ERE programs for children

[JamesR]

Thought Experiment:

"How close can our children get to ERE by the time they are 18 years old?"

Main Realisation:

Why should we grow up thinking that spending money comes directly from working? Instead, would it not be better to have an intermediate step? All money from working immediately goes directly into savings, and our spending money comes from a proportion of the interest on the savings.

Thus the old fashioned "work -> spending money" becomes "work -> savings -> spending money (% of savings)".

If a kid only ever spends money directly from the interest of their savings, then they are actually ERE - since their parents cover the cost of living. What if they are able to remain permanently ERE past 18 years old by saving up enough?


Example ERE Program for children:

Assumptions:
* Start kids off around 8 years old with allowance, 1 hour a week, $5 hour
* Every dollar they make, you match. Money goes straight to savings
* Interest/proportion of their savings is used for gift money (birthday, christmas) that they can spend on themselves however they want
* Every year, they increase their weekly hours by 1, hourly wage increases by $1/hr
* Assuming 5% interest
* Initially full interest is used for gift money, as an incentive/reward, decreases towards 1%

Code: Select all

 8 yrs old,  $5/hr,  52 hrs/yr, earned:  $260, savings:   $520, spending money:    $0
 9 yrs old,  $6/hr, 104 hrs/yr, earned:  $624, savings:  $1768, spending money:   $26
10 yrs old,  $7/hr, 156 hrs/yr, earned: $1092, savings:  $3958, spending money:   $81
11 yrs old,  $8/hr, 208 hrs/yr, earned: $1664, savings:  $7315, spending money:  $169
12 yrs old,  $9/hr, 260 hrs/yr, earned: $2340, savings: $12075, spending money:  $285
13 yrs old, $10/hr, 312 hrs/yr, earned: $3120, savings: $18490, spending money:  $428
14 yrs old, $11/hr, 364 hrs/yr, earned: $4004, savings: $26834, spending money:  $588
15 yrs old, $12/hr, 416 hrs/yr, earned: $4992, savings: $37404, spending money:  $756
16 yrs old, $13/hr, 468 hrs/yr, earned: $6084, savings: $50524, spending money:  $918
17 yrs old, $14/hr, 520 hrs/yr, earned: $7280, savings: $66554, spending money: $1056
18 yrs old, $15/hr, 572 hrs/yr, earned: $8580, savings: $85892, spending money: $1149

They are not quite ERE at this point. So far the total dollar matching from the parents is $40,000. They could probably put in more hours, such as during the summer. They probably won't be ERE until 20 years old on average.

Would you be comfortable doubling the dollar matching ? If so, their savings would be $128,838.

[jacob]

One of the economic/financial newsletters I used to read (of a wealth/preservation of principal variety) advocated a principle in which children were raised to always save 50% of what they earned. Always!

A child who starts early has a 20 year savings head start on the typical adult. Maybe even 30 years.

That's a LONG time to compound. An average college graduate wage (30-40k) and a part time teenage job would likely leave such a person a millionaire at age 30 or so.

(Didn't recheck the numbers. Probably assumes some compounding.)

[workathome]

That's a great idea. Imagine having something like $2,000 in investment income when you start College! You probably wouldn't see them carrying any "We are the 99%" signs

[JohnnyH]

Great thread!

Any money they deposit I will do a generous employer matching, maybe 25%. Conversely, any money they want to spend [on non-investments! ] will be subject to a 25% tax penalty... Investments and business start-ups I will partner costs with them 50/50.

I'll keep a list of problems I want solved and work I want done and how much the job pays. Some system for performance related bonuses, but this will likely just be subjectively judged by me... A reading list that will pay bonuses. Mundane task list they can earn off of.

Part of me wants to give them a generous flat rate interest, but I think a larger part of me wants to have them choose between real life options (cash rate, index, bonds, individual stocks)... Hoping I guide at least 1 kid to being a prodigy quant.

Meanwhile, I'm not paying for college, I'm not buying them a car, so on and so forth.

[JamesR]

JohnnyH,

I agree about not paying for college etc. Setup the right incentives, teach them to earn their way.

jennypenny,

Strange, your post has disappeared.. But it's a good point to avoid an "allowance". I was mainly thinking of paying for work that I get them to do as a matter of work-based training until they can get work within a few years.

[jennypenny]

@JamesR--I've avoided paying the kids to do anything. Taking money out of my cookie jar and putting it into their cookie jar isn't really increasing anybody's wealth in the household. (that's kind of how the government works ) If they want more money, they have to go and earn it from somewhere else.