Chapter 1

1. Invest Early and Often

“Investing is laying out money now to get more money back in the future.”

—Warren Buffett

“Would you rather receive $100,000 every day for one month or a penny today that doubles in value every day for one month?”

This is what I heard, sitting at a hotel restaurant in St. Thomas last year—from a ten-year-old kid. I watched him hit his dad’s arm and excitedly ask the question again, waiting for an answer.

His dad said, “One hundred thousand every day, buddy—that’s $3 million, easy money!”

The kid replied, “Wrong, Dad! That’s not the right answer! You could’ve had over $5 million if you chose the penny option instead.”

(At this point, I thought I’d better make this kid a job offer.)

“That’s impossible,” said the dad.

“No, it’s not! Look: I will show you how much the penny grows to,” the kid said. Then, he literally pulled up the calculator app on his dad’s phone, did the math, and showed his dad the effects of compound growth. So impressive!

“Let me see that,” said the dad, taking his phone back. He was stunned, and so was I—both by the genius of this young kid and by the dad’s shortsighted reply.

Kids actually love to talk about money and share what they’ve learned. This budding investor’s financial riddle demonstrates a key lesson for everyone, particularly young people: invest as much as you can as early as you can, and you will reap the benefits in the future.

If you don’t think about the power of compound interest, you wouldn’t assume a penny would grow to $5 million in one month. Of course, that doubling every day for thirty days represents an impossible interest rate in the real world, but that’s not the point. The exercise simply teaches the principle and the power of compound growth.

The kid’s excitement reminded me of my own “aha” moment growing up. When I was a sophomore in high school, one of my teachers went off topic and gave our class a short lesson on compound interest that I will never forget. He said if we saved one hundred dollars a month from age fifteen until age sixty-five and invested it at a rate of 10 percent growth per year, it would turn into $1,762,188.

The number blew my mind. How was that growth even possible? Without interest, one hundred dollars a month for fifty years only totals $60,000. How could investing $60,000 add an extra $1.7 million just from growth? The answer is through the magic of compound interest! A light bulb turned on in my head, and I couldn’t stop thinking about the lesson all month.

Years later I ended up getting my bachelor’s degree in economics and finding my way to this industry and career of helping people strive for personal financial freedom. It’s all I’ve ever done since college, and I love it! This is a great reminder that what you teach your kids now might spark a lifelong interest. (And worst case, it prepares them for a better future. Another win–win.)

What Do I Teach My Kids about Money Now vs. Money Later?

When you receive money from any source, you have only two choices: use it today, or use it in the future. The four primary uses of money include: spend it, give it, save it, or invest it. This is simple enough for even your younger kids to understand.

The pro of spending your money right now is you get what you need immediately, but the con is you won’t have that money to spend later and won’t benefit from potential interest earnings or growth. Many kids (and adults) love the thrill of spending money right after receiving it.

Giving money away also means you won’t have it later, but it has the benefit of helping charities and people in need, bringing joy to both the giver and the receiver.

Saving means setting money aside for the short-term in an account that keeps your money available at all times. The safety feature is a pro, but the con is that your money won’t earn much interest and doesn’t grow.

Choosing to invest carries more risk because investments can lose value. However, if you choose investments that gain value in the long term, then you can grow your money significantly higher than you put in.

Investing is simply delayed spending. I tell my kids if they choose not to spend money or give it away today, then they’re choosing to use it in the future, which gives it a chance to grow so they could have more to spend or give anyway.

What Do I Teach My Kids about Saving vs. Investing?

People regularly ask me what they should invest their money in. When it comes to saving versus investing, my personal philosophy is based on your time frame of when you will need the money back. If you plan to spend the money in under five years, you should save rather than invest. If your need for spending your money is beyond five years, then investing is often a better choice because of the potential growth. Of course, there are exceptions, but this is a good guideline to teach your kids.

Let’s break this principle down with an example you can use to explain it to your kids. If someone wants to buy a house in three years and has saved up for their down payment, then I don’t recommend they invest the money needed for that big purchase. I know everyone wants a quick investment return and more money for the down payment, but it’s better to be safe and smart about it than to risk losing it. Put that cash in a savings account. Of course, in those two years, the investment could’ve increased—but the opposite could’ve also happened. If there were a big drop in the markets, they’d find themselves with less purchasing power right when they needed it most.

The bottom line? You can’t afford a decrease if you need to make a big preplanned purchase and have just enough money for it—whether a house, a car, or college tuition—at a specific point in time. On the other hand, when your spending needs are further into the future, you can more easily weather the storms and cycles of the markets and enjoy much greater growth in the meantime.

Investing takes strategy and patience. It’s not a quick fix or an easy way to make a buck. (Obviously, we’re not talking about day trading or cryptocurrencies here. That’s a whole other gamble for a whole other book.) There are many ways to lose money quickly when “investing” it. Teach your kids to avoid get-rich-quick schemes. Typically, if an opportunity sounds way too good to be true, it probably is.

What Do I Teach My Kids about Investment Categories?

There are four primary categories I see people investing in: stocks, bonds, real estate, and private businesses. This list of four is certainly not all-inclusive, but the hundreds of trillions invested in these categories along with the many years of historical data available make them important enough to touch on in this chapter.

The Stock Market

“The stock market” refers to the collection of publicly traded companies all around the world. Stock market investing is a core financial topic to teach young people. Kids should also understand the common ways in which you can invest in the stock market, namely owning stocks, mutual funds, and ETFs.