“Regrets, I’ve had a few,” crooned Frank Sinatra, expressing a sentiment that many of us can identify with. I’ll save you the gory details of some of my regrets, but will share a financial regret that goes in the ‘what was I thinking?’ file.
You see, in year 11 or 12 of high school, my maths teacher, Mr Moir, implored us to start saving a small amount of money each week once we’d finished school. And not for very long. With a 10 per cent return, he reasoned, if we could put away just $30 each week between 18 and 30, we’d retire as millionaires.
On our 30th birthday, we could stop saving, and just let the balance compound, working away quietly in the background until arriving at that magical seven-figure mark just before retirement.
Of course, he wasn’t suggesting that was all we should do, but at the very least, we should at least do that. To my eternal regret, I paid attention at the time, but didn’t follow through.
You can’t put an old head on young shoulders, as any parent knows. We were all kids once, and we knew it all. Unfortunately, our adult selves know the folly of our youth!
We had plenty of time. We’d get to it later. Yes, yes, we knew the theory – but we wanted to buy that car, go on that holiday, impress that girlfriend… in one of nature’s cruel tricks the frontal lobe development required to sufficiently delay gratification doesn’t happen (especially for blokes) until well into our 20s.
It might be too late for us to start young, and while all is not yet lost for us, we have the opportunity to help our kids, grandkids, nieces and nephews avoid some of the mistakes we made.
Here are some ways to go about it:
Teach them to delay gratification
Not spending sounds boring. But help youngsters make a game out of waiting for something they want.
Use a piggy bank, jar, tin or something else to make regular savings, and get them to count it as it adds up to enough to help them buy what they want. They’ll learn to save, and will enjoy the new toy or game even more.
Delay gratification yourself
When I was a kid, my father used to let me count the money as he put it into old tobacco tins as part of the weekly budget. Electricity, clothes, petrol, holidays – I saw and learned as he divided up the week’s spending and put some away for the future. Telling your kids is one thing, showing them is something else altogether more powerful.
Pay them interest
If you have the means, match their savings in some way. You might add an amount to every dollar they put in their bank account, or pay them “interest” on what’s in the piggy bank each week or month.
They’ll soon see it add up and learn the value of compounding once they get interest on their interest.
Buy them some shares
There’s nothing like the arrival of a dividend cheque (or direct deposit) to show them the power of getting paid just for saving. The look of wonder when they process the fact that a company just sent them $100 for “nothing” is evidence of the lesson sinking in. And when you can say “We own part of this store” when you go shopping, even better.
It’s incredibly easy to put it off until tomorrow. But the earlier you get your kids started, even with baby steps, the better. And if you have the ability to put some money away regularly for them, here’s a stat: $10,000 put into the All Ords in 1984 was worth $284,000 some 30 years later – if you can find even half of that starting amount, your kids will thank you!
There are many sides to raising great kids. Almost none of them are financial.
But once you’ve raised those great kids, arming them with the smarts to make great financial decisions will make their adult lives a whole lot better – by keeping them out of destructive debt, showing them the power of compounding and helping them learn to budget.
Money won’t make them happy – but it’ll make their lives a lot easier.