How to Talk to Kids About Money

In this episode of Motley Fool Answers, Alison Southwick is joined by Motley Fool personal finance expert Robert Brokamp and Fool contributor Brian Feroldi to discuss how to talk to kids about money. First, Robert has some tips for tax day, and also on how to increase your chances of retirement success. Discover how you can introduce your kids to personal finance, including some fun tips to get them interested. 

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This video was recorded on July 14, 2020.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined, as always, by Burt Brokamp. Burt. You hate Burt. Don't you hate Burt?

Robert Brokamp: I feel robbed.

Southwick: Personal finance expert here at The Motley Fool. Hello, Burt.

Brokamp: Hey, Al.

Southwick: So, in this week's episode we are joined by Brian Feroldi, and we're going to talk about how to get your kids interested in managing their money and investing. All that and more on this week's episode of Motley Fool Answers.

What's up, Bro? I mean, Burt, what's up?

Brokamp: Well, I got a few things for you. Three, in fact, Alison. Three things for you.

Southwick: Love it. Bring the three things.

Brokamp: So, very quickly, No. 1, if you're listening to this on the day it's published, it's July 14. Well, taxes are due.

Southwick: Oh! I forgot to say happy birthday!

Brokamp: Oh, well, thank you very much.

Southwick: It was your birthday a few days ago; I just realized I forgot to say happy birthday!

Brokamp: It was. 7-Eleven, I usually go in and get my free Slurpee, but they didn't have free Slurpees this year. That's very sad.

Southwick: Oh! I'm sorry. All right, well, let's get back to your favorite topic. Sorry I interrupted you, but happy birthday!

Brokamp: Well, and I think my birthday is a better topic than taxes, but regardless, if you're listening to this on the 14th and 15th and you haven't submitted your taxes, you have time. Of course, you could always do an extension. That's good old Form 4868. You can always do an extension ...

Southwick: I think you just made that up; you said that like you just made it up.

Brokamp: No, I think that's it. I'm pretty sure that's it. In fact, I know that's it. And any of the free tax software providers online will let you file an extension for free, but there's also Free File on the IRS website. You still have to pay your taxes. The two times or so that I have done an extension, I just did an estimate of my taxes and then I threw in an extra, I don't know, $500 or $1,000 just to make sure I was right, and then, of course, I got it back when I filed my taxes, as a refund. So, do that.

Did you know you could pay your tax at 7-Eleven, by the way, speaking of 7-Eleven?

Southwick: What?

Brokamp: You can. There are instructions on how to do it on the IRS website. However, you have to go to this website, get a special code and bring it to the 7-Eleven, pay cash to do it, but it takes two business days to clear. So, if you have not paid your taxes, don't do the 7-Eleven way. Just saying.

Southwick: That's insane. Are you sure you didn't make that up?

Brokamp: I did not make that -- it's on the IRS website. It's on the internet, so it's got to be true. But anyways, you can't do that as a last-minute thing. But really, the main point is, is not only, you don't only have till the 15th to do your taxes; you have the 15th still to contribute to an IRA and HSA and a Coverdell for 2019, so it's not too late to save some extra money. So, if you haven't contributed for 2019 and you're not listening to this on July 16 or later, you still have time to do that.

Moving on to No. 2 -- increase your chances for retirement success. So, back in May, the Consumer Financial Protection Bureau commissioned a study that examined the financial conditions of people who retired between the years of 1992 and 2014 to determine whether they were able to maintain the same level of spending for the first five years of retirement. And those first five years are important, because those are the most expensive years of your retirement, because generally your expenses will then go down, for most people, unless you have some significant health issue.

So, what percentage of retirees could maintain their spending in that first five years? Just 51%. Forty-nine percent had to cut back on their expenses just [laughs] within the first five years of retirement. Digging deeper into the number, they also sorted the data according to all kinds of characteristics, which allows us to see who is more likely to be able to maintain their spending in retirement; I just chose a few. But so, here are some of the characteristics of people who are more likely to be able to maintain their lifestyle in retirement.

So, first of all -- again, so the baseline is 51% across everybody. Breaking it down to whether you're married or not. Married household, 62% can. So, being married is better for your money, and when you look at never married, it's 39%. Divorced just 32%. And we've discussed that on previous shows how financially devastating divorce could be.

What about your health? If you are in excellent health, if you rated yourself in excellent health, 70% of those people were able to maintain their spending. And then you work all the way down to very good, good, fair, poor, it all goes down. People in poor health, just 32% of those people were able to maintain their level of spending in the first five years of their retirement. Again, another topic we've talked about before, the connection between health and wealth.

What about homeowners? Seventy percent of homeowners can maintain their spending. So, if you're a renter, you're probably struggling more. That said, the homeowners who have paid off their mortgage, they're actually doing about five percentage points better than the people who retire with a mortgage. So, I love that.

What about that sweet, sweet pension income? Those people who retire and they get that check in the mail from the old employer for the rest of their lives, 73% of those people are doing well. They don't have to cut back on their lifestyle. Which is great news for them. Interestingly, the study also broke it out according to what people did with their pension. So, some people when they retire, you can get that annuity, that check in the mail for the rest of your life, or you could take a lump sum. You basically transfer it to an IRA and then you do whatever you want with it. You invest it; you manage it; you decide how much to spend.

Of those people who took the lump sum, only 56% of them could maintain their lifestyle. Indicating that many of those people are taking the lump sum but then they are somehow mismanaging it, they're either not investing it well or they're spending too much of it.

And then finally, looking at Social Security claiming age. If you claim Social Security before age 62, only 30% of those people could maintain their spending. Now, very few people actually can claim before 62. Most of those people are people who are widowed. What about if you did it between 62 and full retirement age, which is 65 to 67, depending on the year you were born? Fifty-six percent of the people who could maintain their spending, and then if you waited, if you delayed, like we always talk about doing, 65%. So, a little additional evidence there that delaying Social Security is probably better for most people.

And finally, No. 3, my third item in today's What's Up Bro? Another formula for retirement success -- never stop working. So, listeners may recall that for the April mailbag episode, I suggested a website that had some good mortgage calculators that was run by a guy named Jack Guttentag, and the website is MortgageProfessor.com, MTGProfessor.com, because he used to be a professor at the Wharton Business School. Well, lo and behold, Money magazine just last week published a profile of Mr. Guttentag, who, at 96 years old, is still operating his website and expanding it. He runs his business from his home in a retirement community in Pennsylvania. He starts getting to work around noon, but sometimes he works as late as 2 a.m. going through his software, going through releases, working on code. He is also a writer for Forbes.com.

So, he began his career as an engineer, graduating from Purdue in 1948, but then he got a Master's and a Ph.D. in finance from Columbia, worked for the Federal Reserve, and then he left the Fed for Wharton. He emphasizes the need to do all kinds of things throughout your career. He said "It's very useful, as you go through your working life, to diversify your interests and capacities, so you don't get stuck in one vineyard and find it boring."

Actually, you know, I've talked about how much I like people using retirement calculators. He's actually a little doubtful of that. He says what's the point when you're 40 years old of trying to guess how much you're going to need 25 years later? His whole point is, make the most of every opportunity you have, max out your IRAs and your 401(k)s, and just hope to have as much money as possible.

Nowadays, he says, his new career goal -- and by the way, that's what the article said, that he's working on his new career goal, and I just love that a 96-year-old has a new career goal -- his new career goal is to help retired homeowners better understand reverse mortgages, and he's doing it through writing articles, but also working on software with some software developers to create better tools for his website. Now, reverse mortgages are controversial with some people. They have high expenses. A lot of times people get into them without really understanding them. There have been some examples of some shady characters talking people into reverse mortgages and then they use that money and invest it in some bad ways. But as Guttentag points out, for many, many Americans, almost all of their wealth is tied into their house, and a reverse mortgage is one way to turn that wealth into income.

So, at this point, Guttentag has no plans to retire. He was married for 60 years before his wife passed away three years ago, and he said that running his business "is probably why I'm still functioning. It engages my interest and it gets me out of bed in the morning."

And that, Alison, is what's up.

Southwick: Tech and finance experts, including Kara Swisher for The New York Times, and Scott Galloway for Business Insider, have voiced their concerns that trading platforms like Robinhood have gamified investing, making it more attractive, but potentially more addictive, for kids.

So, today, with the help of Brian Feroldi, we're going to help you talk to your kids about money and investing, because otherwise, they're just going to learn about it on the streets, by which I mean the dark alleyways of YouTube and TikTok. Dun-dun-duh! Brian, thanks for joining us. Thanks for coming back.

Brian Feroldi: Alison, awesome to be back.

Brokamp: Welcome back.

Southwick: You have, what, three kids?

Feroldi: Three kids.

Southwick: So, you have actually gotten pretty hands-on and involved in helping educate your kids, and so we're going to learn a bit about that, your advice about teaching them about money, and then also teaching about investing. So, Brian, remind me again how old your kids are?

Feroldi: My kids are 10, 8, and 6. So, they'll be going into first, third and fifth grade.

Southwick: And you actually did something and then you challenged me to do that same thing, and then I flatly rejected it. Which is that you went to your kids' school and said, I would like to help teach kids about money; how can I help? [laughs] I'm like, oh, Brian, that's amazing you did that; I'm not going to do that. But tell us what you did.

Feroldi: [laughs] Yeah. A few years ago, when my oldest was in third grade, they brought in guest speakers sometimes, and I have friends that have gone in there and taught science lessons, read books, etc. And I volunteer at my children's school all the time, so I thought it would be fun if I went in there and taught them a little bit about the stock market. So, the teacher agreed. And I went in there and made a presentation that was just as fun as I possibly could make it. So, we talked about what is the stock market -- why do companies go public? And then I showed them logos that they may or may not have known, and I said, does anyone know what this company is? And of course, they all knew Facebook and Netflix and Tesla and Google, and they really were super-engaged with it. And at the end, I gave them 25 companies to choose from and 10,000 fake dollars, and then I said, everyone pick five stocks and we'll track them throughout the year and see how they do. And the teacher that was next door overheard this and asked me if I could come and do their class. And since I did that, I offered it to another class. And since I did that, I offered it to all of fifth grade and all of fourth grade, and last year I did all of second grade too.

So, it's a way for me to have some fun. I love teaching kids about money, and doing so in a more organized format while my kids still like the idea of dad coming to school, I thought would be great. So, I've done this now for three years in a row. And some of these kids have unbelievably good investing acumen. We have kids that since September were up over 80% during that time frame. So, it's amazing how good stock pickers some kids are.

Southwick: No, I like your point about how you've got to start young, while they're still like, "My dad is cool." [laughs]

Feroldi: [laughs] Exactly.

Southwick: All right. Well, let's start with talking, just generally here, about the best ways to help teach your kids about money and personal finance, before you even get to investing. So, what's some of your advice here?

Feroldi: Well, yes. So, in general, I'm obviously a big fan of investing and compound interest, but I also recognize that teaching them about personal finance is an order of magnitude more important than teaching them about investing. Buck Hartzell, who I know has been on the show before, I think he's a wonderful teacher and I've really picked his brain on our livestream about how he taught his kids about money and entrepreneurship and investing. And he brought up an excellent point, and he basically said, teaching them to be lifelong savers is by far the most important thing. If you can instill that lesson into them early that they should earn money and keep a portion of it for themselves, that, more than anything else that I could possibly do, will set my kids up for success. So, whenever my children get money for any reason -- birthday, Christmas, Easter, if they do chores around the house, etc. -- I have them both invest it and put it into a savings account.

And this is a tip I learned from one of my favorite bloggers Mr. Money Mustache. He said that he set up savings accounts for his kid and that paid 1% monthly interest, so 12% annualized interest. And he said he did this because it really shows the power of keeping money on the side, when, all of a sudden, if you have a few hundred dollars, it's earning $3, $4, $5 per month. And whenever I show my kids that, I'm always like, "So, what did you have to do to earn this?" And they're like, "Nothing!" And I was like, "Yes, that's the power of investing and making smart money decisions early on; your money eventually starts to work for you." I think that's a great lesson.

Southwick: Yeah, I was reading a good article in Business Insider interview with a financial planner named Natalie Taylor, and her main point was that you need to just always be talking about money, just always throughout the day be talking about money, talking about your process. So, even if you're like at the grocery store, you know, we tend to just rush through our lives, we want to get in and out of the grocery store, but we all perhaps have more time on our hands now, so. And maybe we shouldn't be hanging out at the grocery store, but stay with me. The idea being that, like, talk about why are we going to buy this product over this product? Why are we going to do this over this? And here's what I'm thinking and is this a need or a want or even just talking to those simple concepts, but doing it all the time and throughout the day, so that it's not like, "Now, we are going to sit down and talk about money." It's that you are always talking about money to try and have it be less of a taboo topic.

Feroldi: Yeah, I think that's fantastic. Whenever I take my kids to the grocery store, they usually get to pick out a cereal that they get to eat, and I always say you can pick out any cereal you want as long as it's on sale. And they know that to run up and down the aisle, looking for the yellow tags, and, hey, we can get this one. But, yeah, then I sit them down and make sure that they understand the price of things and the price per unit. That's actually a really good lesson to learn that the price you see isn't necessarily the best deal.

But overall, I really like your point there that money in a lot of households is a taboo subject. I know in my household growing up it was a taboo subject. Whenever I saw what my parents made or a check or something like that, the next thing out of their mouths was, "Don't tell anyone that you saw this." And that like, really instilled in me, OK, money is a secret topic, which is just a really crazy thing if you think about it. I mean, money controls so many parts of our lives, and the fact that we're not formally taught about it, and yet it's such an important thing, it controls so many important things about your life. I completely agree that really teaching your kids that money is not a taboo topic and just bringing it up often with them. And I love your point there about just making it a part of the everyday conversation. I think that's a great takeaway.

Southwick: So, one of the most awesome things about kids is that they're sponges and they soak up a lot, and they especially soak up a lot of stuff that you don't necessarily intend [laughs] for them to notice or pay attention to, and then model. So, can you talk a little bit about how important it is for us to model the behaviors that we want our kids to also do?

Feroldi: Yeah, it's the old adage, you know -- do as I say, not as I do. You know, kids are going to watch what you do much more than the things that you say. So, it's incredibly important that you model good money behaviors for them. And there's a lot of ways that you can do that. As we just said, with talking about money in your everyday life and just walking through the grocery store or even Home Depot and just talk to them about the decisions that you're making with, "Oh, we're going to buy this product instead of this one," or a great lesson that you can teach them is, when you go on vacations together. One thing that I've recently started to do is whenever we take a family vacation anywhere, at the start of the vacation, all of my kids get the exact same amount of money. So, we took a trip to California and we were there for a week and all of them were given $100 on day one. And we said this is yours; you get to spend it on absolutely anything that you want. And some of my kids immediately went to the gift store and bought stuffed animals, because you can never have enough stuffed animals, apparently. My son was not interested in that, and he kept the money so that he could play at the arcade. And he even saved some of that money all the way to the end, because what he really wanted was to spend that money on Fortnite. And he said, well, since I didn't spend this money, can I spend it on Fortnite? And we said yes, this is yours to do whatever you want with.

And I just love the idea of giving them a little bit of money in an environment and then letting them make the choices, which also has the side effect of them not coming to bother you with, can we buy this, can we buy this, can we buy this? It's like, you have the money; you make the decision. As soon as it's gone, that's it.

Southwick: Yeah. And I think maybe Buck shared this on the show when he was on before, but I think it's probably worth repeating, how he rewards his kids for how much money they save during the year. Brian, I think we were talking about this before, about Buck's trick for making his kids very, very rich.

Feroldi: Yes. Yeah, Buck says that whenever one of his kids has a birthday, whatever amount of money they have in their savings account, Buck doubles it. And I said, really, no matter the amount? And he says, yeah, it gets really expensive as they get a little bit older, but we think that the power of teaching them, first off, about compounding. If you know your account is going to double in the future, you're much more reluctant to spend money today. And that's one of the big takeaways that he says. He says when my kids spend money on something, they have to really want it, because they know if they don't spend that money by their birthday, that amount of money that they would have spent really costs them double. So, that's not something that I've incorporated into my strategy yet, but it's something I'm definitely thinking about.

Southwick: Yeah. We talk a lot on the show about how so many money decisions are like emotional decisions and how if you can control your emotions and behaviors that's going to impact how successful you are as an investor and saving. How do you talk to your kids about the emotional aspect of money and finance?

Feroldi: I try and take emotion out of the equation whenever I possibly can. Money, to your point, can be an extremely emotional and touchy subject for people, but you know with investing, it's incredibly important to be unemotional. That's what makes somebody a better investor.

Brokamp: Brian, you mentioned stuffed animals, right? So, one thing that I have pointed out to my kids a lot over the years, both just by looking at what's in the room but also the once a year or so when we have yard sales and things like that, is to point out the things that they have bought that they didn't end up spending that much time with. Huge stuffed animals that they saved money for, they finally get it, they love it for what? A week, two, three or so, and then it gets forgotten. So I have regularly shown them, there are things you think you want, but you have to really think about how much you're going to appreciate having that thing, how much you're really going to enjoy that.

Southwick: All right, Brian, you're also big about promoting and supporting entrepreneurship in your kids, and how that's a lesson to teach at a young age. How do you do that?

Feroldi: Yeah, I will say that for a couple years, my son and I were in Scouts together. And one of my absolute favorite things that we ever did was go door to door selling overpriced popcorn, because that really taught him the value of asking for things and putting ourselves out there. And I really liked that -- that's a lesson right there with just standing outside a Walmart and asking people that come by, "Excuse me, will you support the Scouts and buy some popcorn?"

But I really like the idea of helping them to start a business. We've certainly done the old cliche thing of having a lemonade stand at the end of the road. And nowadays with Facebook, you can just send out a bomb, your text message to your friends saying, "Come by; we're selling lemonade." And people come by and buy from you, and that's a fun way for them to make a couple of bucks. But overall, I just love the idea of getting them started early with any sort of entrepreneurial activity. It doesn't just have to be a lemonade stand.

There's a wonderful book that I recently purchased called Better Than a Lemonade Stand! by Daryl Bernstein. And it goes through dozens of small business ideas for kids, everything from taking trash in from your neighbors, walking dogs, picking up after animals, babysitting, dog sitting, as well as the old selling stuff on eBay. So, there are so many options out there beyond just the old boring things. And that has the side effect of teaching them about accounting too, because they [laughs] have to actually account for things, like revenue and what does this cost me? So, that can almost be a much better lesson for them than making them sit down and teach them in an accounting class.

Southwick: All right, let's move on and talk about investing, because as we've talked about before the show, investing could be made really boring -- it can be a really boring topic if you want it to be. So, how do you make investing interesting to kids?

Feroldi: Yeah, this was a big thing when I was going through my presentation at the school, as I said. It's really easy to turn investing into an incredibly dull conversation. So, I did everything in my power to make it as fun as possible. And there are so many awesome companies out there that people of any age can get into a passionate debate about. For example, I was talking, again, to elementary school kids. I asked them, "What's better, Activision Blizzard or Electronic Arts?" And I named some of the games that they made. And that started a huge debate about what are the best video games that are out there today. And even the kids that weren't into video games, I said, "OK, raise your hand if YouTube is your favorite streaming platform." And I said, "OK, how about the people who here think Disney+ is their favorite streaming platform, or how about Netflix?" And that can start a huge debate. And then everyone here loves food, right? Is Domino's better than Papa John's? Is Chipotle better than BJ's Restaurants or McDonald's? What about Burger King? And just talking about products and services that they themselves know, I guarantee there are companies out there that they'll have an interest in.

And then I also try to make just a very general correlation between how businesses do and specifically how their profits grow, and make that connection to the stock market. So, businesses that grow over time and produce revenue and profits, generally are rewarded in the market with higher stock prices. So, just making that very basic connection, they will understand that even when they're in second grade. And then, making that connection to "Here, you guys, pick your companies; which of these do you think are going to have higher revenue and higher profits in the next year, two years, three years?" And then actually seeing how Wall Street rewarded those companies. I think that that lesson is starting to click in when they're in elementary school, and it is my plan to follow them year after year as they pace their way through school to make sure that we hammer home the long-term investing aspect. I've heard that other people have done similar things to this, and they do it over a two-week period, and that's just not long enough, unfortunately, to really learn any lessons.

Brokamp: Do you ever expect that you'll put the kibosh on anything? Now, just to give you a real-life example, my 15-year-old asked if she could buy Tesla the other day. Like, hmm! I own Tesla personally, of course. It's up significantly. I'm inclined to say all right, let's let her buy a little bit and just see what happens. Do you imagine that you will ever have a veto power over your kids' investment choices?

Feroldi: No, I would never want to have veto power over them, because if they bought a company that went on to crash and burn, that's an incredibly valuable lesson. When I first started investing, I had no idea what I was doing, and I lost hundreds of dollars on garbage penny stocks. And looking back, that was like the best tuition I ever could have paid in the market, because losing a lot of money when you don't have a lot, it feels terrible but that forced me to actually learn and study investing. So, yeah, if they wanted to buy a share of Tesla today, even though at today's prices, it's like $1,700 a share, I wouldn't discourage them at all. It's especially easy today with so many brokers -- you can buy fractional shares. So, even if you want to put $50 or $100 into it, you can do that.

Southwick: All right, let's address it by age. So, elementary school. What do you think, Brian? Are some of the core concepts that you should really try to get across with kids who are in elementary school?

Feroldi: Yeah, well, specifically as it relates to investing. Again, I really like the idea of tying the businesses that they know to their everyday life, and just making the very general connection between what is a business -- businesses create profits; how do they do that? And then tie in the connection between, if the company does well, that's behind that stock, the stock will also do well. You don't want to go into too much detail there, because that's a lot to grasp, but just making the general connection between companies do well and their stocks do well. A lot of them can grasp.

And you'd be surprised. I was certainly surprised when I was talking with elementary school kids about how much they could think about business. For example, I put up a chart that said, well, video games have done really well. Let's look at Activision Blizzard; let's look at EA; let's look at Take-Two Interactive. But GameStop has done terribly, and I asked why, why do you think GameStop has done so badly?

And these second-graders raised their hand and said, is it because we download games instead of not going to GameStop anymore? And I was like, yes, that's exactly the problem. So, it's really amazing how perceptive they can be even at that young age. Then as they progress, as they get older, you can gradually make things more and more complicated and talk about market share, competition, you can talk a little bit about taxes and you can talk about how one company can disrupt another or things that can affect entire industries.

And I would say once they get toward late middle school, early high school, that's when you can really start to hammer home things like percentages and compound growth and the idea of how small changes in percentage growth rates can lead to huge changes in the amount of money that you can have later in life. But you know, you also have to know your kid. You have to meet them where they are. Some kids have zero interest in this stuff. And, again, just focus on making it fun. Others want to ask you detailed questions. So, just meet them where they are.

Southwick: All right. How about middle school? What are some of the core concepts you think middle-schoolers are ready to hear?

Feroldi: Well, I would say middle-schoolers have started to have a better sense of brands and they become more brand conscious, in general. And they can start to have really strong opinions about things like Nike versus adidas [laughs] versus Lululemon versus whatever shoes are popular these days; I actually don't even know. But that is a great time to [laughs] introduce them into, well, the concept of buying what you know, and saying, well, what trends do you see among your friends? What things are popular? What things are losing relevance? You can talk about social networks -- what social networks are you guys connecting with, which ones are you not, where do you think the world is going? I think they'll be much more opinionated in middle school about those kinds of topics.

Southwick: All right. Now, let's move on to our high-schoolers out there. What do you think high-schoolers are ready to hear and learn about when it comes to money?

Feroldi: I think when they're in high school, they're diving into much more advanced math, so you can certainly get into the nitty-gritty details about compound interest, and when they were in high school, the odds are really good, or at least I hope so that they have a job or they've taken on some type of jobs throughout the time, so they're actually starting to earn money, and you can help them set up things like a Roth IRA if they qualify. And I would really start to like to talk to my kids when they're at that age about the concept of financial independence and retiring early and give them some examples from the real world about people that have done just that.

And again, it really gets back to the concept that we teed off at the top of the show, which is personal finance and teaching them to save money and really valuing the keeping money for yourself and not spending it. That is a lesson that I want to just keep hammering home no matter what age they are. But I think when they're in high school they're ready to hear about the idea of maybe you don't like working -- how about we start you off on the path to financial independence?

Southwick: Why don't we check in with Bro for covering concepts with college and beyond? Bro, how's your daughter doing?

Brokamp: Doing fine, actually. So, I'll build actually, a little bit on the high school leading into college. So, from my personal experience, once they get to that age, if you started them early, they have seen the power of compounding. So, our kids, they got a portion of their allowance in a bank account. So, we didn't give them cash -- just automatically went into a bank account, made it harder for them to spend it. So, at that point, once they reached the age of teenagerhood and into college, they had literally hundreds, if not thousands, of dollars, depending on which kid and how responsible they are with that money.

We also showed them how we started saving for college as soon as they were born. So, by the time they became teenagers and entered college, they could see that they were set for college as long as they stayed in state, and that was always our goal. To be able to pay for an in-state education. If they went out of the state, we'd have to come up with something, some discussion about whether or not we were going to cover that cost or not.

And then the other important thing that I think Brian pointed out is once they are teenagers, they start the job, and for me, those discussions were about work ethic -- No. 1, like, how do you do well at a job? How do you exceed expectations? You show up early; you do more than what's expected of you. That way you'll be keeping the job, but then they're also filling out the tax forms, and they can file their taxes for the first time ever. I had a son who was a lifeguard, a daughter who worked at Target. They both paid taxes, but they were due taxes back, so they filed a tax return to get their first refund. And then I have another daughter who sold stuff on eBay and Etsy, and, boy! That's a whole experience of being a teenager dealing with people on the Web, who are expecting all kinds of crazy things and rating you if you do certain things and if you don't do certain things. So, that was also a great experience.

And then, if I should say, I have one daughter who is now almost 30, and I can't tell you how many times she has said "I remember when you told me this or this." When she was over for Father's Day, she was lamenting how many of her friends have spent thousands of dollars on furniture and they put it all on their credit card and it's something she never would have done, because she remembered when we were, you know, she was, like, 8 years old, we told her some horror story about some people who went bankrupt due to credit card debt.

So, the great thing about having kids at that age is you just start to see how all this stuff really locks up and syncs up. And listeners know, and as Brian said, with our kids, we also opened IRAs for them to, as soon as he said, had a job, tax number and all that stuff, so we could put money in, and we matched those contributions.

Southwick: All right. Well, why don't we close with some recommendations on, I don't know, some books to read, some resources? Brian, what's some next to-dos for parents out there?

Feroldi: OK. So, the book that I recommend is The Wealthy Barber, [laughs] by David Chilton. That is a wonderful book that is told through the eyes of someone that grew up without any money and became a barber later in life. And how he leveraged his small salary from being a barber into becoming a multimillionaire. And it's told very simply and very plainly, and it just gives you some practical advice about how to take small amounts of money and grow them into large amounts of money. So, that's a book that anybody can read, but it's easy enough to read even if you're in middle school.

Southwick: Bro, is there anything you want to recommend?

Brokamp: Well, I'll recommend a book by Ron Lieber from The New York Times, The Opposite of Spoiled. He was on our show -- this is maybe a good three years ago. He came to the Fool, and I interviewed him at the Fool, and that's on YouTube. But lots of good advice, a lot of good questions people have about things like, allowance. You know, should kids have to work for an allowance or not? Do you make them save? How much do you make them save? So, he's got a lot of good ideas on that.

Southwick: Great, awesome! I just found out that Khan Academy, apparently, has some resources for parents and kids about learning money, so I'll recommend that. I find that everything I get out of Khan Academy is good. So, you can head over there and see what they offer for free as well, and that's online. So, yay!

Brokamp: So, I know, when people want to teach their kids about investing, one of the decisions they have to make is what kind of account do you set up. So, Brian, do your kids have their own accounts or do you have stocks in your own accounts, but that you point out that, oh, we own Starbucks, and look, it's up this much over the last three years?

Feroldi: Yeah. So far, I've just bought them stocks in my regular brokerage account, and I've just earmarked on a spreadsheet that these are the ones that you own, so I haven't taken that next step of setting up an account for them. Bro, am I making a mistake, though? Should I do that account opening for them?

Brokamp: No. In fact, that's what we did for many years, and it's only relatively recently that our kids have had their own accounts. And the downside of them having their own accounts is that it will be their own money at some point, right? So, at some point, once they reach the age of majority, they get the money and they can do whatever they want with it. Hopefully, they'll be responsible; some kids aren't. And what is another concern for some people is that it is an asset owned by the kid. If you apply for financial aid in college, assets owned by the kid can reduce aid eligibility more than assets owned by the parents. So, just something to keep in mind.

Feroldi: So, when I'm giving my stock presentation, at the end of it, I of course end with the power of compounding. And I say, well, if you can invest a $1,000 per year, starting at age 8, how much money will that become when you're 18, 28, 38, 48, etc.? And I have them try and guess. And then I actually show them that $1,000 per year invested at 10% annually becomes $536,000 by the time that they are 48. When I showed that, there was literally a kid in second grade that said, "You're lying!" when I showed him, [laughs] because he couldn't believe that the number was that big. And I just got such a kick out of that. And $1,000 per year sounds like infinity money when you're 8 years old, but if you break it down, that's only $3 per day. It's really not an insurmountable amount of money. Then I heard from another parent, after I gave this presentation that, you know you had them, they were all bought in, and then they heard that they had to wait until they're 48 before they have half a million dollars, and I was like, oh, yeah, you're right.

So, the next time I went in there, I said, OK, how about if we do $1,000 per month. Boy! Does that sound like a lot of money. But if you're a teenager, that's not an insurmountable amount of money that you can have. So, what happens if you save and invest $1,000 per month? Well, in 20 years, if you get a 10% return, that's $1.2 million. So, even if you get that ball rolling when you're 18, by the time you're 38, you're already a millionaire. And again, it's just really about hammering home the idea that small amounts of money invested well over time eventually become huge amounts of money.

Southwick: Brian, thank you so much for joining us on the show today. I really appreciate you coming in and sharing your personal experience and advice, and hopefully all our kids become addicted to saving money.

Feroldi: I can't wait to see Alison present in her kids' elementary school about this topic, we're all looking forward to it. [laughs]

Southwick: Yeah, I'm not a big fan of kids. I like my kid. I like a kid very much. But everyone else's kids, I can do without. [laughs]

Feroldi: [laughs] There you go. Now, thank you for having me; it is so fun to be back.

Southwick: Well, that's the show. It's edited custodially by Rick Engdahl. Our email is [email protected]. Drop us a line. Tell us how you talk to your kids about money. Do you have any advice? We'll take it and then we'll share it with other listeners of the show. So, let us know. Also, your Christmas traditions.

Again, our email is [email protected]. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody.