Money Flow Basics
If I could only teach my kids one thing about money, I would teach them the basics of money flow. Simply put, my definition of money flow is this:
Money flows from consumers to producers
There are so many related concepts that tie into money flow that this one principle lays the groundwork for a future of success.
Think for a moment about the some of largest, most successful businesses (and the people behind them). Apple recently became the first company to reach a trillion dollar valuation. Only a few weeks later Amazon became the second corporation to do the same. Jeff Bezos, the founder of Amazon, is the richest man in modern history. The reason Apple, Amazon, and other similar organizations are able to attain these staggering numbers is because they are highly productive organizations and consumers practically throw money at them for their products and services.
Money Flow in the World of Apple and Amazon
Apple has built an empire on mobile devices that make content consumption easier than ever. However, the iPod, iPhone, and iPad are less than ideal – I would go so far as to say horrible – for content creation. Can you imagine doing serious photo editing on an iPad? Or trying to write a best-selling book? How about trying to compile a major presentation for your leadership team at work? Nope. Just nope.
But reading a blog post while laying in bed at the end of a long day? Watching a YouTube video on the couch while your toddler naps? Checking email or Facebook while waiting for the water to boil for dinner? Those are ideal for iPods, iPhones, and iPads. Apple has done a marvelous job of making content consumption easier through these mobile devices, and they sell them in droves every year.
Amazon has profited in the same way off of consumerism. Amazon dominates the online retail world because of the friction-less purchase experience and high-value services. The low prices, one-click purchasing, and the convenience of having products shipped to our home in two days makes the buying decision so easy it’s almost scary.
But the point of all of this is that Apple and Amazon have produced products and services that make consumption amazingly easy. And consumers have paid these producers incredible amounts of money to do it.
How to Teach Your Kids About the Flow of Money
Fortunately, raising your kids to understand and embrace this concept is pretty straightforward. Because money flows from consumers to producers, you can instill in them the right habits by encouraging production and limiting consumption.
The good news in all of this is that it doesn’t really matter what they produce as long as they produce something. Again, we’re trying to develop money flow habits for success, so getting them familiar with production is the key here. They can start practically anywhere and still learn the same principles.
There are some positive side benefits of teaching your kids to produce:
- Work ethic – kids who learn to produce consistently will have better work ethic as they enter the work force, making them either a) more valuable employees who will climb the corporate ladders faster, or b) successful entrepreneurs who are willing to work to transform their dreams into reality.
- Life direction – kids who produce early in life will discover along the way what it is they really like and don’t like doing. This can save them literally years and thousands of dollars in deciding what they want to do with their lives as an adult. For example, I thought I wanted to be a doctor in college – but I’d never actually done anything remotely related to the medical industry as a kid, so halfway through college I changed majors (a couple of times). And just like that, I was two years and several thousand dollars behind where I could have been.
- Consumption – it’s easier to limit consumption when kids are encouraged to produce. Often consumers are simply bored, and that’s especially true with kids. So help them get off the internet or XBox by encouraging them to produce something, even if it’s just coloring a picture, drawing their favorite cartoon, or building something with LEGO blocks. That way they learn habits of production while also curbing boredom.
Finally, developing money flow habits requires limiting media and product consumption for two reasons:
- Limiting consumption leaves more room for production, which helps build work ethic, etc.
- Limiting consumption teaches kids to tell themselves “no”, which is critical in staying within budget in personal finances as an adult.
As a parent, you constantly have to think about what habits and paradigms you’re teaching your kids. If they come home from school and watch TV for 8 hours every night, they develop paradigms of consumption. If they come home and watch TV for an hour, then write a story or build a fort for two hours, then they’re developing paradigms of production. How you limit consumption is obviously up to you, but here are some suggestions:
- Limit screen time during the week to a certain time period, e.g. 1 hour per day.
- Implement a merit-based system of “earning” screen time, e.g. through chores, homework, good deeds, etc.
- Have kids decide what they really want to watch/play that week and allow no more.
Limiting consumption can be pretty difficult in our modern culture, but it’s vital for teaching self-regulation and for making space for production. It’s a necessary element for encouraging them to live within their means as children. It sets them up for future years of adulthood to help prevent them from going into debt for their consumption habits.
Money Flow Habits Build Wealth
In our culture today, we see young entrepreneurs become millionaires and billionaires by having a great idea, raising piles of capital, and starting “the next big thing.” Those are certainly newsworthy stories, but don’t be deceived – you and your children can build wealth simply by developing money flow habits. Start by producing more. Limit your consumption, and that of your children. Learn to produce more than you consume, and the money will flow to you. Teach your children these principles, and you will change the trajectory of their future.
Questions? Comments? Leave me a note in the comments below, or Contact me and share your thoughts!