Tag Archives: teenage millionaire

Lessons From Last Week’s Book Signing

Every time I do one of my (rare) book signing, I learn a lot. If it isn’t an insight, it’s what I need to explain better, more or differently. From last week at Mosaic Books, it was:

Making your teenager a millionaire: Your teenage relative won’t do it because you tell them and YOU know it’s guaranteed to work. They won’t listen to you and you can’t want it more for them than they want it for themselves.

A teenager isn’t likely to even listen to you. But maybe they’ll “get it” from the two page Money Tools book chapter. They have to read it and understand compounding works better the younger the person investing. You also have to remember that saving $9,300 is like asking you to come up with a few million bucks. Teenagers dream of $300 bucks and a BIG shopping trip to the mall next week. They don’t dream of $9,300 or anything past next month.

That’s where you come in: The chapter is two pages. When they ‘get it’ and work through the compounding math on their own where $9,300 becomes $18,600 in 7 years and $37,200 in 14 years without them doing anything at all – they’ll get committed. At that point you can also help. Maybe you can match what they save, maybe you can add 10 or 20% to what they save or whatever you can afford to boost the odds it’ll happen.

If you contribute anything at all, the deal should be that the investment account is in joint names. Your money is in there and then it’ll assure they don’t take out anything.

Not knowing this or doing this when I was early 20s or so is now one of the top 5 lifetime regrets of mine – for obvious reasons. And I’ll post the more detailed “how to and where to” invest again.

Spend the $20 on the book – at least make them read it and understand it – think about some seed money to get started or to keep going. THAT is starting a family legacy in ways nobody else does…

Investment How To

Money Tools & Rules book: Expanding on the “How to make your teenager a millionaire” chapter:

The fine print first: I only ever give feedback based on what I would do, and I am not an investment broker, investment guru, etc. Always do your due diligence and check with an investment professional, no matter what, because this how-to is for information purposes only!  For someone that age, investments should likely be in diversified good growth mutual funds with a long-term track record and no load fees. To find them, search for Morningstar, an independent rating company of all mutual funds, or it’s U.S. equivalent. Careful just giving someone some money: I would do it on a matching basis. I’ll contribute a dollar for every dollar that you save towards this goal, or I’ll contribute two dollars for every dollar, etc. But tell them a maximum, or a kid who is a great saver will surprise you, and cost you a lot more than you may have wanted to match!

Where to invest: At age of majority, everyone is entitled to contribute to a Tax Free Savings Account (TFSA) to a maximum of $5,500 a year. The great thing about the TFSA is that it isn’t income percentage linked – it’s currently $5,500 a year irrespective of income. And, while it doesn’t get him or her a tax deduction up front, it is also never taxed in the TFSA, and never taxed when it’s taken out! If the person is 20, for example, they can also use the available “room” for the prior years! They can also do it through an RRSP, but that’s to a maximum percentage of their income, and then it will be taxed when it’s withdrawn in retirement. But that’s up to you…

What to invest in: The younger you are, the higher your risk tolerance. That’s simply because you have a vast number of years to average out a bad year with a great year. The older you get, the more you need to protect your principal and not chase higher returns. That changes gradually as you get into your 50s and older. For anyone in their 20s to 40s, THE easiest investment with next to zero commissions and huge diversifications is the S&P 500. It’s a basket of the largest 500 companies – you can’t get much more diversified than that! And you can do it in ten seconds on your own (online or by call). You want (in my opinion) the S&P 500 Index Fund, ETF (electronically traded funds) in Canadian dollars (it avoids you having to do a currency exchange). The historical return over the past 50 plus years is 11.5%. That’s why I use 10% returns in all my examples. I’m using LESS than a 50 year proven track record average!

If you don’t want that, go to Morningstar and search any mutual funds in whatever category you want: Emerging markets, conservative, balanced, etc. by returns. Just make sure you’re only looking at the ones with a long-term track record!

Who to invest with: If you, or another family member is an existing customer of a brokerage firm, that’s worth checking out as to a)whether they’d take another family member with a small account as a favour to keep their (current big family) client and b) what the fees would be! If that doesn’t apply, it will likely need to be an online brokerage account. Most of the large banks have them – just don’t confuse their brokerage division with investing at a bank. That’s generally a bad idea with poor returns! Again, you can compare their published returns with those from Morningstar.

If you’re just starting, any online broker is fine. If you deal with any of the major banks, they all have an online brokerage. You just need a place and an account and can do the rest. They won’t give you advice – just execute whatever you want to buy or sell. No worries if you get the S&P Index funds – click to buy it and leave it alone until you’re in retirement. And for pete’s sake STOP checking it every month…set it and forget it.

How to get started: Open the account where you decide, and how you decide (RRSP or TFSA). I would do it under joint names. That way both names are on it (especially if I’m helping with money), and if it requires joint signatures  you’re sure the person doesn’t do something stupid and make a withdrawal to pay a bill, etc. without your consent and signature. That’s not what this money was designed to do. It was/is meant for retirement and never to be touched until then… When your minor reaches the age of majority and can contribute to an RRSP or TFSA take the investments you’ve already made and move them over to one of those! It’ll protect them from ever having to pay taxes on the returns inside either of these!!

To check reasonable annual returns: Do a web search for “historical S&P returns,” “historical Dow Jones returns,” etc. (On the yourmoneybook.com site you can click on “radio stories” and search “historical returns.” I’ve posted the chart going back about 70 years!! For someone aged 18 to 25, there are more than four decades before they should access the money, and thus four decades of markets going up and down, so the historical averages apply, and are well above the 10% used in the Money Tools example of How to Make Your Teenager a Millionaire. If you’d like, you can use a different guestimate of returns for the next four decades, and re-do the easy math (or with an online calculator) of how long it takes for the money to double. IE: If you use 8%, it’d be 9 years.

Hopefully that gives you some of the how-to and/or steps to get from here to there. (updated 11/10/2019)

Want to Assure Your Teenager Succeeds? It’s Three Things

The Wall Street Journal recently reported on an extensive study of teenagers and their odds of being in poverty. The stats were pretty depressing, but the way out was also quite impressive and easy.

No matter what background, ethnicity, poverty growing up, etc. the odds of any teenagers getting into, or staying, in poverty are less than six percent if they just do three things:

Finish high school

Hold a full-time job

Don’t marry or have a kid until after age 21

That doesn’t seem so hard. If that’s true, the odds are more than 94% that your teenager will have financial success for a lifetime. If any one of these three isn’t done, the odds increase quite quickly, because each have a significant ramification on their income and lifestyle.

These three basic things really are incredibly important for any teenager to know – and to carry through on.

Step two would be how to now become financially successful. That also isn’t that hard to do. In the Money Tools book is a two page chapter on how to make your teenager a millionaire. In short: Save $9,300 by the time you’re 21 and invest it. The money will double every seven or eight years until they’re ready for retirement. At that point, it’ll be over one million dollars without saving another dime.

The challenge for parents or grandparents is that their kids or grandkids don’t listen to them. Yes, it’s true – I hear that over and over again. It doesn’t help that 80% of parents don’t talk to their kids about money or finances, but that was then – this is now. You can’t live for a better past and you need to remember that you can’t make a horse drink. Lead them to water and remember that, when the student is ready, the teacher appears.

Go to Mosaic (they have a bunch of signed copies) or to Amazon and get the Money Tools book. When they’re ready, they’ll use it. But don’t wait for the “ah-ha” moment where they tell you that you’ve been right all along and now they’ve seen the light. It won’t happen! You have to know that they’ll learn when they’re ready. All you can do is give them the tools and the information and keep an open line of communication. That way they know they can ask without judgments or lectures.

That’s it! I harp on this every week and maybe get one or two emails a month with positive feedback. If I were to think I should be getting hundreds of emails, I’d be incredibly depresses. It’s my job – and your job – to plant the seeds. It’ll be their job to grow up and to grow those seeds into something beautiful – if they choose to – and when they choose to.

Want to Be a Teenage Millionaire?

Do you want to make a deal with your parents or with yourself? You can spend every dollar you’ll ever make the rest of your life, because at age 20 you’ll already be set to be a millionaire. The only thing you need to do is save $9,300 by your 20th birthday. Nothing more – nothing less. After that, without getting into debt or touching these savings, you can spend every dollar you earn – if you choose to. And, if you also save a bit of each paycheque, it won’t be hard to reach two million dollars.

It’s the magic of compound interest and works with something called the Rule of 72. Simply take the rate of return on your investments and divide it by 72. That’s how long it will take for your savings to double. So, a 10% return doubles your money every seven years.

Saving that $9,300, investing it, and forgetting about it, at a 10% rate of return will double your money very quickly and very frequently:

Invested by age 20:                           $   9,300

At age 27 it doubles to:                    $ 18,600

At age 34 it doubles again to:         $ 37,200

At age 41 it’s:                                    $ 74,400

At age 48 it’s:                                    $ 148,800

At age 55 it’s:                                    $ 297,600

At age 62 it’s:                                    $ 595,200

And at retirement (age 67) it’s:        $1,003,000

You could also save $78 a month from age 20 to 67 to get the same million dollars. But that leaves 564 times you’re going to tempted to skip a month, be too broke, or forget to do it, and that risk is too big.

Why can’t every adult accomplish this? The answer is simply, because they didn’t save any money when they were much younger. The longer you wait, the less time your money has to double, and double up again. If you want the money when you’re 67 years old, but only start to save at age 41, you’ll end up with three fewer doubling periods and have about $150,000, instead of a million! In your case, at around age 20, the money has the time horizon to double almost seven times!

It’s your call – it’s your choice. If you don’t do it, you WILL remember having read this, as you start your retirement trying to live on $1,400 or so in monthly government pensions.

Graduate As a Millionaire

85% of teenagers never take a course on credit or finances. That means they haven’t got much of a hope of being financially successful from the get-go.

The first thing most teenagers do when leaving the home is to take on a car payment, get a credit card, pay rent, and often have a student loan. But if you have teenager that’s about to leave the home, here’s a deal you can make that’ll insure their financial freedom for the rest of their life.

The only thing your teenager has to do is to save $8,000 by their 20th birthday. Nothing more – nothing less. After that, without getting into debt, or touching these savings, they can literally spend every dollar they make.

It’s the magic of compounding and works with something called the Rule of 72. Simply take your rate of return and divide it by 72 – that’s how long it’ll take for your savings to double. So at a 7% rate, it’ll double every 10 years, while a 10% rate will double it every seven years.

Do some lateral thinking of how you can help them achieve this. Maybe you can charge them rent and keep that in a savings account. Some parents match whatever the teenager saves to a certain amount – there are all kinds of ways.

Then your 20-year old just has to watch his or her savings double again and again until it reaches $1 million at age 67, using a 10% rate, and it all started with a one-time saving of $8,000.

Oh, if only we had done this when we were their age. But one more thing: Because they’re teenagers, I’d recommend there’d be two signatures on the account – just in case they get the urge to take some money out…

The Rule of 72:   At 10% it’s 72 divided by 10 = money doubles every 7 years

At 11% it’s 72 divided by 11 = money doubles ever 6 ½ years

At age              Amount now saved through compounding interest at a 10% rate

20…                 8,000

27…                16,000

34…                32,000

41…                64,000

48…                128,000

55…                256,000

62…                512,000

67…                1,014,000

THAT is the best graduation present I can think of, and it’s not hard to do at all. It works with any starting amount. Even if it’s $5,000, it’ll turn to $640,000 and that’s not a bad deal for a year of two of savings at an early age!

Adults can get there, too. If you want to have $1 million when you retire at age 67, for example, you just need to work backwards.

So at age 60 you’ll need half a million because it’ll double when you reach 67. At age 53, you’ll need $250,000 and at age 46 you’ll need $125,000, and age 39 you’ll need $63,000. When you reach any of those amounts, at whatever age, it’ll double and double until you reach a million at age 67. But, depending on your age, you may want to use a more conservative 7%, depending on your age in order to lower the risk of your investments.

However, there’s a big proviso: It’ll never happen if you’re also in debt and making a bunch of payments. Sorry, can’t be done. You need to be debt free to have some serious money to put away for investments. I know the world has taught you that you can have it all – it’s not true. There’s no chance you can save a little, pay a little here and there and still have a life with your normal rent, mortgage, utilities, gas, etc. I know you think you can and it’ll be another five, 10, or 20 years of finding out that you were really wrong and wasted another decade.