The Ultimate Guide to Raising Financially Savvy Kids from the Top 1%

10 min read
I
Finance
Dhawal Tank
December 17, 2020

Financial success starts in childhood.

When kids have a better relationship with money, it grows for the rest of their lives. The top 1% raise their kids differently for this very reason.

It seeps into their homes, their private schools, their mindset and habits.

Unfortunately, most of us never have access to this playbook.

This guide presents strategies to raising financially savvy kids from the top 1% in ten simple and actionable points that you can apply already today.

Let’s dive right in.

Why Cash is Still King—But Not for the Reason You Think

In our digital economy, kids might never see mom & dad actually “pay” for anything with money. Our digital wallets and online transactions have made this process invisible to them.

While in the past, cash and checks were handled regularly, kids nowadays don’t see money at all.

Go to the grocery store, tap some plastic card, and out you walk! Kids never make the link between what money is and what it provides. Stores like Amazon Fresh are making this whole process even worse by completely removing even checkout lanes! They call it Amazon Go:

You literally go inside, grab what you need, and out you walk. This might be trendy and cool, but it robs kids of the valuable lessons of what money provides. Sadly, more stores will be implementing this technology in the coming years.

In the long term, this makes money into an invisible thing to kids. For that matter, it makes it invisible for even the adults and encourages them to spend more needlessly!

The solution? Use cash again. And if not cash, don’t use the tap n’ go services. Put the card in the reader, read the numbers, and deal with the transaction properly. Encourage your kids to understand what the numbers mean and have them deal with the transactions themselves.

This will help them start making the link between money and their life everyday.

Family Finance Meetings: The Secret of Effective & Happy Families

Do you have family meetings? Research reveals that the most effective families do!

It is a weekly or daily meeting where a family comes together to plan out their schedules, talk over important topics, and create a sense of togetherness.

Consider including your children on the financial decisions of your house. Make your children familiar with how much you earn, and where the money gets spent.

Talk to them about a new purchase you are considering. Tell them about a promotion and the rise in income. Include them as you think through how you’re investing your money, as you’re making your own giving & donation decisions.

This all seems fairly complicated and overwhelming. It doesn't have to be. My wife and I started with one family meeting a week. While it felt awkward in the beginning, it got better with time. We now even dial in the grandparents into the meeting for some real sense of bonding and togetherness.

Parents often stay hush-hush about money in front of kids not wanting to stress them out. But this rarely results in the intended effect.

Involving your kids will create a sense of responsibility in them. It will help them understand where money goes.

You can also use this family time to play financial games together as a family. This might seem boring, but if you’ve ever played Monopoly, or Game of Life, you know how fun and exciting it can get.

It helps introduce kids to the idea of investing, spending, taxes, debt, entrepreneurship, assets and liabilities. Spruce up your family game nights with more than just a dinner and a movie with the kids. Add a game into the mix, and bring in financial board games once in a while as well.

Money doesn’t have to be a big boring serious grown-up topic for kids. Show them it is fun as well! In fact, here is a list of 53 such board games you can check out.

Our favorite? Cash-Flow for Kids!

Why Entrepreneurship Needs to be Taught Over Employment

Whether it be Warren Buffet or Elon Musk, some of the most financially savvy people in the world were entrepreneurs from a young age.

Warren Buffet would sell Coca Cola in the summers by hiring his friends to deliver cold beverages. Elon Musk learnt how to code as a young kid and released his own video game at the age of 12.

While your kids don’t need to be programmers from the cradle, they do need a lesson in self-reliance, independence, and the value of delivering value to others.

Our school systems teach students to follow the rules, not stick out, and do the work. In other words, it teaches you to have someone else give you the rules to live life.

Entrepreneurship teaches you to set your own curriculum for life. It teaches you to find where people need help, and fulfill that need with products and services. It teaches self-reliance while also contributing to society. It teaches them to understand market trends and act on it.

Encourage your children to set up a lemonade stand. Encourage your children to sell things from their hobbies and crafts online.

More and more kids are learning that it is possible to start a business from their bedrooms with code, their hobbies, or just a camera. They can reach global audiences and markets in their pajamas.

Encourage entrepreneurship. Help them build for others while indulging in their own hobbies and passions. This is a sure fire recipe for lifelong financial self-reliance.

This is easier said than done. You cannot go to your kids and just tell them to “be an entrepreneur”. At its core, being an entrepreneur is about helping people in exchange for some value. This is a natural drive that everyone has. It takes an extraordinary force to subdue this in kids. That’s why it’s so important to challenge the educational paradigm.

Check out: BizWorld - Project Based Entrepreneurship Programs for Kids

Why Kids Need Self-Guided Education

Does your kid’s school encourage your kid to direct their own learning? Follow their own curiosity? Traditional schools typically have a rigid curriculum. While many of these schools have great standardized test score performance, this doesn’t mean it will set your kid up for success in the future.

Academic success alone is not an indicator of future success. Traditional schools that focus exclusively on test scores just aren’t enough.

Schools teaches kids that someone else sets the intellectual agenda in their lives. Rarely do we see kids being able to follow their own curiosity in learning what they want. Montessori schools are centered around this type of learning, and unfortunately, they are not accessible or affordable to everyone.

They learn that someone else gives them the validation they need to get by in their lives. The gold star for perfect behavior, perfect attendance, perfect scores teach kids from a young age to look elsewhere for happiness & esteem— not themselves. Is it any wonder our kids and adults are now going through a severe mental health crisis?

These environments teach kids that their interests don’t matter. Once the bell rings, they have to shut down whatever they’re doing and move on to the next class. It doesn’t matter how interested they are about the subject. This teaches kids to not value their own passions, talents, and curiosity. The bell going off forces them to shut off their mind.

As kids grow into adults, they need to learn to give themselves validation. They need to direct their own learning for life, not wait for someone else to set the agenda. They need to dive deep into their interests and contribute to others.

Otherwise, also their financial destinies will end up being written by someone else. Reclaiming this story is key.

They don’t have to wait until university or college to get there. They can start right now. Encourage their hobbies and interests over just academic success. Celebrate even their failures. This builds unshakable confidence and resilience that will help them succeed in the long term.

Read further: The 7 Lesson School Teacher by John Taylor Gatto

Why College Doesn’t Need to be Part of the Plan

On the topic of education, it is time we all seriously start re-thinking the value of college for kids. Be it the rising cost of tuition, or the low payouts in saturated job markets, college has a lower and lower return.

Many people believe that college still helps kids mature and grow into adults, and there’s inherent value in that.

However, the self-made successes from the last 100 years have not necessarily learned that from college. They have learned that through entrepreneurship, taking responsibility for their own learning, tinkering and indulging in their own hobbies, and creating worthwhile things for others.

We underestimate kids and their ability to mature and take charge themselves. They do not need a college environment for that.

Employers too are increasingly becoming open to hiring people without college degrees. Even big companies like Apple, Google, and IBM have over the last few years realized that talent is not defined by degrees but by experience and has made many hires without any college education whatsoever.

Most skills needed for financial success can now be learned sitting at home taking courses online for cheap (or even for free!).

College is less important than ever to the intellectual or social development of your kids. That is why even a 529 plan might be unnecessary. A well designed Index Universal Life (IUL plan) will offer greater flexibility and wealth building potential for you kids than a 529 plan - but more on that later.

Give Gifts That Grow with Age

Is your kid transitioning out of that phase where he no longer wants toys? You can buy small investments to teach them to “play” with something more real.

This might seem funny on surface, but consider the fact that most Americans spend a few hundred dollars on Christmas toys for their kids. These toys often end up gathering dust after a year, or sometimes even after a month.

Helping kids understand and appreciate presents that last for a long time is part of growing up. Giving investments as a present and actually helping your kids understand what they mean will do a lot to help them grow.

Let them know that while a few stocks or bonds might not be as funny as a video game right now, holding on to those stocks and bonds will in a few years allow them to buy ten video games per year.

As they get older, they will appreciate it. From a young age, they will learn to value investments as presents.

How to Make Investing Fun Without Risk

Can investing be fun? Can you make your kid into a budding investor without risking any money? Definitely! Welcome to the wonderful world of paper trading!

There are dozens of great online portals where your kids can get mock trading accounts to buy and sell stocks as if they were actually doing it with real money!

This teaches kids the value of understanding how the economy works and what makes prices go up and down. They can start thinking about what dividends and interest means. This also is a great tool to understand what makes a company worthwhile and what doesn’t.

This also helps them connect current events with what is going on in the economy.

It’s also a chance for you and your kids to practice putting your values in action. Don’t like the oil industry? Don’t buy oil companies! Don't like violence and war? Don't buy military stocks! Want to support the environment? Buy renewable energy stocks! 

If your family already has a brokerage account somewhere, chances are that they might give away a paper trading account for free!

A great kid friendly way platform is Investopedia's Stock Simulator. Your kids can compete with one another or even with the pros to see who can make their portfolio grow the most!

So make it into a fun game to see who can grow their portfolio the most every month and get investing!

How to Make Taxes Fun

Part of growing up is to learn about the reality of taxes. Most kids however rarely learn about taxes, beyond the sales tax they pay when they’re buying their favorite things. Even that is becoming invisible in the day of digital transactions where they never see the full breakdown of costs.

But much like learning to use cash, you can teach your kids about taxes in a fun way!

Here's a handy video that explains what taxes are in kid friendly language:

In your next family meeting, introduce the concept of a family tax. Let the kids know that a percentage of each dollar they make, either from entrepreneurship or their own jobs, will go towards a “family tax”. Yes, even their allowances.

As the family tax accumulates, decide as a family where you’d like to spend it. Perhaps it can go towards upgrading the home, or perhaps to go on a family vacation! Making this type of joint spending decision together will really help your kids become excellent money managers in the future.

Taxes are unavoidable. But they don’t have to be painful. Cultivating this relationship at a young age helps them realize their obligations. When they get older and start making money, they aren’t shocked by the tax bills they get.

Why Building a Family Bank & Escaping a Debt Mentality is Essential

This advanced strategy is used by some of the richest people in the world. Bill Gates and his family use it. As do the Rockefeller family.

It starts with buying an IUL or an Index Universal Life policy for your kids. While a 529 plan is tied to just college, an IUL account accumulates interest tax-free and can be used at any time for anything.

As the cash value of an IUL account continues to grow over a lifetime, your kids can borrow against it (while letting the value continue to accumulate) for their education, starting their first business, or buying a home. This won’t affect their credit, and borrowing on it comes at a significantly lower interest rate--since you’re technically borrowing from your own life insurance policy.

This is about completely separating yourself from the banks and financial institutions that trap young people in a perpetual cycle of debt.

An IUL will never lose money when the markets drop, but when they rise, so will the value of the IUL. You won’t find that elsewhere. Did I mention it’s tax free?

This was a strategy that mostly the 1% used with swarms of personal advisors. But it’s now possible for everyone to get it. White Swan was made to help moms and dads create these sorts of policies for their kids and themselves!

This power strategy can create your own personal family bank.

Read More: What the Rockefellers Do

How to Nurture Children Philanthropists

Giving is just as important as earning, saving, and investing. Encourage your children to consciously give to causes they care about.

This will teach them that money comes with the responsibility to help others. It also teaches them that if they give, their money doesn’t run out. It is to counteract scarcity thinking where people believe there isn’t enough money out there in the world.

The top 1% know differently. They know that there is an abundance of money out there. When you give and feel enriched, you realize that the scarcity model of seeing the world just isn’t true.

Oftentimes, parents and children will volunteer their time together for their favorite causes. This is a wonderful thing to do together, but don't forget to also include financial donations into the mix of giving charitably. Let them choose where they want to give.

This will make them into generous and giving people for the rest of their lives.

How Parents Come First Before All This

Perhaps all of this feels overwhelming. It seems like doing all this implies you have to be a perfect parent! That is not the case. Commit instead to choosing 1-2 things you can start doing with your kids in the next 24 hours.

Raising kids is a gradual process. So is building your own financial life. Kids ultimately do what you do, not what you say. That’s why building your own financial life is so important. Do it so that your kids absorb the right lessons from your life.

For example: Are mom & dad out all the time working to make ends meet? If so, your kid will internalize the lesson that money is all-powerful and that it controls your destiny.

Money is meant to be a tool of change and an energy to use in all the things that bring satisfaction to your life. Parents are the most powerful factor in raising financially savvy kids.

Changing your mindset, lifestyle, and investment strategy is key to it all. You need this so you can have peace of mind.

If you’re interested in how to get started yourself, check out our Books & Guides here. White Swan exists to help you build a financial engine to protect you and your family, and also help you thrive.