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+---
+title: — a combination of simple living, anticonsumerism, DIY ethics, self-reliance, and applied capitalism
+date: 2011-12-02T01:52:37Z
+source: http://earlyretirementextreme.com/what-i-would-teach-a-child-about-savings.html
+tags: children, investing
+
+---
+
+[If you're new][1] here, [this blog][2] will give you the tools to become financially independent in 5 years. The [wiki page gives a good summary of the principles of the strategy][3]. The key to success is to run your personal finances much like a business, thinking about assets and inventory and focusing on efficiency and value for money. Not just any business but a business that's flexible, agile, and adaptable. Conversely most consumers run their personal finances like an inflexible money-losing anti-business always in danger on losing their jobs to the next wave of downsizing.
+Here's [more than a hundred online journals][4] from people, who are following the ERE strategy tailored to their particular situation (age, children, location, education, goals, ...). Increasing their savings from the usual 5-15% of their income to tens of thousands of dollars each year or typically 40-80% of their income, many accumulate six-figure net-worths within a few years. Since everybody's situation is different (age, education, location, children, goals, ...) I suggest only spending a brief moment on this blog, which can be thought of as my personal journal, before delving into the forum journals and looking for the crowd's wisdom for your particular situation.
+
+I do not have any children, so this discussion will be largely academic. However, **if I had children, I believe that instilling the proper financial values so that children know what to expect from money is much more valuable than a 529 plan or any kind of donation, gift, or allowance**. My parents saved about $16000 for me to spend on my education. However, through their actions they also taught me how not to spend money that I had not earned and that I had to save if I wanted something. Thus I did not spend that money on my education figuring that I should not use it because I had not earned it. After some prodding on their part I did use about $1000 on some furniture, but that's it. I did not touch the rest until I had learned enough about investments to grow it better than the savings account it was sitting in.
+
+In retrospect, **I would gladly have exchanged that sum of money with the "idea" of saving money, investing it, and letting it work for me**. I wish they had taught me that.
+
+So here it the one savings/investment rule, I would teach to my hypothetical children.
+
+* ** Always save and invest 50% of your income.**
+
+If this idea is implanted early on, the person will hopefully always adjust his or her lifestyle so that the cost of living does not exceed 50%
+
+Assume a modest allowance of no more than $10 before year 12 and investing half of that at 8%, the 12 year old would have a net worth of $2,000. This is **approximately what the median net worth of a 30 year old is**. Now add in some baby sitting, garden work, etc. topping out at $100 per week at age 18 at which point the kid would have a net worth of $15,000. Add three years of college with a weekend job and our graduate has a net worth of $30,000. I highly recommend against student debt other than using student debt in an arbitrage scheme. Taking on student debt to increase the standard-of-living is just plain crazy. Now assume annual raises and a starting salary of $36,000 that ends at $52,000 at age 30. **At this point, our kid has a net worth of more than $300,000** and a capital income that is almost half the wage income. Staying at $52,000 for another 10 years and **the 40 year old is a millionaire** with an annual capital income for $80,000. This is what I would teach, not by telling, but by leading. It is what I do myself except that my rate is higher than 50% because I was a late starter.
+
+[1]: http://earlyretirementextreme.com/hello-new-readers.html
+[2]: http://earlyretirementextreme.com/
+[3]: http://earlyretirementextreme.com/wiki/index.php?title=Article/Summary
+[4]: http://forum.earlyretirementextreme.com/viewforum.php?f=9