In a recent blog, I discussed ways to raise economically productive children. Jerry responded with one of the most informative case studies that I have read to date.
I was raised by frugal parents. They didn’t have a credit card until they were almost 50 years old – and only then because they started to travel and they couldn’t get hotel or car rental reservations without a credit card. My Dad spent an hour telling all six of us why they obtained the card and that you never use one unless you have the money to pay it in full by the first due date.
I am the 4th of six children and when I was in fourth grade my Dad sat us all in the living room and explained how we all were going to college. He would not be able to pay a dime in tuition for us, and we had to pay for it ourselves. We could not buy a car until we graduated college, but he would have used cars for us to get to part time jobs that he expected us to obtain once were 15.
All six graduated college on our own dime. We six have earned 3 Associate degrees, 4 Bachelor degrees, 2 Master degrees and 2 MBA’s.
My parents only had one debt – ever. A mortgage that was paid in 20 years. Never a car loan, never an equity loan, never a balance on a credit card that wasn’t paid in the first month.
Me? I hold a Bachelor in Finance and an MBA in Marketing and Finance. I have never had a credit card balance that was not paid off in the first month. I have had three car loans in my 28 years of owning cars. All with rates so low, I was able to make more money investing the amount of the loan than I paid in interest.
I have a mortgage and one of the 3 car loans currently but no other debt. According to my 401K plan right now I have more in outside investments than that 401k and pension.
My wife has been a stay at home mom for 20 years raising our 2 boys. The oldest started college 2 weeks ago. He earned a scholarship for academics and I have enough saved to pay his tuition and room for all 4 years. He is paying for his books.
My college son’s only paying job has been in my side business. In 4th grade he created designs for our side business that were purchased by customers. I told him that any money his designs earned, I would deduct the cost of producing the pieces, I also would deduct the taxes I would have to pay on the income since the sale occurred through my business. He could keep the rest, but 80% had to be put into savings for college. 10% also had to be put into savings because in life you have unexpected expenses and you need to have money ready to replace a washing machine, fix the car, or pay a medical bill. The final 10% he could spend, but his mother and I had to approve the purchase.
The first sale in 4th grade resulted in him earning $3,000 after paying me for production and taxes. He had $300 to spend on whatever he wanted. He saved the entire amount. And only several months later decided to purchase an iPod for far less than $300.
When he turned 15 he started to do the shipping paperwork for the side business. He did the unloading and inspecting of the product, he did the bookeeping. He earned minimum wage. He sold a few more designs for good paydays. He invested in CD’s in grade school. He volunteered at a local hospital.
He left for college with $15,000 in the bank which was 3 times what I had when I went away to college. He started a side business of his own now while in school.
My other 16 year old son is following in his brother’s footsteps. His grades are high honor roll too, and although he doesn’t have the bank account up there yet, he has 2 years to get another $5,000 to match is brother.
Neither owns a car, neither has a credit card, both have paid for their own electronics. In grade school when they wanted the latest Game Boy, we told them they had to sell the current version they owned and could use the money to help pay for it. They learned how to keep things clean and original boxes because they could sell them for more money on ebay that way.
After a while they realized they could buy electronics used for much less than brand new, and they often sold their old version for nearly what they paid when they bought them used.
Are they going to turn out affluent? Time will tell. But they have a great start.