Besides the fact that there’s a massive generational wealth transfer underway, another reason why I’m not too worried about the financial future of our kids is because they are much more financially savvy than we once were.
Thanks to the internet, there is an endless amount of free information to consume. The information uptake compared to when I was a kid in the 1980s (pre-internet) must be 1,000X greater. Further, the ability to invest smaller sums of money is much easier and access to once unaccessible deals is much more available.
You used to have to spend $500 to buy Microsoft Excel software to help track your finances. Holy crap! Now you can just sign up for Personal Capital and manage your net worth and analyze your investments for free. Those who’ve taken advantage of such democratization have tremendously outperformed those who couldn’t be bothered.
Given the stock market is at an all-time high, here’s an interesting question I received from a 13 year old cryptocurrency trader who wants to know what financial mistakes to avoid. Perhaps you can give this middle schooler some advice after I’m done as well.
Question: I’m 13, live in an upper middle-class family, have good grades in school, and want to start planning out my future now. I want to learn the major mistakes other people have made before I can even grasp the chance to do the same.
I run an eBay account where I make ~$400 gross a month buying and reselling high tier shoes and clothing. The money usually ends up in my desk drawer, but I have been dabbling in the investment of cryptocurrency and I have turned around a $2,200 profit so far.
I know that money comes with work and gambling for it is the worst thing you could do. I want to be able to live a happy and wealthy life and I know I have all the utilities but I don’t know what to do. I am willing to work and take risks to sustain financial growth but I don’t know where to start.
If anyone is willing to give me three pieces of advice for my future I will take them with full consideration. Thanks! Daniel
My Answer:
Hi Daniel,
Congratulations! You are well ahead of your peers when it comes to planning for your financial future. Most folks in the US don’t care until it’s too late. When I was 13 years old all I did was chase girls, skateboard for hours after school, drink beer and occasionally sneak my parent’s car out for a spin! It was a helluva fun time living in Kuala Lumpur, Malaysia back in the late 1980s.
Your parents will cringe at my first piece of advice, but do know that your grades don’t really matter until high school. In other words, have fun in middle school. You get to start all over freshman year in high school. Freshman year is when you really need to start hitting the books because your GPA gets averaged over the next four years. Better grades mean an easier time getting into college and setting yourself up for an easier life.
The people today who complain about life not being fair more often than not didn’t take school extremely seriously. Education is what will set you free. Get the best grades and test scores possible to give yourself as many options as possible.
Related: Public Or Private University? Depends On Your Guilt And Risk Tolerance
My second piece of advice is to lose money early and learn from your mistakes. It’s much better losing $1,000 than losing $100,000. Investing in cryptocurrencies sounds like a great way to make and lose everything. If you end up losing your $2,200 profit by not at least taking some profits, you’ll always be reminded about this loss before making more significant investments.
The people who are in for a rude awakening are those who feel they just can’t lose because they only started investing after 2009. Never ever confuse brains with a bull market. Study the previous bubble implosions to better prepare yourself for the next one.
Related: The Proper Asset Allocation Of Stocks And Bonds By Age
Tulips, internet stocks, property, cryptocurrencies. History repeats itself.
My final piece of advice is to always focus on building your personal brand. The easiest way to do so is to establish a presence online that organically grows over time. What do you want people to think when they search for you online? Don’t post compromising pictures of yourself that might come back to haunt you. Don’t write hateful commentary, only love or nothing at all. Focus on helping someone first before asking for help. Be resilient. Learn how to speak in a calm, clear, and professional manner. And never fail due to a lack of effort. If you can consistently tilt towards the positive, you will surround yourself with other positive people in return.
The abundance mindset will make you much wealthier than someone who holds onto a welfare mentality. There are janitors and elevator repairmen who make over $250,000. There are bloggers who make over $1,000,000. You don’t have to go the traditional route to make good money.
Oh yeah, and listen to your parents. The easiest way to never say, “I wish I knew then what I know now,” is to listen to the people who’ve been there. Find a mentor. Constantly ask yourself whether your next purchase will improve or hurt your lifestyle and net worth. I’ve done my best to share my experience and expertise on everything I’ve been through, good and bad, on Financial Samurai. Don’t let all the free advice go to waste!
Good luck! And thanks for reading. Your question has encouraged me to take some money off the table.
Sam
Related:
How To Invest In High Risk Assets Without Losing Your Shirt
The First Million Might Be The Easiest (the post where Daniel asked the question)
Updated for 2019 and beyond.
This is absolutely incredible. I wish I had this kind of knowledge when I was his age. I didn’t even know how taxes worked when I was 13!
I totally agree with the advice of losing early. You need to learn from your mistakes and making those early on is the best thing for an individual. I’ve made a lot of mistakes and luckily for me, I’m still in my 20’s. I agree completely.
My advice would be not follow any advice. Keep working in eBay, keep buying cryptocurrencies and forget if you lose 50% in one coin…this is normal volatility in cryptos.
Sam – I know you mean very well and I get the gist of what you’re saying, but I would advise him to be “weary” who he listens to. Some parents (although) relatively successful, can be closed minded or give bad advice. My parents had a successful business, for example but were too scared to invest in the stock market and real estate and were always talking about it as “gambling.”So, although they were successful in their business, they had NO IDEA what they were talking about in other areas and would spew misinformation and garbage, and sadly even do so today even though I have shown them that the stock market and real estate are great investments!
Although, I did get a lot of my knowledge from sort of advice hacking – listening to those who had done what I wanted to do and learn from their mistakes instead of making them myself. Just a thought as Tony Robbins says, “Your family can have the best intentions, but if they accidentally slip you poison, you’re still dead.” Some family members, while well meaning, don’t always give the best advice. Just a thought. I was always advised by others to listen to my parents and I’ve been very successful financially actually doing almost the opposite of what my parents did b/c they were so “fearful.” Not to say all parents are like that,but just to consider their knowledge b/f accepting advice blindly I guess.
Sounds good and makes sense. What would you advise him to do instead?
Hi Sam – I would advise him to take advice only from people (regardless of who they are) that have done what he wants to do AND are successful at it and strongly IGNORE advice from people who give advice on things they haven’t done or have done but never created success. (i.e. divorced people giving relationship advice, broke people giving financial advice, failed actors giving acting advice, etc).
I believe that many are afraid to fail. So, they never try, and failure is a GREAT teacher, but ONLY if you create success and knowledge from that failure. A lot of people sadly DO NOT and they think b/c they have failed at something that that gives them the authority to talk about it. I met a guy who was married 4 times (yes, 4!) and he was trying to give me relationship advice when I told him I was getting married. I saw him again a year later and he was on wife number 5 now saying, “This one really is the ONE.” SMH. He was clueless.
Wow! quite a kid. I agree with your second tip – Losing money is the most important thing that could happen to a person, in terms of his financial future, as long as it’s relatively low amount.
In fact, I think kids should get some money to “play” in the market, and thus understand the dynamics of it and be more careful when they are older and putting larger amounts in the market.
Regarding cryptocurrencies, it just strengths my thesis that most investors in them don’t really understand what they are investing in. The marketing of cryptos really got into people, with the promises of a new technology.
As new technology by itself is not a bad thing and the world economy sees new developments all the time, what really intensifies the possibility of a bubble is when the market starts to be crowded with unsophisticated investors. When professionals are successful enough to attract average people with promises of easy money, then a bubble could be triggered because the asset’s price loses correlation with the real value of the price. The market can easily behave as a pyramid scheme where those on top ultimately stay happy.
I’m afraid this is the story of cryptocurrencies and this post is just another proof for that.
Hi Solid Investor
Since you let slip that you’ve done a thesis on cryptocurrency, can I ask you a few questions? (And could you please use small words to explain?)
I understand that this cryptocurrency is a currency that someone made up. Is that even legal?
And now you can use real money to buy cryptocurrency to buy stuff. But what does investing in cryptocurrency really mean?
Are you investing in a share of the company who owns this made up money?
Thanks in advance
QK
Hi QK,
Personally, I am not investing in cryptocurrencies, as I am not investing in assets I cannot evaluate. For that reason, I also not engaged in forex trading.
Cryptocurrencies are legal and the trading is regulated to some extent in most Western world. However, they are not regulated to the extent the securities or currencies are regulated, but that might happen in the near future.
You can invest in cryptocurrencies if you believe that its price would rise. For instance, those who invested in Bitcoin a few years ago (or even a few months ago) have made enormous profits. The problem is that most people enter this market for the wrong reasons – Trying to gain easy and fast money. In that sense, it has the characteristics of a pyramid scheme. The technology which the cryptos laying on is definitely a game changer in many industries, and it has a deep and profound value, but it does not necessarily mean that the same goes for cryptocurrencies.
I hope I answered your questions.
Hi Solid Investor
Thank you for the information. It reaffirmed my vague thoughts. I do have one more question (sorry!), you wrote:
The technology which the cryptos laying on is definitely a game changer in many industries, and it has a deep and profound value, but it does not necessarily mean that the same goes for cryptocurrencies.
What technology is that? Is it a financial “technology”? We’re not talking physical things like batteries and computer electronics, right?
Hi
I can refer you to Wikipedia that probably explains it better than me – https://en.wikipedia.org/wiki/Blockchain , but essentially, it’s a sophisticated way to transmit data in a secure and cryptographic way. It can definitely be used for financial purposes, as it can be used in any field that requires confidentiality and security, such as the financial, medical and governmental fields.
It’s not something physical, I’d say that it’s more of a mathematical innovation, but again, I’m not expert for it.
Thanks for the information!
My advice…
1) Become extremely knowledgeable by reading books on stocks, real estate, personal finance, taxes, sales, etc.
2) Don’t daytrade or gamble. 99% chance of losing a lot of money and it’s stressful.
3) Set targets for yourself that are 10X greater than what you believe you can achieve. Take actions that are 10X greater than what you believe are necessary to achieve your goals.
4) Don’t hang out with kids that do drugs, drink, and waste time. Find the kids who work hard.
-Brian CPA, CFP
Learn how to be kind, learn another language, and take care of your body. Those three will get you very far. Folks actually like to network with kind and interesting people. If you spend time learning how to understand new perspectives, you’ll be one of the most valuable people in any room.
My biggest mistake was I thought that I couldn’t replicate the successful person in the book/article that I was reading because my situation didn’t fit theirs.
It never occurred to me that their blessings were different but I had my own blessings that they didn’t have. For example, I thought that because they got to live at home after college and I didn’t and therefore my bills were higher so I couldn’t save like they could that I wouldn’t be successful. I didn’t see that my living in a garage apt for six years totaled up less than their much nicer apt for two years after they left home.
It also never occurred to me I could succeed with the idea I was reading about because my bumps in the road were different from theirs. For example, oh, I can’t retire in 9 years like Mr. Money Mustache because I don’t have a high salary. It didn’t occur to me that I could have retired in 14 years, not nine, by applying the same principles. I just gave up completely on early retirement. I didn’t persist and find a way to make an idea work.
So if you like an idea, think outside the box and get help from a trusted person who won’t put your idea down and discourage you. Figure out how to make it work. If the journey is not worth it after you have the best plan then at least you tried and you learned how to go thru the process of thinking it thru. The next idea you want to implement will be easier from your first experience.
My second biggest mistake was that I didn’t realize I had allowed myself to take on the fears of prior generations’ issues that have changed without heeding their advice on things that didn’t change.
For example my grandparents grew up in an era where your mortgage could be called at any time. If you couldn’t pay the balance of the mortgage in full immediately, you lost the house. That has changed but I still let their fear make me heed them and we paid off our house and all other debt after eight years of marriage.
What hasn’t changed is credit card and car loans are bad ideas. Save up and pay cash for stuff. I did not heed that advice unfortunately.
You may think, what’s wrong with paying off the mortgage and other debt? Other debt is bad, rt? After all, I now get to be a stay at home mom even tho my husband is a lowly paid teacher
From the time we married 10 years ago we lived on my husband’s income and put 100% of mine on the debt. If we had instead 1) paid the minimum amounts on our credit cards, car loans, house, etc, (and of course not added to the debt) and 2) just invested our money (in stocks, bonds, etc) we would still have had the mortgage (just the mortgage. The other debts would have been paid after eight years) but we would also have had $750k in assets aside from the house.
I would rather have $750k and a $730 mortgage payment on a house now worth $200k than $65k in retirement funds (acquired because one employer matched and we only put enough in to get the match) and no mortgage. It just never occurred to me to not pay off the mortgage or the other debt. (Now if this were the 1970s with crazy high rates that would be different.)
Also, my parents’ fear of financial advisers ripping me off prevented me from getting help that would have made me see that investing my salary, not accelerating debt payoff, would have me be a stay at home mom and also put us on the road to early retirement. It takes 7 to 10 years (roughly!) for your money to double. That $750k could have had my husband retired in a decade or so while our son is still in school and we wouldn’t have had to contribute another dime to get there. (Barring anything drastic happening of course).
Well meaning advice may have helped the advice giver in their situation but it won’t necessarily help you in your situation. so you need to think it thru to ensure it will help you with your goals.
Great advice Sam! I thought 13 was a typo ,very impressive!!
Daniel, I admit that below advice would not be appropriate for your age, but I still want to share this with you as you are very financially mature.
There will be major market crashes/financial meltdowns (like 2008) almost every decade. Please don’t be panic but continue saving diligently and invest as usual because market always recovers and goes up. Never underestimate the power of compounding so start early and be persistent. For someone like myself, a subpar investor, an index fund (a total stock market or S&P 500) has been the best choice (S&P 500 was 100.18 in 1977 and it is now 2459.27), but if you are like Sam, be creative and diversify as much as possible.
Wish you the best!!
Hi Daniel, (and Sam)
I am a computer science faculty, and a reader of Sam’s blog.
Some thoughts I have based on my life experience:
1. I personally find it good to do something that I am both passionate about and has good economics. Passion with bad economics causes a lot of financial stress in life, but good economics without passion causes burnout and career switches. Fields with generally good economics are business, medicine, law, computer science, finance, and other generally technical areas.
2. I found it beneficial to relentlessly keep improving at a few chosen subjects (for me mostly, computer science) since a teenager, and just stick to them, because over the years, the slight improvements of one’s knowledge keep compounding. In the global economy, it is specialization rather than generalization that is generally rewarded.
3. I personally think it is beneficial to study hard in school and get good grades, while not overpaying for college degrees (i.e. apply for lots of scholarships). Like anything, a degree has a rate of return associated with it, so it is important to get a great education, but not be trapped by enormous amounts of college debt.
4. I find it really important to focus on outdoor activities, health, fitness, nutrition, and keep those as very high priority items in my life. It is really important to establish these habits early and stick with them because they also cause compounding effects in one’s health and lifestyle. For example, many people are unfortunately not in so good of health, fitness, or live in areas with not much access to beautiful outdoors places, so they have a hard time actually enjoying their life and the money that they work hard to earn.
Great advice! Make the mistakes now, the quicker you make them, the quicker you can recover and learn from them. I don’t know a lot about crypto-currency so I can’t really comment on that. But I am impressed with this kid’s maturity. The best advice I can give is to do something you enjoy doing. If you enjoy it, you will want to and eventually will become great at it and then success is not too far away :-)
(My apologies if you receive this comment 2X. My computer fritzed just as I hit Submit the first time)
“but do know that your grades don’t really matter until high school. In other words, have fun in middle school.”
Sam, I hope Daniel and his parents cringed at this bit of advice; I know I certainly did.
While I understand you to mean that a 4.0 in HS will be a 4.0 in HS whether one had in middle school all As or all Cs, still grades do matter in middle school because the grades in those years permit (if high) or foreclose (if low) many options downstream in HS (I have 3 in HS right now, one in middle school).
For example, in many (if not most) school districts around the country, the students will be “tracked” into either a higher level or an on-level set of classes, particularly math and sciences classes, based on their 7th and 8th grade performance in those types of classes.
I’m not saying kids should obsess over grades, but if they are capable of As then they should get those As to avoid getting stuck in on-level classes in HS and also potentially being shut out of AP classes (particularly freshmen/soph years) and/or IB programs if their HS has IB.
Do your best in school but remember to also constantly improve your social skills. Doing well in school right now allows you to get into a better college later which will provide more opportunities. However, once you’re done with college, the reality is that social skills matter. A LOT. Take my wife for example – she sucked at school but she’s a super charming person. She also has an extremely high emotional IQ (which is a better predictor of income in life than regular IQ). So even though she had a 2.8 GPA in high school, then a 3.1 GPA in college, she is killing it in life now because of her social skills. She’s 28 years old and makes 350k as an outside recruiter for a recruiting company. In 2-3 years, she’ll be making 500k. I mention this to highlight the fact that soft people skills and sales skills are very important. Get the best grades you can but don’t forget that learning how to manage/manipulate people can pay huge dividends. One last piece of advice – consider signing up for a company like Cutco and learning to sell for a year or two. My wife did Avon sales in college which I think really helped her to get comfortable with sales in general.
Great advice Sam. I especially like the advice to find a mentor as I think that a mentor can provide a great deal of knowledge and motivation if you found someone that you can look up to.
My three pieces of advice would be:
1) To always believe in yourself.
2) To find your passion early and build your skill sets around your passion so that you can do what you enjoy for a living.
3) Be positive as positive attitude produces positive results.
Ebay, cypto currency, banks your parents must be in on all the action cause snapchat and fb don’t allow 12 and unders. Coming from an upper class why not do as your parents do it seems to be working out great. Spending time on ebay, cypto currency, financial blogs at 13 is better than drugs, playing with stuff animals, sports. Just continue doing ebay, cypto currency, financial blogs through 14-18 and stray away from dating or starting a band. You’ll be ahead by 4 yrs to, now your 18, people your age by not changing a thing and continuing what it is you’re doing today.
Really a big difference from upper class parents versus middle class parents.
Hi Daniel
Congratulations on your achievements! I’m a lot jealous! I wish I had your financial savy-ness at 13! But then again I wish I had any money at 13! I didn’t even get to keep birthday money. My folks needed it.
So here’s a few kernels of experience that this financial fool has for you:
1) Learn all you can about taxes, how your income tax is calculated and how to file your income tax forms. Don’t be an idiot like me who was forced to figure all this out (over several years) when I found permanent employment in my twenties.
2) Take as much advantage now of tax free investment offerings, tax breaks and save, save, save! Every now and then compound interest will surprise you! This way, you will have enough money to fund your education and financial freedom if you ever need to. Believe you me, you will need the financial cushion eventually. The workplace is no longer what it was. People are mere tools and are used, abused and discarded as needed by the employer.
3) Treat money with respect. Don’t overvalue it, but don’t abuse it either.
I wish you all the best!
Hi Sam,
First of all Congrats to both Daniel and you, on your financial wisdom.
Truth be told – The 13 year old impresses me a lot more :-)
But this Q has been bothering me:
What if you are on track with your NW, but not with your passive income streams.
Personally, I have no idea what my various investment accounts generate as passive income. They are all mostly on DRIP, and there are quite a few based on past and present employments. Yes, consolidate, but I want to enjoy the variety in choices to invest as well at low fees.
Anyways, yes 20x your current income as NW goal, and a fixed $150K in passive income – while both make sense, I am unable to correlate the two in my situation. The rental income is easy to track, but I strongly feel that while my NW is on track (and I also fear its because we are in a persistent bull market), I do not feel comfortable with my passive income streams. Perhaps, this is the reason I am leaning towards rentals so I can have a clear picture on that front.
The thought of – I suddenly stop working, where am I getting the money from, then? In Pre-tax accounts like 401K, yeah – some passive income stream there, but so what? I cant touch it.
Thanks for your thoughts and guidance in this regard.
Hi Sam,
First of all Congrats to both Daniel and you, on your financial wisdom.
Truth be told – The 13 year old impresses me a lot more :-)
But this Q has been bothering me:
What if you are on track with your NW, but not with your passive income streams.
Personally, I have no idea what my various investment accounts generate as passive income. They are all mostly on DRIP, and there are quite a few based on past and present employments. Yes, consolidate, but I want to enjoy the variety in choices to invest as well at low fees.
Anyways, yes 20x your current income as NW goal, and a fixed $150K in passive income – while both make sense, I am unable to correlate the two in my situation. The rental income is easy to track, but I strongly feel that while my NW is on track (and I also fear its because we are in a persistent bull market), I do not feel comfortable with my passive income streams. Perhaps, this is the reason I am leaning towards rentals so I can have a clear picture on that front.
The thought of – I suddenly stop working, where am I getting the money from, then? In Pre-tax accounts like 401K, yeah – some passive income stream there, but so what? I cant touch it.
Thanks for your thoughts and guidance in this regard.
My son has been investing in cryptocurrency since he was 8 years old with money from Grandma and with gifts money, he will turns 10 in 3 months. He begs me by AMD when the stock was trading above 8 dollars. He does research on AMD and gave a full presentation on why I should invest in AMD and yes I took his advice. Also, yes he does have a youtube channel when he was 7 which he himself told me he should have the presence online. I honestly believe some children are just born with the financial savvy and it is up to the parents to guide them.
I love your sound and down to earth advice because these savvy kids still need to be kids.
Think Sam’s advice is good – in college I turned $250 into $2000 by trading currencies online in the span of about 4-5 months but then ended up losing over $1000 in one weekend by betting too big. Take the time to question why you are making money – are you making it on both the long and short side or were you just lucky enough to catch the middle part of a bubble? Write out your decision making process – and if it’s limited to “buy cryptoccys until they go higher” then you’re likely better off taking some money off the table now. The more you can separate out your successes in the market based on real fundamental ideas that played out well as opposed to lucky wins, the better off you’ll be to replicate that success going forward. Also if you are enjoying the trading game take the time to read Reminiscences of a Stock Operator – it’ll help you realize that the path to success is never a straight line, but constant self reflection and hard work will get you there eventually
1. Attend a college that has a CO-OP internship program like in NorthernEastern University to get your foot in the door.
2. Invest like the Financial Samurai.
3. Save 50-85% of your income.
4. Invest in low cost S&P 500 index fund like the one from Vanguard.
5. If possible find a job that has a pension.
6. Look for a spouse/parnter that is on the same page financially and career wise as you.
7. Invest in tax free municipal bonds 4% or greater to generate passive income and strive to exceed expenses to reach FI.
8. Max out your 401K so that you will have a min of 1 million by age 5
9. Have 1-2 years of living expenses in savings so that you can leave your job anytime without feeling trapped.
10. Buy a house max of 3 times your gross income.
11. Don’t spend money on a new car every 3-4 years. Keep a car for a min for 10-15 years.
12. Strive to have passive incomes that cover at least 2-3 times expenses.
My standard advice is to get a job and become a productive member of society.
My advice to the 13 year old is to learn as much math as you can, look for what folks are NOT saying about finance, and read John Bogle.
I agree with this advice.
Read: Bogle’s Little book of common sense investing – Invest in total market fund rather than wasting effort in stock picking + market timing. Life is short so go out and have fun while you’re a kid.
The advice given is already very good. I may add that if you’re choosing you’re eduction subject, choose one you like most. It will be easiest to fulfill and to build something up you enjoy and may it be necessary to fall back on. Don’t stick with one thing because other expect it of you, but make you’re own path and be confident about it.