This was an experiment I came up with in 2020, and I hope you will find it useful.

I called the experiment the system & power of compounding and business acumen into kids.

Here’s how it works and the results:
At age of 5, explain to your kid(s) the concept of saving money. However, let them know saving is not the main goal. Making sure money works for them while they sleep is the most important component. show them that they can let others use their money legally In return, they get paid for borrowing it. To make it simple, tell them to give you their money, as a loan & they will receive 12% a year. Or 1% a month.

Naturally it’s easier for them to understand if they can visualize it. So setup a simple but colorful Google Sheet to track it for them. Let It show:

– how much money they put in
– how much interest they earn per day
– how much interest they earned so far
– how much they have in total now

To them its like a bank account, but it keeps growing with a daily compounded rate.

You then call it a “Loan Account”. With their chosen customized name. As they get older and know how to access Google Sheets, shared with them, they can check it any time on their own. So where do they get money from for the loan account? From their given allowance. Typically they get money from birthday gifts, uncles, aunties, grandparents, holiday gifts, and then odd jobs as they get older.

The following are some of the results You’ll notice as they get older:

Result 1 – They will get infatuated by how much they’re earning per day, even if its $0.55 per day, that’s a lot of money for a kid.

You can also gamified it for them to add more money so that the daily earnings go up. There is instant gratification of sort to see that on the sheet.

Result 2 – When their grandparents ask them what they want for their birthday, the typical response is “money”. That’s because they’d rather invest it into the Loan Account and generate more money.
They have naturally built up that “invest it” mentality.

Result 3 – Over the years it would become natural to think of money as income generating tool. Rather than a tool that is there to buy something as soon as they get it.
The incentive will flip to invest instead of spend. They might spend it at times, but way more cautiously because there is a solid understanding of the impact it will have on their daily income.
Going from earning $0.55 down to $0.50 per day is no fun.

Result 4 – They will notice that their daily earnings is going up, even if they are not adding any money into the Loan Account.
They have naturally learnt the magic of compounding.

Result 5 – They will focus on the long term impact of money, rather than the short term gratification it may bring.

We rise