Episode 8: Helping Kids With Financial Literacy
In this episode Jon, Matt, and Kyle help you help your kids think about, earn, and use money that will put them on a pathway to build their own wealth.
Let’s unpack common mindsets about earning and spending money, practical systems to help your kids understand the power of compound interest through routine activities, and what lessons can be helpful to emerge the big ideas around what Einstein refers to as “The 8th Wonder of the World.”
What you’ll learn:
- How to help your kids think about money and their financial future;
- Why teaching kids about compound interest early in their life can have profound effects on their financial futures; and,
- How to help kids view earning and spending money through an opportunity cost lens.
- You’re A Badass At Making Money [Book]
- Wheat and Chessboard Problem
- Penny a Day Problem Based Math Lesson
- Download our Wealth Building Blueprint
- The Invested Teacher Wealth Building Booklist
Interested in Partnership Opportunities?
For those interested in potential Joint Venture (JV) Partnerships, reach out to us here.
Kyle Pearce: Welcome to the Invested Teacher Podcast with Kyle Pearce, Matt Biggley, and John Orr.
Jon Orr: Get ready to be taught as we share our successes and failures encountered during our real-life lessons, learning about how to build generational wealth from the ground up.
Matt Biggley: Welcome, invested students, to another episode of The Invested Teacher Podcast.
Jon Orr: This episode, we are excited because we're going to talk all things financial literacy, financial education, not just for ourselves, but for our own children, for students in schools. We want to dive in here, especially I am super interested in hearing your opinions, gentlemen, but also the community's opinions on how do you talk money? How do you talk financial future with your own kids or with kids in general? What education can we help them with? What are some of the mindsets that we can help our own children with?
Thinking about our own financial past and our own hangups, what can we do? What are some of the practical things we can do thinking about allowance versus paying maybe in a different format? How do we help kids understand the value of money and things cost money? I know that those are some big questions I want to talk about here, guys. Let's get into it. Let's go, let's go.
Kyle Pearce: I love it. One big thing that makes this really challenging is that I think most adults struggle with the idea of money. Even if you've got a budget under control, we've talked about budgeting, we've talked about all these things, maybe things are working well for you, but you're wondering, how do I actually teach young children, whether it be your own kids, or if you're teachers, we either were or are in this case, how do we help communicate that to students that we work with as well? So this one's a really tough one, and I want to dig right into this thing because money for kids is actually pretty abstract. When they're young especially-
Matt Biggley: Totally. ...
Kyle Pearce: ... they just think you just have stuff. Every now and again, they experience the transaction when you go to a store, but they're not really equating what does that money really mean? Where did it come from? Did they just dig it up in the backyard? Where is this stuff? Ultimately, even some adults, I've only now started thinking about when I'm buying something, I try to think about, "How much work did I have to do in order to obtain that money?" Oftentimes, you just look in your bank account and you've been working and all of those things and you just ride with it.
You just roll with things, but now I'm starting to look at things and go, "I had to actually give up X number of hours of my life in order to make that particular purchase." When you start thinking of money that way, things get a little bit interesting. How about you there, Matt? Where's your head at when you're thinking about money, when you're thinking about your two daughters and the students that you've worked with? What comes to mind for you?
Matt Biggley: Yeah. This is such an interesting topic. You guys are math teachers, I know you're going to share some really fun tactical things. I'm such a big mindset person, and it's exactly what you just said about kids and money. Money is actually neutral. Money has no meaning, good or bad. Yet as adults or even as children, we're teaching our children to apply meaning to it. This topic is just so deeply uncomfortable for so many people. We have such strong moral judgments about money and about wealth.
Jon Orr: That's so true.
Matt Biggley: So, I go back and reflect as I think about my own kids. Listen, admittedly, I'm looking to you guys today for some ideas on maybe how to practically do this, because as we reflect back on how we perceived money as kids, in my own personal experience, I remember being scared of money, of being fearful that there wasn't enough money, and not really understanding what it meant to have money or to make money, or it felt like other people had more money. So, I grew up, whether it was just through my experience of childhood, of actually really fearing it and not really understanding how to take control of it and not understanding how to make a lot of it. Even as a teacher, it's so fascinating.
I think that as teachers, if I can stereotype the profession, I think by and large, we're pretty fiscally conservative people. I've gone through this change from being a full-time teacher to being a full-time realtor. So, from having a salary job to being an entrepreneur, I've just had to undergo this massive mindset shift about how I view money, about how I view the making of money. I've gone through this exploration of all of these fears and assumptions and the moralizing that happens around wealth building. It's been really fascinating. I'll tell you, it's been at times an emotional journey because you're revisiting the things that you have believed for so long or been taught or learned.
That's a deeply personal experience, but one that I think on the other side of it has allowed me to see money in an abundant way rather than in a way that I fear it. I think I feel almost freed from the chains of needing to be scared of money. That's come in my 40s. That's come so far into life. So, to bring this back full circle for my own kids, I'm really searching and looking for tactical ways and practical ways to teach him this mindset that I've only now just recently learned in the past, I'm going to say, 24 months.
Kyle Pearce: Matt, I know that you said this was a personal experience and going through that mindset experience for everyone is a personal experience, but what would you say is an example of this abundance switch that you came across where it helped your mindset change from being fearful of money to thinking about money maybe as a tool or something?
Matt Biggley: Let's visit some of the moralizing that we do about money. For some reason, it is a common cultural assumption that wealth equals greed, that to make money equals stress. If we unpack that, say take this common assumption like money can't buy you happiness, well then if we unpack that, we say, "Well, what does make you happy?" You start to think about those things, taking my kids on a vacation, getting my wife something that she loves for her birthday, having a nice dinner out or a trip. So, then you say, "Well, I guess does money actually help me achieve those things?" Yes, it does. So, then money actually helps support my happiness.
So, we've just deconstructed this idea that money can't buy happiness, and in fact, money can help support your happiness. I think there's myriad examples of when we deconstruct our assumptions about money where we can move from that scarcity to that abundance mindset. I've talked about one of my favorite books around this topic before. It's called You're a Badass at Making Money, and it is a psychological exploration of your own internal thought process and assumptions and mindsets around wealth. It must be confusing for kids as they look out into culture and what they're consuming and really have no way of making sense about wealth or about what that money means or what they're seeing and viewing, how they achieve that or don't achieve that.
I think it's even gotten so much more confusing with the TikTok that I'll catch my kids watching and the YouTube stuff. I don't think it's teaching them about money abundance. Maybe it's about coveting money or about wanting material things without connecting that to this deeper idea of connecting that to your happiness and your experiences and what that can mean. Woo, this is heavy, guys. This is heavy stuff.
Kyle Pearce: Oh, totally. Matt, so many things you said there, I connected with and going back to this idea that money can't buy you happiness is like that expression. You hear it all the time and it is true in so many ways, but it is not the whole story is what I just heard you say, right? Of course, you could have a billion dollars and be the most sad, depressed person in the world, but that's because you don't have the other pieces to the puzzle, right? It's like if you can figure out what does help you feel happy, what does make you excited to get up in the morning, which is different for everyone, I think that's the part that's really hard is trying to figure out what do you like doing, what do you want to spend your time doing, and how do you like living your life.
That's the hard work that has to be done, but even when you do all of that work, I'm going to argue that when you don't have any money, it makes it hard for you to be able to do those things. I heard you say that, so I've just restated that piece and I think that's really important for everyone. Going to this idea of abundance mindset versus scarcity mindset, I'm thinking as an educator and I'm thinking about how we assess students and how we evaluate students in our grade books and things like that. We're often talking about asset-based comments versus deficit-based comments. So, what that really means is we want to talk about the things students do know how to do and then what's the next step to get them to the next level.
That's a great way to look at things versus saying all the things they can't do and never referencing the things they can do. I agree with that. I think that's great. I really do. But then when we look at it on the other hand and you coming most recently out of a guidance position, you are a guidance counselor, Matt, I feel like the messaging that we give to students, whether we say it explicitly or whether it's just modeled for students and they connect the dots, is almost this scarcity mindset around getting a job or having a career or if you don't do this, then you won't get that.
Everything is in the negative, which is the opposite of that asset-based thinking. It just makes me feel or wonder anyway about how many students are coming out of school. I'll be honest and say, I don't know if it was school that did this or I've just grown up with this mindset myself, but I know that for me, I wanted that security. I know, Matt, you are that guy too.
Matt Biggley: Sure.
Kyle Pearce: You and John talked about on one of the earlier episodes your dad being a teacher and you being, "Listen, if I could just do that, then everything's going to be okay."
Matt Biggley: You got it.
Kyle Pearce: Again, it doesn't make us wrong. It doesn't make anyone bad for doing those things, but when you start to think outside of that box, you start to realize that maybe there's more to life to this world than maybe we had realized that it's not just about securing that job and making sure the paycheck's coming in. That's one thing that will help you sleep at night, but then is it helping you to achieve the things that you want in life? Have you thought about the things that you truly want in life or are you like so many people that look and say, "Well, in 30 years, I hope that I'll get to travel, or in 10 more years, I'll get a chance to not have to wake up at 5:30 in the morning and roll out of bed and go do whatever it is that I do every day"?
There's so much here that I think is really important for us to be thinking about as parents of young people, but then if you're an educator out there and you're listening to this, we're working with students each and every day and the things we say and more importantly, the things we do, students are watching. Our children are watching us whether we say it or not. That has an implication on what they interpret from the way we lead our own lives.
Jon Orr: What I'm hearing, I think, both of you saying is that, especially if we think about what you just said, Kyle, about being a teacher and thinking about security is I think a lot of us, especially teachers and other kids, other students and especially teachers who try to help kids think about their futures, I think we set this gold standard that the way to be financially secure in your life is to go get a good job and they're going to work there for 30 years. If you pick the right job, you're going to get this pension, then you don't have to think about your money ever again and setting yourself up that way. I know I've experienced that as my mindset. We talked about it here, but as educators, I think we also try to share that mindset with our students, which is not the norm.
I don't think us being educators is the norm for the rest of our society on how many jobs people usually have in their lifetime or careers. We're going to have to fact check this later, but I think maybe Matt being a guidance counselor knows this, but the fact that the average person is going to go through five or four different careers in their lifetime. Whereas us educators, especially here in Ontario, I feel like we've talked about those golden handcuffs that once we get our job and we teach and we get our pension and we're working towards that retirement, we have one career. I know that that's been my experience and most of the educators I work with, that's their experience.
How do we help kids understand that that's not the norm and that we are going to think about these financial futures? I think what I was hearing you guys say is that if we can help students and our own kids understand that that's not necessarily the norm, but they can use money and the money they make from these jobs, careers as a tool to help them with their happiness and what they want to do with their life instead of thinking that this money is my be all, end all so that I can live my life in the future, which is I think what my mindset was when we started, but thinking about, "How can I use it now to build the life that I want?" I want to imagine the life that I want to live. How can I earn the money or use the money as a tool to create that for myself?
Kyle Pearce: I love it. I think about this and it really boils down to... I read a book recently. It's on our book list over at investedteacher.com/books. It's called Becoming Your Own Banker. It's all about something called the infinite banking process or the infinite banking concept. It's something I've dug into a lot, a lot. So, definitely something worth looking into. We will have an episode coming up about that when people are ready for it, I'll say, but in this book, Nelson Nash says that basically, you're either earning interest on your money or you're paying someone else interest or losing the opportunity to earn interest by giving it to someone else.
Matt Biggley: Interesting.
Kyle Pearce: When you really think about that, that's really what this is all about. When you think about your career, I think sometimes we are like, "You need to find something that you're going to love doing every single day." Well, in reality, you know what? My kids are a perfect example of this with sports. My son didn't want any sports at first. It was only once he started to learn how to play the sport and when he became better getting skills in that sport that he actually enjoyed it. I wonder about our messaging for students when they're going out into the workforce. I don't know about you, but being an insurance agent doesn't sound fun.
It doesn't sound exciting, but I wonder though, if you became really effective at what you did and you start to treat it like a competition, you'll start to treat it like a bit of a game, it changes your mindset about things. So, once you start getting out there and you are earning this stuff, this money, I want to turn our attention to looking at it and going, "Okay, it's a tool." I heard Matt say this. I heard, John, you just said it. It's a tool that really we can either use it as a tool to help us earn more of it so we can use it as a tool for earning more money by buying assets, things that appreciate cash flow, those sorts of things, or we can use it as a tool to help someone else earn money. All right. So, I want people to think about that.
There's really only two things you could do. You could hoard it and you can put it under your mattress. You could bury it in the backyard, but it's not that helpful. Actually, it loses value over time. That thing called inflation is just eating away at the value. So, really money, you want to have enough of it so that you can live, so that you're comfortable, so that you have a way out of an emergency situation, but for the other money that you are earning or accumulating over time, every single dollar you receive, you essentially have to make a choice. You have to make a choice. Am I going to spend it on something that's going to make me more money or am I going to spend it on something and help someone else make more money?
That is really what we need our students, our children to better understand. I think the real thing, the real idea is, "Well, wait a second. How do I earn money?" There's this magic thing. The seventh wonder, is it the eighth wonder of the world, that Einstein called compound interest. This idea is something that we as adults, few adults actually understand it, because in the real world, it happens slowly over time. So, it's not as obvious and you have to be very patient for it, but the reality is that if we can take money and it doesn't have to actually be interest, but it's the theory of compound interest to grow money into more money, we will see a huge, huge benefit in the long run.
Jon Orr: The fact that you've just brought up compound interest is... I think when you said the ninth wonder of the world, I think it's so important. I thought it was seventh.
Kyle Pearce: How many wonders are there? Maybe there's eight. I was like, "Seventh?"
Jon Orr: I don't know.
Kyle Pearce: Eighth, ninth? I don't know. But anyway, it's the extra wonder.
Jon Orr: It's the extra wonder.
Kyle Pearce: When we think about helping kids understand compound interest, I think as early as possible is a huge win. When we talk about money with our own kids or with students, we talk about budgeting, we talk about savings. I think if we can help understand compound interest as a way to help build your own wealth and student wealth, that is a huge win for us. I think we've got some practical ways here in this episode. We want to chat about how to help your own kids and students understand the power of compound interest for sure. But just as an example of one of those powers of compound interests, Kyle, I know that you've got a couple lessons that you've done with students that are powerful to understanding them.
But even just one example is I remember hearing this story of Warren Buffet and Warren Buffet being one of the richest people in the world, one of the most successful investors in the world and I think he was on record of basically saying or it's been shown that it's not the fact that he was a great chooser of companies or a deal maker, even though these are all true. It's the fact that he's got so much money now because he started so early in his life on building on the power of compound interest. He's 90 years old, 98 or something now. He's like up there.
Jon Orr: Right, he's still working with the power of compound interest, but because he started so young, it's had time to build on top of building on top of building. People are like, "Well, how can we be as rich as Warren Buffet?" Some of the answers are you just have to live that long. You just have to live that long and build on the power of compound interest. So, one of the big ideas I think we want to share is, "How can we share the idea and the power of compound interest to our own kids and our own students as early as we can?"
For example, this brings up the idea of allowance. How do I help my own kids understand the power of compound interest? Is allowance and giving them so much money every week as I got when I was young, so much money every week as your allowance? Is that helping them understand the power of compound interest? Are we helping them understand that if I'm giving them this number every single week? Now, that's linear growth. How can we structure that to help them understand the power of compound interest? But we'll go into that in just a sec. Kyle, do you want to chat about some of the examples of compound interests so that we all understand the compound interests as we've used them in the classroom?
Kyle Pearce: Yeah, for sure, because I was just going to say we could dive into this. If you are like John and I, math teachers, compound interest does come up in the curriculum. The problem though is when I used to introduce it, I introduced it from a very abstract perspective. Well, compound interest, we take down the definition of compound interest is an exponential function and that means that you're going to raise the base to an exponent, all of these things that actually are interesting to come out eventually after you understand the concept. But the reality is it's this idea that you're going to earn on what you've already earned. So, one of my earliest colleagues and mentors as a math teacher and still a great friend is Dave Bracken. He taught at my first high school.
Matt, you might know Dave from Greater Essex when we all taught together there. Dave had shared this example of the wheat and chessboard problem. We'll put the link in the show notes for those who have never heard it, but I think it's back in the 1200s was the first time this story or this idea was referenced where basically it was about a king and a gambler. Basically, they made a bet of, "Hey, if you just give me, I think it was a grain of wheat, one grain, but you double that grain each day and it was on a chess board." There's a big story behind it. You can read about it. What Dave did is he actually took this concept and he applied it in a way that would be more meaningful to students.
So, what he would offer students just verbally was he'd make up this big story, he would say, "Hey, I talked to your parents last night." Maybe pick a student in a class. I talked to your parent and your parent had said if you do chores every single day this month, maybe you put the dishes away or made your bed, whatever it was, I will give you one of two options.
He would ask the students and say, "You could have either $10,000 right now. I will give you $10,000. You have to commit to doing the full 30 days a whole month. We'll use a 30-day month, full 30 days of doing those chores, or I will give you the other option. The other option is I will give you one penny on the first day. On the second day, I will give you that penny doubled. On the third day, I will then double that amount, which is how many." Students would say, "Oh, it's four pennies."
Jon Orr: That doesn't sound so awesome.
Kyle Pearce: Yeah, it doesn't sound great at all. Right away, a lot of kids are just saying, "Give me the $10,000 and I'm going to walk." Dare I actually show you the power, I think when students see the power of compound interest, those who are hanging out with us on YouTube will have the pleasure of checking this out. But if I take this one penny and I go, "Okay, well, I'm going to take that one penny and I'm going to take that penny and I'm going to double it here." So we see day zero, we'll say like today. You get a penny. Matt, I know you're not a math teacher, so I want to make sure, are you good? You seeing this? You're like, "Whoa, penny a day."
Matt Biggley: Double the numbers. Show me the numbers.
Jon Orr: On day four, you get 16 cents.
Kyle Pearce: Hey, all right. Yeah, day four, 16 cents. We make it to day 10, and you're like, "I'm at two bucks, two bucks." Kids are like, "Whoa, this sucks." Some of the kids were like, "I think you're tricking me, sir. I'm going to pick the penny a day doubled." They're starting to lose confidence. All right. So, Matt, what do you think? If you had to just estimate and this isn't to make you feel better, most people come so far. They're nowhere near where it's going to be.
Jon Orr: Give us a number, Dave.
Kyle Pearce: Let's just take a stab. What do you think? It's got to be more than what? It's got to be more than what? What do you think?
Jon Orr: Give me a low ball.
Kyle Pearce: It's got to be more than...
Matt Biggley: A hundred bucks?
Kyle Pearce: All right. Well, it's got to be less than how much though, Matt? Give us a guess. It's got to be less than...
Jon Orr: It couldn't possibly be blank amount of dollars, Matt.
Matt Biggley: It couldn't be $1,000. It couldn't be $1,000.
Kyle Pearce: All right. It couldn't be $1,000. All right. Okay, Well, let's keep going. Let's get to day 15. So, day 15, we're at $327. All right. On day 16-
Jon Orr: Double it.
Kyle Pearce: We're getting close to your $1,000. I'm going to let you adjust from here. Oh, my gosh. We're at $2,000, $2,600 on day 18. Go ahead, adjust. By the way, for those who are listening, this is how John and I run our math classrooms. It's all about estimation. It's all about curiosity. It's all about getting kids to lean in and go like, "Oh, my gosh. Numbers aren't that scary. They actually are interesting, especially when there's a dollar sign in front of them."
Jon Orr: Day 19.
Kyle Pearce: Yeah, go for it here, Matt. I'm going to give you all the way to day 20. Look at day 20, $10,000 on day 20.
Matt Biggley: We're going to hit $100,000. At day 30, we're going to hit $100,000.
Kyle Pearce: All right, let's do it. Okay.
Jon Orr: Go to 25.
Kyle Pearce: I want everybody pause their podcast for a second before I reveal here and make your estimate. Day 20, we're at $10,000. What do you think? Day 30 is going to be $10,737,418. I want you to think about this, guys. That is just what they're going to get on day 30.
Jon Orr: inaudible all the other days.
Kyle Pearce: Yeah, the day before that, they got $5 million. The day before that, they got $2.6 million. The day before that, they got $1.3 million. We didn't even add them all together. That was just what I'm going to give you on day 30. So, you were already a millionaire on day 26, because you add up the previous few days and you're already over a million. this is the power of compound interest. Now this is also-
Jon Orr: You're doubling. That's a doubling.
Kyle Pearce: We are doubling. That means that you are making 200% on your investment. So, it's not a realistic expectation in any market, especially in 30 days, but the problem with compound interest we believe is that Warren Buffett's 98. It happens over such a long period of time-
Jon Orr: But once it gets going.
Kyle Pearce: ... but we as humans are very impatient. Not only that, the longer we stretch something out, the harder it is to recognize a pattern. So, I want to flip it over to Matt and I'm wondering where's your head at after you see this experiment? What are you thinking? What does it tell you about compound interest and what's the implications for maybe kids? What does this mean for kids?
Matt Biggley: Yeah, first of all, I'm trying to find a link to sign up to partner with you guys to get these returns.
Kyle Pearce: No promises. No promises.
Matt Biggley: Let's drop that in the show notes.
Jon Orr: That's the math in the real world.
Matt Biggley: This makes me think about how often in school we can maybe teach a concept of students and then that important part of making it real. We've got so many students graduating from high school, taking those calculus classes, those functions classes, but maybe not... Listen, I was not a math... I was a history teacher before being a guidance counselor. I've learned so much about finances and money post my education. This makes me just go, "Okay, help me relate this to real life. Help me make this really practical, because I think so often, we teach a concept and then we forget to relate it to what it looks like in life." So we've got some numbers that are absolutely mind blowing and really exciting. I'm getting all stirred up here. I'm like, "I want to do that, I want to do that."
So I wonder in your classrooms and for your students, how do we then make that real for them in a way that they can really comprehend and appreciate and really get this? Because I think that's super exciting and I love that you guys talked about putting the dollar figure in front of it. Otherwise, numbers are just meaningless and you start throwing those dollar figures around. It gets my blood flowing. It's pretty exciting.
Kyle Pearce: Yeah.
Jon Orr: Putting the dollar sign in front does help out a lot. I've done the activity where if you take a sheet of paper, so this is the exact same pattern, it's a doubling pattern, but if you take a sheet of paper and you fold it in half, you've doubled the thickness of the paper, just a normal sheet of paper, fold it in half. Then another fold in half, you've doubled that thickness. Then if you keep folding it in half, then you keep doubling the thickness. If you've ever tried folding a standard 8 by an 11 sheet of paper, you can probably only fold it maybe six to seven times before it's too thick. All of a sudden, it's that thick after a sixfold. If you keep extending that pattern with students, you can basically show that after 30 folds, even after-
Kyle Pearce: You reach the moon or something.
Jon Orr: Yeah, 15 folds the paper. If theoretically you could keep doubling the paper thickness, it would be to the reach of the moon and then it's to the outer edges of the atmosphere at 50 folds. So, just 50 compounding periods, it's doubled. But the dollar amount, I think like what you were saying, Matt, does hit students a little bit more to their hearts and to their pocketbooks and thinking about their own money, which brings us to thinking about our own kids and how do we help our kids think about compound interests and bring that into their lives.
I think early on when you get students who are making regular money, you've got teenagers or you've got early adults who are thinking about their money, you might want to think about how can you get them involved in building out some investment opportunities. But thinking about little kids, I know that when I got an allowance, it was just this flat rate you got every day or every week. I got so much dollars I think every week. I can't even remember what it was. But the one way I'm trying to help my-
Kyle Pearce: Dad, this is linear. I want something exponential.
Jon Orr: Right? So how I can help my kids think about compound interest is not giving it a linear scale. It's actually letting them see the power of letting their money compound. So, instead of giving them an allowance, it's almost like we've created together a spreadsheet savings account. Whereas if they put in whatever dollar amount they put into their spreadsheet savings account, we can see that we're going to give them and I think what we set up, I'm going to give them a good interest rate. I'm allowing their money to grow at 12% per year compounded monthly. So, my daughter, she gave me all the birthday money she had over the last couple years. She's like, "Here's $500, dad. Put this in my compound interest savings account."
So, we put it in a spreadsheet. We're just showing that every day, her money increases in value by just having it in there. So, she can see day by day that that money grows by a small percentage or a small dollar amount. That's the key that it grows by a dollar amount. That on the spreadsheet, she can see that she didn't do anything today other than let her money grow. It changes, because the next day, it's a little bit more. The next day, it's a little bit more, and the next day, it's a little bit more. After the month it's over, she earned 1% on her money if she let it be in there for that full amount. It grew by just allowing it in there.
So, she's seeing the power of investing, but also passive income in a way that she's saying, "Look, as long as I just keep my money in there, I'm earning money without having to go to work." I think letting them understand that after that money's sitting in there for a year, she's going to earn... It doesn't seem like a lot when you compare it to maybe what other kids' allowances are, but she's really right now excited to have this money grow without her doing anything about it. So, now every time she gets money, she's like, "Dad, can I put some money into my compound interest savings account?" Then I just take it and we add it to the spreadsheet and I'm going to pay her that. So, it's like I'm paying her a super cheap allowance, but she's seeing the power of this compound interest grow.
Kyle Pearce: For those who are watching on YouTube, I just put together again in the spreadsheet your 1% per month becomes 12% per year. So, using numbers that are friendly, this is something we've learned in math classes. If you want students to recognize patterns, you need to use numbers that are friendly enough where the pattern is recognizable, right? Where it becomes obvious. So, if she just takes that 500 bucks and leaves it and doesn't touch it and doesn't add anything extra to it and you just let that 12% per year accumulate basically over 10 months and if it's 1% per month, this is the cool part about compound interest, the more often you compound it.
So, taking that 12% instead of waiting all the way to the end of the year to get 12% all at once, if she gets this 12% in 1% chunks every year, it starts to compound on that. That's the beauty of this. It's like the more often you can compound, the better. Now think about this from a debt perspective. So, some of us have mortgages or car payments or whatever. Guess what? The banks know how this works as well and they know that we're not great at picking up on these patterns, but they compound it either monthly. Sometimes they do it even semi-annually, but it's very rarely compounded annually because they know they'll make more money off of you by compounding the interest more often.
So, this is something that again, most adults aren't aware of. So, by the end of year one, if she does nothing and we just compound this thing 1% per month, she'll have 63 bucks of extra money at the end. Now you can only imagine if we actually change this a little bit and let's say every month she's earning an extra... I don't know what would it be, John? Is she earning a weekly allowance or something for doing chores? Is it 10 bucks a week or something, or how does that work?
Jon Orr: So that brings us the second piece of a way you can bring this into your kids' lives. You could give them that linear allowance and then they can put it in there. Everyone is up to your discretion. One thing that my dad did that I always thought was very useful, which helped me I think understand the cost of things and thinking about how much time that you're putting in, almost like opportunity costs. Kyle, you mentioned this at the beginning that you are thinking a lot more about, "If you buy this thing, how many hours did I have to work for it to get that thing?" I think I want my kids to also experience that.
My dad helped me experience that as well, whereas he didn't pay me an allowance. He said, "I will match whatever money you go and make and I will match it," which helped me I think understand that I needed to generate my own money and I needed to go and figure out how do I earn money. I searched for ways. I had one of those small paper routes for a while. I would go to people's door and shovel their driveways, because I know that if I earned 10 bucks shoveling a driveway, my dad was also going to pay me 10 bucks for doing that.
So, there's lots of different ways you can encourage your students to think the value of money, but I think when we do that, we help them understand, help me understand that if I wanted to buy that CD at Music World, I knew that paying for the $18 CD, I needed to work two driveways to pay for that. It was like, "Was that worth it?" I think that part for us is super important in helping our own kids understand the value of money. I know my girls, they referee soccer in the summertime, which helps pad that account that they can put money into. So, my daughter, Olivia, had put her money from her birthday money or whatever, but she also put her referee money into that compound interest savings account. They babysit. They make money babysitting.
So, it's how can they understand that every dollar they make costs them time in their lifetime. If I spend it here, that means I can't spend it over here on this. It also means I'm going to have to spend more time to replenish that dollar amount I spend, which is an opportunity cost. If I spend it here, I'm not spending it over here and I have to work harder to make up that cost. So, those are great things that we have to help our students understand the value of money, because I think we all can understand and all listeners, when your kids are young, they might spend money willy-nilly because they still don't understand that there is a cost here to your life.
Not only in just this money because we started this podcast with kids think it's so abstract. I remember just a small story, one of my younger daughters, I think she dropped a dime on the ground and we were in the store. I was like, "Oh, grab the dime." She's like, "It's just a dime dad." I was like, "Oh, my gosh. We have failed you as someone who is valuing the money." It's like, "Yeah, it's a dime. You need to pick that up because it's value that you are going to lose-"
Kyle Pearce: Because of compound interest.
Jon Orr: Oh, my gosh. I was so like, "What do you mean it's just a dime? You do not understand yet the value of money." I think we've all gone through stories like that where our kids just toss things away and you're like, "Wait a minute. There was value here that we used." So I think a big idea here is how do we help our students understand value of compound interest, but also how do we help them understand that there's opportunity cost in the value of money?
Kyle Pearce: I love it. I love it. For those who were watching, you saw me playing with that spreadsheet and I just assumed, I don't know if it was Olivia that you were doing the 12% with or that's all three daughters, but let's say they were getting 10 bucks a week and I just rounded it to about $40 extra a month-
Jon Orr: Got it.
Kyle Pearce: ... and getting the 12% interest. That's where you get the double whammy. So, her account blew up to $1,075 in change. When in reality if you do the math on that, it's like she only earned a little over $400 more, but that account has grown significantly because of it. It wasn't just 12%. It was more than 12% because you were compounding monthly. This is something that's really, really helpful. Now I want to roll back for a second to share your daughters are a little bit older than my children. So, my oldest is 10. Your twins are 12, right?
Jon Orr: Yeah, my youngest are 12.
Kyle Pearce: So, they're a little bit further along this journey. You've been doing this with them, I would say, in more recent years. For my kids, I'm going to say with younger kids, you want to make it as concrete as possible. For those who know John and I from the math world, we have this passion for helping students to really understand and build this relationship with mathematics, which often starts concretely. So, rather than using a spreadsheet with younger children, I might recommend the jar method where kids are seeing the bills going in. If there's a lot of change in there, that's fine too, but we do this process not only to help them with counting, but we have them convert their change into groups of $5 and $10 and $20.
I'll get the bills and it's a bit of a pain in the butt because I have to have bills on hand. I'll let them exchange the change for bills so that they see these bills. It's great. But then my approach and I'm not going to recommend this, you will go bankrupt if you do this and I'll tell you why in a second. But what I do with them is to encourage them from spending. We have a spend jar and we have a save jar. We talk about just because it's in the spend jar doesn't mean to deplete it. It just means that's the money that you can spend from. Then basically, what we do is we pool this money together. Each month, they count it. So, there's a benefit there, but then the second thing we do is we say for every $20 that you have in there, I will give you $1 in interest.
Now that even at that, it doesn't sound like a lot. It's a dollar. It's not that much. But actually, if you really think of what that is, this 20:1 ratio, so we got an excuse to talk about ratios. We also get to extrapolate and say, "Well, how many dollars per $100 would that be?" So, they get to make their pile of five 20s, that's $100. They're like, "Oh, that's $5." Oh, okay, what's that as a percent? That's 5%. I'm giving my kids 5% per month. Okay. So, John, you, cheapo, you're only giving 1% a month. I'm giving 5% per month, but now my kids are younger, so they have less capital to start with. So, their working capital is lower. So, therefore, I need the reward to be higher for them to see the benefit. I want them to see and feel the benefit quickly.
Just recently, we had the holidays happen and we celebrate and family gets them gifts oftentimes of money. We went through and it was like the amount of interest I had to pay to my children, it actually made me start rethinking maybe it's time to shift to John's mode.
Jon Orr: Hey, 5% per month is not cheap.
Kyle Pearce: But the reality though is my son is like me and he's a hoarder of money and my daughter's the opposite. She wants to go and spend things and live her life to the fullest, FOMO, all those things, whatever. But he has more money than her now and he's two years younger. So, when he gets his interest payment, it hurts, because it's like not only does he have more money saved than Talia, but his interest payment is higher now too. So, he is going to run away with it. It's like a great example of how the rich get richer. It's not because they're evil people. It's because they're compounding at a higher rate. Even if all other things are equal, I have more money to make more money with. That is such an opportunity for kids to at least understand the inner workings. Not that it's a realistic scenario.
You can't expect that's going to happen in the real world, Matt, with doubling your penny every day. It's not going to happen, but it's to get the concept of it and how important it is to position yourself in a way that it goes, "Well, wait a second. What has spending all that extra money done for you?" It gave you fleeting happiness, right? It gave you a sense of excitement maybe in the moment, but most of those things, could you even go back and ask the kids, "What did you spend the money on?" Most of the time, they can't even name it unless it's something big and significant. Most of it's just junk.
The sooner we can make this change and help them to see that there are certain things that aren't worth spending on. Sometimes there are certain things. Going out for dinner is technically a waste of money, but we still do it as a family because we value that time together. So, it's helping them to navigate that land and find that balance that you don't want to never spend money. You don't want to become Ebenezer Scrooge Kyle. That's me. Unfortunately, I'm still learning that lesson, but you do want them to at least have some critical thinking around the money that they're spending. When they say yes to spending on something, they're saying no to something else.
So, if I say yes to buying assets that grow, I am saying no to junk, but I'm saying yes to earning money. If I go the other way around, I say if yes to buying junk, I'm saying no to potentially earning more money. I mean, I could use some of that money to buy the junk. If I just spent my interest, that's not a bad place to be either. So, there's lots of lessons that can be learned from engaging in this type of work.
Matt Biggley: So as we wrap this episode, it's really given me some pause to consider both some super practical ways to introduce some concepts to my kids that might be the equivalent of the concepts about real estate investing that I've gotten excited about. I love the jar method, Kyle. My kids are a little bit younger. I can see that's so concrete for them. This power of compound interest I think is going to be fascinating to them. I think my big takeaway though is that we want to pair these practical ideas with the right mindset through which to view money and the reasons for making it.
I think for us as adults and as I said, I had this big transformation as an adult myself, I think we need to unpack our assumptions and our beliefs about money and wealth and what that's meant for us and be really diligent in that. I want to suggest a new definition for wealth because it's not about just the endless pursuit of more money. I think that's when we go down maybe a bad path and we hear about the unhappy millionaires or unhappy billionaires. It's not just about more for the purpose of more. I think that the definition of wealth is perhaps being able to afford the experiences and the things required to fully experience our best, most authentic life.
Yes, we all need to start with that practical level of financial security. That's why so many of us got into teaching, because it was safe, it was secure, and I think that's where it starts. But what we're trying to help people do here is shift from that to wealth building. That's really our goal and that's really I think our mission here. It's the wealth building that helps you lead your most authentic life. What I mean by that is freedom. It's the freedom to choose how to spend your days. It's the freedom of not having to worry about your bank account balance and the bills you have coming in. It's the freedom of believing that you are potentially leaving some generational wealth to your kids to help them get a start in life maybe that you didn't have or that you'd like them to have.
So, that's the way that I want to view wealth. Money is a neutral thing. We are the ones who put meaning and definition on what money means, and I think that culturally, we're seeing it in the wrong way. So, I want to fight to redefine what wealth means. Whatever that freedom is, whatever it looks like to you is totally and completely up to you. I'm not going to make any assumptions or judgments about that, but I know that building wealth can help you achieve and find that freedom.
Jon Orr: Awesome. Awesome, Matt. I think that's a great leave behind takeaway message for our listeners. Just to add to that, my takeaway is to help achieve that with our own kids and with the students that we teach, one way that we want to help them achieve that mindset and thinking about their money use and how they view money is how can we bring in the power of compound interest and also how can we teach students about the opportunity costs of money. We gave some examples, some practical ways.
We do that with our own kids and the way we do that in the classroom, which I think will help change their views of money and how they've viewed money in the past. I know that I want to change that for my kids. So, that when they're older, they're seeing money the way and their life the way you're describing here, Matt, which is amazing. So, Kyle, what's your big takeaway so far here in this episode?
Kyle Pearce: Yeah, I just love this idea of every decision that you make with money, it's really just one of two things. It's like either going to help you earn more or it's going to help someone else earn more. Sometimes, you can't always spend your money on things that make your own money. There's decisions, there's times, there's things that you have to do. But if we're thinking about those things, it can help us make better choices about how we use this tool we know as money.
Again, coming all the way back to Matt's mindset piece and this idea of happiness, it can help us structure and frame ourselves and put ourselves in a position where we can maximize that level of happiness or our chances of being happier more often than if we put ourselves in a position where we're not considering those things. You just end up where you end up. So, hopefully, this has been helpful for everyone. My friends, if by chance this episode or maybe any other episode has been beneficial to you, we really want to encourage you to hit that subscribe button, hit us with a rating and review, and share it with someone, because guess what? If you're listening to it, if you find it valuable, there's got to be someone else out there who will find it valuable too.
So, do us that huge favor. That's all we ask from you. We can't help but thank all of the people who are reaching out. There are so many people reaching out to each of us through DMs, through text messages, even of people in our lives that have found this podcast and said, "Wow, nice show." We're really loving doing it. all Of that support is giving us the fuel to get up early on a Sunday morning, just like right now, and to do this work here because we're passionate about it and we want to see more people out there feel comfortable and confident with their investing decisions.
Jon Orr: Awesome stuff. You can share out or reach us over @InvestedTeacher on all social media, YouTube, Twitter, Instagram, and Facebook. You can message us. You can reach out to us. Also, you can find all links to any resources, activities, support ideas that we mentioned here on this episode over at our website on the show notes page at investedteacher.com/episode8. Again, that's investedteacher.com/episode8.
Matt Biggley: We've got our Wealth Building Blueprint available to share with you over at investedteacher.com/blueprint. That's where we break down and introduce some of these big ideas on your path to building wealth. All right, invested students, class dismissed. A reminder, the content of this episode is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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