollar invested at 20 is better than one at 30, which is better than one at 40 and so on. Start investing now!
Garage sales taught me basic negotiating skills
Whether you’re a buyer or a seller, garage sales are a perfect place to hone your negotiating skills. People rarely pay the initial price that sellers are asking for. Instead, they haggle over a price until they both find some number that they both agree on.
As a kid, my parents would occasionally have garage sales and I would go through my old books, toys and video games to see what I no longer played with. I put the little stickers with a handwritten price on there and was ready to make some money. My customers were mostly other kids but sometimes you would get a parent shopping for their children. When they would offer a lower price, I had to determine how low I was willing to go or if I thought I could hang onto it and sell it to someone else for a higher price.
Learning some basic negotiating skills can go a long way in your financial future. From salary to cars to cable bills, you can negotiate better deals for yourself on just about anything. If you’re interested in reading more on the subject, check out this book: You Can Negotiate Anything: The World’s Best Negotiator Tells You How To Get What You Want.
Odd jobs gave me a taste of entrepreneurship
When you think of kids setting up a business, most people think of a lemonade stand. It’s such a simple thing, but it actually teaches kids a great deal about what starting a business entails. You’re forced to think about costs of the lemons or mix, prices and projected number of drinks you’ll sell, and the amount of time it takes to turn a profit. Not a bad lesson for a young kid.
When I was kid, I used to grab my shovel after a snowstorm and go door to door asking neighbors if I could shovel their driveway for a few bucks. Then I realized if I brought a friend, we could get it done faster and hit more houses while splitting a larger pot of money. Again, it was a small thing but it taught me a lot of the basics of running your own business. I uncovered a customer need, found a way to solve it and then scaled my business to reach more customers.
Since owning your own business is a great way to be successful in life (this is oversimplifying, it takes a lot of hard work), planting the seeds of entrepreneurship early in life is a great way of steering a child toward solid financial life.
Photo credit: Alphacoders