My wife and I have two young children and something that keeps me up at night is what does the fiscal and monetary landscape look like for them when they grow up? How do they get ahead of a rapidly expanding money supply, runaway national debt, and potentially fiscal policy-dominated future economy? The best way I know how to combat that is to give them a strong financial education, deep-seeded desire to save, and clear understanding as to why they must have those dollars working for them 24/7, as early as possible buying equity in things that grow even while they are asleep. The issue of course, is that these are incredibly boring concepts for most people! I might have lost half of you already at this point in the blog!

I fully recognize I do this for a living, and I am one of those weird financial nerds. I cannot expect my children to follow me in that way. So, how does an advisor instruct their own young children about money? So far, I have tried so many different things and I am happy to report there is one thing that has worked extremely well that I continue to lean into. That tool is a mini party that happens every week at our house we call “Interest Night”.

Interest Night has a handful of key concepts that you can customize for various ages and financial situations. They are:

  • They get a positive return through my percentage match on their savings. I currently match 1% of whatever they have saved which is meaningful enough to matter to them and be excited, but not so large that they feel like they can just coast and not add to their savings through other means. They need to start to see a bit of the compound effect happening as soon as possible. As they get older and amounts change, I will continue to proportionally adjust.
  • It must be fun. My kids are young enough to where we can blast music, dance around, and go nuts together for a few minutes. In their teen years, I imagine this type of party may no longer be appropriate so I will have to be more creative. Scale that concept to wherever you need. You want that orbitofrontal cortex section lighting up to have a positive association, whatever that looks like for your family.
  • They must feel the positives or negatives of their spending and earning choices. Did they earn more money, so their interest amount is even higher than last week? Did they dip into their principal to buy a toy, so the interest night amount is less?
  • Anchor the amounts to things they appreciate to make it real. Now that they have a general framework regarding money, I point out how many interest nights it would take to buy that thing they want. Or how much their interest would go down if they spent that much of their principal. Now they are able to do it themselves and sometimes be first to point it out. As a result, it is now easier to motivate them to save, earn interest, and practice delayed gratification for something bigger.
  • If you are implementing a meaningful percentage, this whole concept works best if they are having to use their own money for discretionary expenses even at incredibly early ages. They must have ownership of their decisions and really feel the positives and negatives of making hard spending and savings choices as early as possible. No bailing them out because they are $10 shy of the thing they currently want! And no stopping them if they blow it early on lesser purchases.
  • Celebrate the small wins. When they make delayed gratification choices, I let them know how proud I am of them saving when they make delayed gratification choices. We count their savings and get excited with every $100 they have at this age (again scale accordingly).

This concept has been a real game changer for us over the last year and a half. My youngest (who is only 4) made the decision to let go of her desire to buy a small stuffed animal she wanted so that she can save for more interest for “Interest Night” so that she will be able to go after something else she wants even more. Proud parent moment for sure! My oldest has his eye on a specific baseball card that is going to take 5 months of saving because he learned from an earlier mistake about touching his principal and starting over from scratch. He currently begs for chores and is trying creative ways to earn more money to add to his savings pile to get more interest, which I will count as another big win!

If you try this with your own kids let me know if you adopt any rules and how it goes for you! If your kids are already grown let me know if you have suggestions or things that worked well for your own kids growing up!

Chris Whitaker, CFP®, AIF®
Sr. Financial Advisor , Sr. Financial Planner