- Saving before you spend, using other people’s money wisely and making compound interest work in your favor will give you a big leg up in your financial life.
- Staying well-informed about taxes and applying time and discipline to investment management will keep you on the right track toward building wealth.
- Saving 20 percent of what you earn is a great lifelong wealth-building discipline to have.
On May 1, 1920, John D. Rockefeller, Jr., wrote a letter to his 14-year-old son, John III, about the terms of his allowance. The allowance would start at $1.50 a week, and in that letter, John Jr. walked his son through 14 rules pertaining to his allowance.
5 Core Money Principles
We know today that you can start teaching children about money as early as age 4 or 5 and certainly as young as 14. Whatever the young person’s age, we try to drive home five core money principles:
- Save first, spend second.
- Use OPM (Other People’s Money).
- Utilize compound interest.
- Be informed about taxes.
- Apply time and discipline as they relate to investment management.
John Rockefeller, Jr., certainly applied the first two principles. In paragraph 8 of Rockefeller’s famous letter to his son, he wrote, “It is understood that at least 20 percent of the allowance shall be saved.” And that’s still a very good rule of thumb today, especially for Millennials and Gen Z—those under age 20.
In paragraph 13, Rockefeller basically said, “Hey, son, if you save more than 20 percent, I’ll match you dollar for dollar.” That’s an example of core principle number 2 (OPM). That’s important because in today’s capitalist society, we want leverage. Leverage comes in the form of loans. We have credit cards, auto loans, home loans and student debt—all of which allow us to obtain more money and grow that money.
So when you’re looking at your children and your grandchildren, one of the best gifts you can give them is helping them form good, solid money habits. They don’t need that many. Two or three of the core principles should be enough to help them be financially savvy and make life simpler for them into the future. It will just be a really great experience for them to feel they have some control over their financial life.
Rockefeller’s Rules for Raising Responsible Children has more. It might be interesting to see how many of those rules you can apply to your own life as well as to your children’s and grandchildren’s lives.
Until next time, enjoy.
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