How do we convince our children to save money? It isn’t easy. They’re exposed to flashy lifestyles of media-blown celebrities. They’re living in a world where (more than ever) goods are delivered with a couple of iPhone taps. Young professionals on television drive flashy cars; they live in gorgeous homes. Everyone they attract, in their designer duds, is drop dead gorgeous and artificially enhanced.
Responsible money lessons fall flat against frivolous, unrealistic backdrops.
But as a parent, you shouldn’t give up. I’d like to offer something you could try. It isn’t foolproof (what is?) but I’ve convinced some high school students to spend less…without directly telling them to do so. Dale Carnegie, the author of How To Win Friends and Influence People suggested that it’s easier to convince someone of something if they think the idea is their own.
Muhammad Ali’s long-time trainer, Angelo Dundee, used this strategy himself with the former Louisville Lip. In Thomas Hauser’s book, Muhammad Ali, His Life And Times, Dundee said that he often devised fight-winning strategies for the former champ. But he had to drop hints—waiting for Ali to claim the idea. Trying to tell Ali what to do, instead, was tougher than knocking him out.
Here’s what I did with my students.
Since the first day of school, they’ve been documenting their personal expenses, either on paper or with an online app. If they fly during a family vacation, they record their flight costs. When the family goes grocery shopping, they examine the receipt, divide it by the number of family members, and estimate their portion of the bill. When they buy clothing, go to the movie, or meet friends for lunch, they jot down the cost.
Nobody told Ali how to fight George Foreman. Nor would I directly tell my students about the merits of spending less. But I did drop hints, as Dundee did.
To introduce the idea of opportunity costs— what another use of money could do—I showed my students how to access the fund rating company, Morningstar. I gave them the symbols for the Vanguard U.S. and International Stock Market Indexes. They found out how much money these markets would have generated over the past couple of decades.
Before long, I could walk into the classroom, ask them to calculate the S&P 500’s average annual return--between a couple of whimsically selected dates--and they could figure it out.
Sometimes I picked dates that didn’t reveal great results: 2006-2009 for example. Markets fluctuate. They get that. But they also saw mouth-watering rewards for those willing to ride the market, long term.
Now for the savings part: I broke the class into groups, introducing an “Opportunity Cost Project.” Students worked in teams to create a few money-spending scenarios of their own. Some considered the cost of a coffee and a muffin at Starbucks three times a week, versus once every two weeks. Others wondered how much a family could save, buying groceries in the cheapest supermarket, rather than the hippest.
Then they took the next step, calculating how those savings could compound if invested in the stock market. The results shocked everyone…including me. Assume that one person spends $16 more per week at Starbucks than a second person. Now assume that the second person earns an 8 percent annual return on the $16 weekly savings. If they invest those savings, year after year, their proceeds would top $103,900 after three decades.
The boy comparing an expensive supermarket with a cheap one calculated a similarly large six-figure difference, if the savings averaged an 8 percent annual return over 30 years.
Along with tracking their expenses, my students are also keeping reflective blogs. After delivering their “Opportunity Cost” presentations, many are spending less, explaining why, and pushing me to teach the investment unit sooner, rather than later.
So, how could you transfer this to your own kids?
Document your own spending, and share the records. Ask them where they think you could cut a few costs. Show them how your own saved money could grow over time.
Then drop the ultimate carrot: the time value of money. Say, out loud, that you wish you had done some of these things when you were younger. Wonder, out loud, how dramatically your savings would have grown if you started investing modest amounts in your teens or early twenties.
Then see what happens.
Perhaps your child will have an Ali moment.