The Best Investment Idea For Kids: The Two-Box System
The Best Investment Idea For Kids: The Two-Box System
By Dr. Steve Sjuggerud, President, Investment U
Thursday, July 24, 2003: Issue #259
I hope my two little kids grow up with a good savings ethic and a good work ethic. But honestly, I didn’t have A PLAN to get them there until I read about Justin Ford’s Two-Box System
It’s brilliant. And it’s easy. Sometimes I feel like I’ve heard it all in the investment business. But every once in a while, an ingenious idea comes along.
Justin has written a program called “Seeds of Wealth” to get your children (or grandchildren) off on the right path to wealth. One part of his program is the “Two-Box System.” I find it so valuable that I’ve asked Justin to share the basics of it with us, along with how it has worked in his household. By using this “Two-Box System,” you can assure that your children not only learn the fundamentals of wealth building at a very early age-they’ll actually become wealthy at a relatively early age.
I like the idea so much, I’m looking forward to trying it in my own household. If you’ve got kids or grandkids, you ought to consider it too
Your Child’s Secret and Most Powerful “Investment” Weapon
By Justin Ford
“Kids, how would you each like a million dollars?”
Try that at the dinner table. It’s a guaranteed attention-getter
I’m going to help you get that million, starting today. You ready?
First, I’m going to give each of you two dollars. One of the two dollars I’m giving to you now, you can spend however you please-on candy, magic cards, combining it with some other money you have to buy something else whatever you want.
The other dollar, you’re going to save – permanently. That means you’re not going to spend it for any reason whatsoever for at least 30 years. So far, so good?
Now every other dollar you receive from now on – whether it be for allowance, a birthday present, Christmas present, chore money, or money you find in the street – you’re also going to save half permanently and spend half however you like.
You keep doing this, and in a few months you should have a hundred or maybe even a few hundred dollars in your permanent savings. Your savings will grow for you, and by the time you’re my age, you’ll have your million dollars.
The Two-Box System Explained
Exactly how do you start your child on his or her “march to millions?” Strangely enough, it all begins with two ordinary shoeboxes – one marked “permanent savings,” the other marked “money for spending.” It works like this
Every time your child gets money – whether it’s allowance from you, birthday money from the grandparents, or cash from doing odd jobs around the house or in the neighborhood – half of it goes into one boxand half into the other.
The spending box contains money your child can spend on anything he or she wants – toys, candy, movies and popcornanything you allow. The savings box is money your child can never touch – money that will find its way to safe, long-term investments that, over time, will grow into hundreds of thousands – even millions – of dollars.
It Really Works I’m Proof!
From my own experience, I can tell you the Two-Box System is not a great sacrifice for kids. On the contrary, the habits this simple technique helps instill should help your children enjoy what they do have all the more without becoming spoiled, or contracting what I call the dreaded “Gimme Disease.”
My youngest, for instance, just turned nine, but ever since he was five, he’s known exactly how much of each dollar must be put into the “permanent savings” box on his dresser and how much goes into his “temporary savings” box.
He counts out the permanent savings with me twice a year and I invest it for him. The temporary savings he can spend all or part of on whatever he pleases whenever he wants.
We’ve counted out hundreds of dollars from his permanent savings box in the last year alone. And that means he’s also had a few hundred dollars to spend. So it’s really no sacrifice at all.
After all, what could a nine-year-old gain by spending a few hundred extra dollars? He’s truly a happy kid. I couldn’t imagine he’d be any happier if we simply decided to let him spend all of his money. In fact, he’s developing habits now where he wouldn’t dream of spending all of his money!
And the same goes with my 11-year-old. When he won $50 and a pen for first prize in an essay contest, he kept the pen and immediately divided the money between the two boxes – just as he’s been doing for years. He splits his allowance and household-chore money the same way.
As for my oldest, he’s 14 so he no longer receives an allowance. Yet every two weeks he mows our lawn and his aunt’s lawn. He automatically puts half his yard-work earnings into his permanent savings and spends the other half as he pleases. He does the same with money he receives from birthday or Christmas presents and he’ll do the same with money he’ll earn when he takes his first part-time job.
These habits are now second nature to all three of my boys. They have better money habits than I did just 10 years ago And that was the whole point! It’s as if the wealth they’re steadily accumulating is just a bonus-but what a bonus!
But What Happens When the Kids Grow Up?
As the author of Seeds of Wealth, I teach parents and grandparents many specific techniques for helping kids develop lifelong wealth-building habits. Every once in a while a parent will write to me and ask, “But what happens when my children come of legal age?” They gain control over their investment accounts, so what’s to prevent them from squandering the wealth they’ve accumulated?”
The primary answer to this question is that my program is really about developing responsible financial habits, not only growing wealth at a young age. They’ll have created wealth themselves through their own discipline. So they’ll know wealth is not an easy-come proposition and are less likely to have an easy-go attitude about it. In other words, their very financial character has been molded from the beginning, so going on a spending spree would feel “unnatural” to them.
Don’t forget the intangible benefits: your kids could never have to worry about not having enough money in their lives-no matter what careers they choose. They could have more options professionally, in terms of travel and education. And from a very young age, they can learn from experience the kinds of things they can achieve with a little discipline.
They could gain wealth and have a good savings and work ethic. And they’ll have you to thank for it.
*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Wall Street analysts.