You might be asking "Surely we should get kids to spend less money, not be getting kids to spend more money!". You are right that for the majority of kids (and adults) the focus should be on encouraging them to save, however, there are some kids who don't spend any of their money. Remember, good money management is about getting the right balance between spending and saving.
My youngest daughter (9) is a hardcore saver. She puts most of her money away in savings and likes to see it grow. She actually has about the same amount of savings as her sister who is 2 years older than her. We therefore spend quite a bit of time encouraging her to spend a bit more.
Die With Zero
I'm currently reading the book, Die With Zero by Bill Perkins, which is all about encouraging people who do have money to spend more than they currently do.
The author's key point is that life is about building up life experiences, or 'Memory Dividends' as he calls them, but there are many people who hoard their money and don't actually get these life experiences. Many people end up dying with a high net worth which could have been used to have more experiences throughout their lives.
In the book, the author refers to Aesop's Fable, The Ant and Grasshopper. In the fable, the Grasshopper enjoys eating everything he finds but then runs out of food in the winter as relies on the sensible Ant who has been storing food. The moral is that you shouldn't just live for the moment (the Grasshopper) but prepare for the future (The Ant). This advice is great for most people, however, the book is written for those people who are already Ants and getting them to get the right balance between preparing for the future and having fun.
As many kids are already Ants, like my youngest, I thought I'd share some of the ideas from the book in this blog.
The book is definitely worth reading. One interesting topic is about how parents should look to pass on some of their wealth to their kids when they are still alive (rather than passing it all on through inheritance). I don't talk about that in this blog but will definitely cover this in the future so make sure you subscribe so you don't miss that.
Ronald Read: The Millionaire Janitor
I love sharing the real-life story of Ronald Read with people, including my daughters. He worked in low-paying jobs but learned how to save and invest. When he died people were shocked to discover he had accumulated over $8 million in savings and investments which he donated to charity in his Will. I share this story as it shows that learning how to manage your money (regardless of earnings) can lead to great wealth.
Whilst Ronald's story is inspiring in terms of building wealth, it does open the question "Did he make the most of this money?". He lived far below his means, never travelled, never had any luxuries and never built up many 'Memory Dividends'.
I asked my daughters what they thought about Ronald's life. They both agreed that he probably would have had more fun if he had spent some of his money. If he had died with $2 million but travelled the world and spent more time with his kids rather than working as much that might have been nicer. This conversation got them thinking about the benefits of having money/savings rather than just focusing on building up their savings.
Essentially, his wealth-building skills allowed him options that few people could afford but he never took any of those options.
Tip: Tell your kids the story of Ronald Read and ask their opinion about whether he should have spent more during his life.
You can read the full story of Ronald Read in my blog "The Secret Millionaire Janitor"
Getting Kids To Spend Money On Experiences
The book focuses a lot on using money for experiences, rather than buying material things. I feel this is really important as when kids get money, adults will ask them 'What are you going to buy with that money?' - there is a strong focus on spending money on 'stuff'. Kids should be encouraged to also think about what experiences they can have when they have money.
This is important as many parents feel that they are financially responsible for their kid's experiences in life. However, there is a great benefit to encouraging kids to save up for experiences they want. This could be going to a theme park, the zoo or the cinema.
Experiences are memories and these can last a lifetime. If you ask your kids what's their favourite memory, they are mostly likely to talk about an experience, as opposed to talking about getting something material. If they spend some of their money on experiences, hopefully, they will realise this is a better use of their money.
My youngest liked this idea as she isn't currently saving for anything, especially as the material things she wants have now been added to her 'Father Christmas' List. She loved going to Zip-Wire track so she is now saving up for that.
Experiences When They Are Young
When I left university, I never took a 'Gap year to travel' as I wanted to start earning money. I do wish I had done that when I was young as whilst I can travel to the same places now, it's not the same experience as when you are in your early twenties.
I hope my kids use some of their money to travel when they become young adults. The advantage of being young is that you have time to re-grow your savings but there is limited time to do certain things whilst you are young (as we don't stay young forever).
Our Mini-Retirement
My wife and I were both working in Hong Kong and were saving quite a bit of money each month. We aren't big spenders so the default was that our savings would be a nice nest egg for our retirement later in life. We then thought 'Why not use some of these savings to have experiences now, when the kids are young?'.
In 2019, we did just that. We quit our corporate jobs to have a life adventure. We moved to Vietnam and got to spend so much time with our kids whilst they were young. This experience was truly amazing and the memories will stay with us for a lifetime. It was clearly a brave decision to forgo having more money in the future for this experience but it's definitely one I'm glad we took.
I hope my kids look after their money so they can have the opportunity to do something similar if they decide to have kids.
READ MORE: Teaching your kids about Mini-retirements
Getting The Right Balance
For the avoidance of doubt, I'm not suggesting your kids spend all their money on experiences. It's about getting the right balance between spending and saving.
It's important to teach kids to look after their money and build wealth by following 'The 3 Rules of Wealth (Money)' but also teach them to take the opportunities that this wealth gives them, especially in terms of having experiences.
Also, if your kids grow up saving most of their money, it will become a big shock to them when they realise they have to spend a lot of their money (on bills, clothing, housing, food etc). It's best that they grow up with a balance which is sustainable.
Some weeks my daughters do invest all their pocket money and that is fine but if they do this for a few weeks in a row, I do spend time encouraging them to spend so they have a balance. They are always happy when they do find something to spend it on.
What is the right balance?
There is no magic split for how much to spend vs save but if your kids are saving a majority of their money, then I would encourage you to talk to them about spending.
If they say 'I have nothing to spend it on, I have everything I want', then you might want to read my blog 'The Art of Raising Wealthy Kids' to ensure they don't grow up entitled.
In my book, Grandpa's Fortune Fables, the stories encourage kids to save at least 10% of their money (or using the 'seeds as money' analogy, 'Save one out of every ten seeds you receive'). This means they still have 90% of their money to spend. Even following this rule, they are likely to be better off financially than most adults when they become adults themselves.
I want kids to grow up looking after their money as it gives them opportunities. For the savers, it's important to start getting these kids to spend some of their money to capture the opportunities their savings allow them to have.
QUIZ: Who was the greatest investor in the early 1900s? Find out here
Thanks for reading - please share this blog to help more families start talking about money (we need to break the taboo status of money).
Will
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P.S., Your kids could always save up for a copy of Grandpa's Fortune Fables if they are looking for ideas on what to spend their money on 😀 (shop)
