How I failed my daughter and a simple path to wealth

Posted: June 8, 2011 in Life, Money

Literally since the day she was born people have been complementing my daughter.  Her looks, her brains, her charm (she takes after her mother) and her behavior.

For that last one I sometimes get credit.  Not that I deserve it.  Mostly I’ve stood by and simply watched in awe and tried not to get in the way.

A few years back I actually lost a friend over this.  He was so insistent I take credit and so upset when I didn’t, he hasn’t spoken to me since.  But the truth is the truth.

In fact, I have this vision of the Birth Angel approaching God in ‘91 and saying, “Hey there, God, we’re planning to send a little baby girl down to that Collins guy.”

And God saying, “Ah, man.  Really?  Did I authorize this?  I did??  Guess this day hadda come.  Well, send him the easiest, best one you’ve got.  He can’t handle much.”

And so, I got Jessica.

You might be thinking I’m overstating this.  Not so.  In the one area I actively tried to influence her, I failed miserably.  Money.

See, I hold a few core beliefs.  One is that this whole civilization thing has been a huge mistake and we’d all be better off as hunter/gatherers.  (More on that in a future post.)

Another is that, since we do live in this complex, technical world you had best learn about money.  Money is the single most important, effective tool in navigating it.

I started her early.  Allowance.  Envelopes for spending, saving and charity.  “The Richest Man inBabylon.”  Checking account.  Saving account.  Mutual fund.  Endless conversations (ok lectures) on the subject.  What child wouldn’t love this stuff?

Now she’s in college and, home from one recent break, I brought it up again.  She stopped me.  “Dad,” she said “I know this is important.  I appreciate money.  I know I need it.  I just don’t want to have to think about it and manage it.”

Yikes.  The one thing I tried to instill….

But then I thought about it.  This likely describes most people.  Financial geeks like me are the aberration.  Sane people don’t want to be bothered.  So is there a simple way for folks who have better things to do with their time?

Yep, there is.  Below is what I created for her, and she’ll get better results with it than most active money managers.


The simple path to wealth

It starts with nine basics.  She doesn’t have to read any further than these to make it work.  Just do it.

  1.  Avoid fiscally irresponsible people.  Never marry one or otherwise give him access to your money.
  2. Avoid money managers.  It’s your money and no one will care for it better than you.
  3. Avoid debt.
  4. Save a portion of every dollar you get.
  5. The greater the percent of your income you save and invest, the sooner you’ll have F-You money.  Try 50%.  With no debt, this perfectly doable.
  6. Put this money in the Vanguard Total Stock Market Index Fund (VTSAX)   This is the fund you already own, so just keep adding to it.
  7. Realize the market and the value of your shares will sometimes drop dramatically.  People all around you will panic.  They’ll be screaming Sell, Sell, Sell.  Ignore this.  Even better:  Buy more shares.
  8. When you can live off the dividends VTSAX provides you are financially free.
  9. The less you need, the more free you are.

Willing to go a step further?

Notice what you are not doing:

  •  No expensive money managers
  • No fancy strategies
  • No exotic, hard to understand investments
  • No weekly, monthly or even yearly management
  • No effort; just keep adding to the pot.

More?  I thought you’d never ask!

The Details:

1)  Avoid fiscally irresponsible people.  Nothing will destroy your wealth faster than letting someone else have access to it.  Fiscally irresponsible people have squandered their money and will happily squander yours.  They will try every dirty trick possible to get their hands on it.  Kick them to the curb.  Look for people who will add to your efforts.  This applies to more than just money.

2)  Avoid Money Managers.  They are expensive at best and will rob you at worst.  Google Bernie Madoff.  Seek advice cautiously and never give up control.  It’s your money and no one will care for it better than you.  But many will try hard to make it theirs.  Don’t let it happen.

3)  Avoid debt.  Never borrow money.  Never carry a credit card balance.  Almost everyone else you meet will be borrowing money to buy this or that.  It will look normal.  You might be mocked.  You don’t want to run with this crowd.  People still refuse to believe I have never had a car payment.

  •  The only exception might be for a house.  But don’t be in any hurry. Think long and hard before taking out that mortgage.  If you are a disciplined saver, renting is damn near always the better fiscal choice.  (If you are not, a house can act as a forced savings plan.  A poor one, but at least a plan.)
  •  A house is not an investment.  In fact it has the very worst characteristics of an investment.  (More on that in another post.) It is only place to live.  Buy one only if you can easily afford it and want that particular lifestyle.
  •  Most people will argue this strenuously.  They are wrong.  This guy got it right:

 4)  Save a portion of every dollar you get.  50% is good.   With no debt, this perfectly doable.  Think this is too extreme?  Check out the conversations here:

The most valuable thing you can buy with money is not cars or clothes or vacations or houses.  It is your financial freedom.  So pay yourself first.  Most people spend every cent they make and borrow to spend even more.  This is nuts.  Those who do are slaves to their employers and slaves to their debt holders.  You weren’t raised to be a slave.

5)   The greater the percent of your income you save and invest, the sooner you’ll have F-You money.    The obvious reason this works is that the more you save the more you’ll have.  The less obvious reason is the less you learn to live on the less you’ll need to be financially independent.  See point #9 and

6)   Put this money in the Vanguard Total Stock Market Index Fund (VTSAX).    You want the money you save to work hard for you.  In VTSAX it will.

i.  This is an “index fund.”  You can learn more about exactly what that means anytime, but for our purposes here it means very low cost so you keep more of your money.

ii.      VTSAX is an index fund that invests in stocks.  Stocks, over time, provide the best returns.

iii.      Vanguard is the company that operates the fund and it is the only investment company you need (or should) deal with.  Vanguard’s unique structure means that its interests and yours are the same.  This is unique among investment companies.  Again, if and when you care to, it is easy to learn why and how this is so.

iv.      You might find a fund in another investment company that is a bit cheaper.  But you can’t trust these other companies long-term.  Their interests are not your interest.  If you play with snakes, to quote Dave Ramsey, you’ll eventually get bitten.  Don’t bother.  Stick with Vanguard.

v.      You will hear occasionally how “actively managed” funds beat index funds.  It will seem obviously better to switch to one of these.  It’s not. Don’t.  Very rare is the manager who can consistently outperform the index.  While who they are it is obvious after the fact, it is impossible to know who it will be out of the hundreds at the start.  Even if you were to get lucky, now you have to pay close attention.  They retire, quit, die or simply lose their touch.  Plus they are more expensive.  Don’t bother

vi.      We choose to invest in stocks because, over time, stocks outperform everything else.  They give you the best returns with, using an index fund like VTSAX, the lowest effort and cost.  Never try to pick individual stocks unless you turn pro.  Even then you likely will underperform the index.  Most pros do.

vii.      Owning 100% stocks like this is considered “very aggressive.”  It is, but you have decades ahead.  Market ups and downs don’t matter as long as you avoid panic and stay the course.  Perhaps 40+ years from now you might want to add a Bond Index Fund to smooth out the ups and downs.  Worry about that 40 years from now.

7)  Realize the market and the value of your shares will sometimes drop dramatically.   No worries.  You’ll be holding this fund for 40-50+ years.  During that time the stock market will very likely drop dramatically 4 or 5 times.  There will be real and serious problems that cause it.  Each time people will panic.  Each time they will predict this is the end.  Each time you’ll be hearing Sell!  Sell!  Sell!

If you are smart, you will ignore this.  If you are very smart you will use these times as an opportunity to buy more shares at bargain prices.

As I write this in June 2011 the S&P is trading around 1300.  Two years ago it was at 670 and people were predicting with certainty it would go to zero. Opps.  It doubled.

By the way, there will also be times then the market soars and people will begin to say this is a new age.  Things are different this time.  Things will never go down again.  They, too, are wrong.

Warren Buffett, the greatest investor of my age, said “When others are fearful be greedy.  When others are greedy, be fearful.”  Sound advice.  The wheel always turns.  Things always recover.  If someday the end really does come, it won’t matter anyway.

8) When you can live off the dividends VTSAX provides you are financially free.  Actually a bit sooner.  As this is written, VTSAX is paying a dividend of 1.68%.  Sometimes this will be higher, sometimes lower.  Anytime you can live off it you are financially independent.  But when you can live off of 3-4% per year of your net worth you are also free.

There you have it.  Remember, this advice is for my 19-year-old daughter. (We do things a bit, but not much, differently.)Now, if I can just get her to read it…..

Care to comment?  Just click on the circle on the top right of the post.

Disclaimer:  Like everything on this blog, this is only sharing ideas.  You are solely responsible for your own choices.

You might also be interested in the case study:  putting-the-simple-path-to-wealth-into-action

About these ads
  1. Ryan says:

    Hi, new to this site. I have $77k in college debt, would it make more sense to pay off the debt before investing, or slowly pay off the debt while investing?

  2. Jeremy says:

    New subscriber here! Firstly, thanks for sharing all your insight jlcollinsnh, tons of fantastic info. I’ve been reading your blog for the past 3 hours and was wondering if you could help provide some direction for my situation.

    I’m 24, single, finished college 1.5 years ago and have been working at my first “real” job making ~$30k/year. I’m debt free, living at home, and have very low expenses thanks to Mom & Dad. I have $6k in an online savings account (Ally) and want to start investing immediately with Vanguard’s VTSMX.

    But my employer doesn’t offer 401k/IRA options. I was going to open a Roth IRA through Vanguard and start from there, but my concern is the short-term parking of my money when I move out or have a spouse within the next 5 years. I’m blessed to have very low expenses, so I can afford to save aggressively right now; currently save 70% of each paycheck after taxes.

    Since VTSMX/VTSAX is for the long-haul, should I go ahead and start a Roth IRA or put my $6k into a fund that’s more liquidatable and just keep saving? I’d eager to get started so I’m tempted to just go ahead with the VTSMX, but I don’t want Uncle Sam taxing the dividends if it’s not in an IRA.

    Thank you very much in advance and I’m looking forward to reading the rest of your blog!

    • jlcollinsnh says:

      Welcome Jeremy…

      Great to have you here!

      Congrats on graduating debt free and your truly excellent 70% savings rate.

      Since you are making 30k a year you are already in a very low tax bracket. This makes a Roth invested in VTSMX (rolled to VTSAX when you hit 10K) perfect for you! That’s 5k per year.

      You’ll still have ~15k to invest each year and that I’d put in a regular VTSMX account. This will be easy to access anytime, but of course you’ll have to pay capital gains and you’ll not want to put yourself in the position of having to sell in a down market. You want to be holding this literally forever.

      You mention you might move out/get married in the next five years. That’s a long time and those are things you’ll have a long lead time on. For now I wouldn’t worry. Just keep investing.

      When you see one or both of these things are going to happen about a year out, just divert your savings from investing to a bank savings account. At your 70% saving rate at the end of 12 months you’ll have 15k in cash to handle whatever you need to handle.

      You’re off to a great start! Hope you stick around, keep commenting and let us know how you progress. Cheers!

      • Jeremy says:

        Thanks for the prompt response, Jim. So Vanguard will allow me to have both a Roth IRA and a regular investment account using VTSMX for both? Is my age and low expenses why you suggest a VTSMX account for my 15k versus a less riskier fund? And this is assuming I have a 6 month emergency fund put away in a savings account.

        I’m currently listening to your “Importance of F-you money” podcast while browsing your blog, lol. You should put up a PayPal donate button! :)

  3. […] How I Failed My Daughter and a Simple Path to Wealth @ JLCollinsnh […]

  4. […] Spend less than you earn – invest the surplus – avoid debt […]

  5. Renee S says:


    I have posted comments before and I have another question (of course!). I graduated school and landed my first job a year ago. I have no student loans (due to MANY scholarship applications) and maxed out Roth last year. 10% of my income goes into a Public Employee Retirement Account (PERS) and my employer matches 15%. I also put $100 into my 403b every paycheck. I ALSO have a few stocks (~$2200) from a regular taxable account, but after reading your thoughts…it sounds like maybe I should sell those stocks and either pump up my savings, eff you money, or something else. What do you think should be my strategy?

    I want to be able to do your Step 8—living off of dividends (eventually). Can I do that if everything is in my Roth? I just won’t be able to live off of them until 59.5 years old? How can I do step 8 in the most cost efficient, streamlined way? :)

    Thanks for your time :)

    • Renee S says:

      oh, PS My 403b has no matching

    • jlcollinsnh says:

      Hi Renee…

      Congratulations on graduation with no debt. Well played! And on your new job and fine savings/investing start. Definitely keep maxing out your PERS for the match and your Roth.

      If you plan to retire before 59.5 almost by definition you’ll have a savings rate that will have you investing money after you’ve maxed out all the tax deferred stuff. This is what will fund the retirement years before 59.5.

      I would sell the stocks and use the money to start your VTSAX account.

      If you haven’t already, be sure to read the stock series on this blog. The answer to your question about #8 is there in Parts VI & XIII.

      You’ve got a long investment life ahead and it will be rough at times. To stay the course and profit you’ll need to be mentally tough.

      Keep us posted on your progress!

  6. […] back a commentator on Reddit, referring to one of my posts, said:  “This really just looks like a commercial for Vanguard.”  I can see his point, […]

  7. Renee S says:

    Hi! Love you blog :) Will you please help me understand something? I have VTI (the ETF, and I just looked and it has more than $3,000 in it.) Is there a reason that I should switch my ETF to the Investor share mutual fund? Or should I just sit tight until I can get my balance up to $10,000 and get the VTSAX?

    • jlcollinsnh says:

      Thanks Renee!

      Sure. With VTI you have exactly the same portfolio as VTSAX. And you have exactly the same ultra-low expense ratio of .06%.

      There is no need now or in the future to switch to VTSAX. Rest easy and keep adding to it!

  8. […] then you hit the link and went to the Simple Path to Wealth.  As you read, you thought, “This is more like it.  Only one fund.  This I can […]

  9. […] Very powerful stuff and it should give you a lot to feel warm and fuzzy about as you follow The Simple Path to Wealth. […]

  10. Prob8 says:

    Well written blog. Clear, concise, and convincing. In this post, you indicated financial freedom is achieved when you can live off 3-4% of net worth. Did you mean 3-4% of the money you have invested and working for you (i.e. excluding your house, cars, etc.)? Does the withdrawal rate change if you decide to invest in the Vanguard balanced index fund (60/40 stock/bond split) as opposed to VTSAX? Does the rate change if you add in the REIT?

    Also, are you currently living off the 3-4% as your sole income or do you have other sources of income. I’m not trying to be intrusive, but I am trying to achieve FI within the next 4-5 years (I’m 37 now and have a spouse and 2 kids). I am very interested in hearing from those who have taken the theoretical SWR and put it into practice. Especially from those doing so with kids.

    • jlcollinsnh says:

      Hi Prob…

      Thanks for stopping in and leaving some comments!


      I should do a post of withdrawal rates one of these days. (Update. Here it is:

      If I were 37 with a couple of kids, 3% would be my target. Lots of years and expenses ahead of you. 3% is a nice conservative number, assuming your earning days are truly done. And assuming having to adjust your lifestyle would be unacceptable.

      I wouldn’t vary it, even with REITS and bonds in the mix, as they should be once you move to the wealth preservation phase.

      But much of this also depends on you, your temperament, your flexibility and your plans. If it would be easy for you to return to work or pick up part time gigs, you might be more aggressive. If the market goes your way. All’s good. If not, plan B.

      Personally, I’m pretty flexible with my own withdrawal rate, but then I’m very comfortable with a reduction in lifestyle if things move against me.

      At the moment I’m pulling about 5%, and our net worth is still increasing. I’ve got a kid in college and that’s about 30k per year that goes away in 1.5 years. We also spend a big chunk on travel, about 20k this year. If needed we could cut that out instantly and completely.

      We’ll also have Social Security coming on-line in a few more years. Being a geezer does have some advantages. :) We could live on that alone if need be.

      My wife still works and loves her job at the local school. We have our health care thru her work. Both she and I have worked/not-worked throughout our lives. Mostly at different times, but not always.

      I think I’m retired for good this time (and loving it), but who knows. If get bored or something interesting presents itself….

      If you haven’t read it already, here’s my story:

      • Prob8 says:

        Thanks for the comments. Perhaps I’m being a bit optimistic on being completely FI within 5 years. I’m sure the cost of raising children will be more expensive than I anticipate. Health insurance expenses also concern me. Those issues alone will likely lead me to continued work beyond the point where I feel we can get by on a 3% withdrawal rate. Anyway, thanks for the comments and, as always, I look forward to your next post.

  11. […] How I failed my daughter and a simple path to wealth […]

  12. […] How I failed my daughter and a simple path to wealth […]

  13. Adam says:

    Just found this blog and am catching up on it. My question is this: the VTSAX currently requires a $10k initial investment, and my wife and I, being young, have nowhere near this amount to invest. Any advice for us in this scenario? Right now, we are throwing all our investing money at Schwab’s SWTSX fund

    • jlcollinsnh says:

      Welcome Adam!

      Hit the link for VTSAX. When you get to the Vanguard page for it you’ll see it is available as “Investor Shares” (and as an ETF). The Investor Shares version is exactly the same fund, but with slightly higher expense ratio and a 3k initial investment. Once you hit the 10k level you can switch to VTSAX (what they call Admiral Shares) and the lower fee.

      SWTSX is Schwab’s total stock market index fund. As such you can expect the same performance over time as VTSAX. Even its expense ratio, at .09%, is excellently low. You are fine putting your money there.

      Following Vanguard’s lead and huge success, it seems virtually every mutual fund company now offers total stock market index fund and most have lowered their expense ratios to competitive levels. that’s great for investors.

      Still, the moment I could, I’d make the switch to Vanguard. The other firms use these funds as “loss-leaders” hoping to lure you into their more expensive and (for them) more profitable offerings.

      Low cost for Vanguard is a core value. Check out my post “Stocks Part X: What if Vanguard gets Nuked” for more on this.

  14. […] How I failed my daughter and a simple path to wealth […]

  15. I’m the same age as your daughter. My parents taught me about saving money and my dad was/is a minimalist before it became trendy. First, when he came to the US as a refugee with the clothes on his back, it was out of necessity. Now, it’s because he has a saving habit. I’ve been taught that I need to save my whole life. However, my parents told me all through high school (we had the Talk about college when I was 13) that they were giving me $X for college, the same amount that my older sister got. The cost of attendance was 35% higher when I started to college. They told me I could get loans or get scholarships to make up the difference. I got scholarships and use 2k-3k out of $X every semester to pay for tuition, housing, room and board, and books. The deal with $X was that I got to keep the extra (the converse of having to make up the difference), so I have a pretty nice ‘stash for someone who is 20. I picked up a job my freshman year and have kept it since. I’m a financial nerd (shown by me posting on this blog) but it’s funny to see the similarity between you and my dad. Jessica probably just doesn’t want to actively manage her money. I’d recommend Ramit Sethi’s book, I Will Teach You To Be Rich, and combine the knowledge in there with the simple rules you’ve stated above. She’ll be a wealth accumulating machine.

    • jlcollinsnh says:

      Hi Caroline….

      Welcome and thanks for your comment.

      Please pass my kudos on to your dad. I have tremendous respect for the courage it took walk that path. And clearly he has done a wonderful job raising you.

      Congratulations on your progress so far. What a great start! As I say to my own daughter, your future’s so bright it hurt my eyes to look at it.

      What are your post-college plans?

      • Thanks! After college, I have two options: joining the wonderful world of work or going to law school. My family would be thrilled if I went to law school. I’d rather start earning money instead of living off of my dearly beloved parents. My dad’s been retired since 2005 and my mom has a few more years to go, since I’m still in college and my older sister is in law school.

  16. […] How I failed my daughter and a simple path to wealth […]

  17. […] Save as if you are in your sixties. Never be complacent to let life’s demands to stop you from stashing away money for your retirement first. […]

  18. Claire in CA, USA says:

    Came to your blog from Frugal Babe. :) I think our daughters came from the same mold. I don’t take credit, either, for her beauty, charm, smarts, etc., but I do take “credit” for not teaching her well about money. No one taught me, and at 46 years old, I am in really bad shape financially. Not good. My kids have seen the struggle, so I am going to print out this post, and start applying it to me as well as encouraging the kids. (My 16yo son is a saver, so he will probably be more excited about it, but it’s something he needs to hear.). Thanks for the wisdom!

    • jlcollinsnh says:

      Welcome Clare….

      I am glad you found your way over here and I am honored you find enough value in this post to print it out.

      Based on page views it is the most popular one I’ve written and it is very likely my favorite. In many ways it covers most everything I have to offer on the subject.

      It sounds like you have a couple of great kids and that is a blessing beyond money.

      Don’t beat yourself up if you’ve made financial mistakes along the way. No one taught me either and if I’ve learned anything my mistakes have most frequently been my teachers.

      At 46 you still have lots of time and, while hard, your kids will benefit from from the struggle and your eventual success.

  19. […] plenty of wisdom to share with those of us who are still working towards financial independence.  This post about the simple path to wealth is great.  Simple isn’t the same thing as easy, but once you get into the habit of saving a […]

  20. […] How I failed my daughter and a simple path to wealth […]

  21. […] How I failed my daughter and a simple path to wealth […]

  22. […] How I failed my daughter and a simple path to wealth […]

  23. […] How I failed my daughter and a simple path to wealth […]

  24. Fuji says:

    What a great blog – wonderful insight and writing. Many thanks for sharing your thoughts. Not sure how I stumbled across your blog, but very happy to have found it. Now I just need to make time to have a little wander around here.

    I understand the advice to your daughter, but do you also subscribe to the same advice for yourself regarding VTSAX? Did you stash all your money there all these years, and if so, do you still stash it there as you grow older? I was just wondering because I’ve heard that as we grow older, or nearer retirement we should move out of stocks into more conservative allocations and it makes me wonder if you have or will do so anytime soon.

    • jlcollinsnh says:

      Welcome Fuji….

      …Glad you found your way here. Thank you for your very kind words. Sometimes writing this feels like talking to myself so it is great to hear someone is reading it and finding value.

      Great question. As my wife and I are older we have expanded beyond VTSAX although it is still 50% of our holdings. Details here:

      Unfortunately for us, I wasted decades and lots of money trying to “beat the market” picking individual stocks. I had known for a long time that Index investing was the better choice but the rush of picking a stock that rises had me in thrall.

      For the past 15 years or so we’ve been on the path I describe. It has only been in the last couple of years I’ve added the bonds which is moving into a more conservative position.

      hope this helps and hope to see more of your comments.

  25. Thanks for pointing me to this. Since this is your argument against my (and Dave Ramsey’s) 12% assumption… let me show you one more of mine that I posted more recently.

    Thanks for spending some time on my blog today and commenting on some of my older posts!

    • jlcollinsnh says:

      Hi Matt….

      great to see you over here, and welcome. I’ve been enjoying your blog and just finished reading the link above. well written and an important perspective. I urge my readers to check it out.

      You and I are not so far apart. Here’s what I said in my original comment to you:

      “Ramsey is worth reading but he is way off base on his 12%. What he has done is take an average over decades and present it as a realistic annual expectation.”

      The last is what is important here. As you say in your post, you are looking at a 40 year investment time horizon. For you, my daughter and other young people that’s the best way to think about the market.

      Over that extended period, provided you have the courage to stay invested during the gut wrenching drops, you can indeed expect 10%+ returns. (Ramesy’s 12% is an outlier)

      That said, presenting 10-12% as a realistic annual expectation year over year is the problem. Some years in that 40 year span your investments will take a 40%+ hit. Others will see 40%+ gains. It is a rocky ride.

      When the time comes to live off your investments, the time also comes to accept that the 5 and 10 year average returns can a do easily underperform. Just as your chart of investments shows.

      Make sense?

      • jlcollinsnh says:

        one big caution for my readers, Matt is investing with American Funds. These are load (they charge commission to buy them) and they have high expense ratios (what the fund charges in fees to operate) These both are a huge drag on your returns over time.

        Typically, they are bought thru money managers, those are the guys that get the commission, violating rule #2 in my post above.

  26. Lil Pappy says:

    Just found your blog and was mesmerized. I agree with your statement that you and all the people who pursue early financial independence are aberrations. Your pursuit to transfer this interest/discipline to your daughter is a most interesting one.

    It is impressive when an individual does something rare. It is my pursuit to figure out how to get greater numbers of people on this seemingly rarest of paths. Most particularly, I am trying to transfer this pursuit to my own children. I have an experiment that I have been piecing together and will know in 13 years how it turns out. If I am able to, then I am interested in pursuing this with anyone who has an interest.

    I will be returning to your blog. Will let you know how the experiment turns out if you are still blogging in 2025.

    • jlcollinsnh says:

      Hi Lil Pappy….

      ….thanks for the very kind words. Glad you are enjoying the blog.

      If you care to, I’d be interested in hearing more about your experiment. My guess is just engaging your kids in the conversation will go a long way.

      As for 2025, I’ll be happy if I can still get out of bed and draw breathe by then. ;)

      • Lil Pappy says:

        Sorry for the long delay.

        As a parent, I want my children to be able to regulate their emotions, behavior, and their finances. As you indicate, some children are born with temperaments that make many of these things occur with seemingly little effort on the parent’s part. I believe parent’s can do things to antagonize or disrupt a well-regulated child through all types of chaos. In that sense, you did a great job not introducing chaos into your daughter’s life and derailing her from her natural place of peace.

        I see many people having difficulty with the three areas I mentioned above. My kids, whether on their own or through the efforst of my wife and I, do well with their emotions and behavior. The financial is the last big bugaboo. Financial regulation is something automatically appealing to many people. They are internally motivated, by whatever means, to do this well. The data are clear that most people, even when exposed to lifestyles and conversations about money management, fail to be wise with money until after they have experienced significant pain and come to the lesson the hard/long way.

        If something is not internally motivated, are external motivators appropriate? I believe so and wish to make it most likely that my children enter adulthood with financial regulation as something that they have learned how to practice.

        One assumption I have: The pre-frontal lobe of the brain is not fully developed until 25. So 25 is the age of full intellectual competence. That is how I got to 2025 as the end of my experiment (but these ideas are all in the formative stages and subject to change as data come in). So, if I am to get someone to engage in an activity they must freely choose to engage in it and that if they have the practice by 25, then they have a great likelihood to keep the practice after that.

        So, my idea is to incentive saving and no consumer debt from 18-25. Use monthly dollar amounts with year end bonuses for sticking through the year. Increase the amount the longer they are in the plan.

        Requirements: They work 40 hrs/wk or volunteer if work is unavailable. Set aside 50% of gross and have no credit debt. If they do this, $100 will be placed in their account. At the end of the year if they have done this each month, another $1200 will be added.

        Year 4: After having done this for 3 years, the amount of incentive is increased (to $200 per month and $2400 year end bonus.

        Year 7: After having done that for 3 years, the amount of incentive is increased (to $400 per month and $4800 year end bonus.

        This can continue after age 25 if my wife and I so choose. We also promise other support such as cell phone on family plan through this time, car insurance starting at 18 through age 22 (if at all), room and board at home as long as they are good roomates and wish to do so.

        Another element, certain things kill the plan. They are free to withdraw the money at any time. But doing so ends the experiment. Also, pregnancy or marriage would end it as well.

        This is not set in stone, but does mark the framework of my thinking. I am interested in your thoughts. My target is that my kids learn that financial independence is a more important target than what they do for their education. They are free at 25 to use their money anyway they see fit. I just want them avoiding making decisions that have multiple years and hundreds of thousands of dollars associated with them until they are 25.

        So, that is the basis of my mad scientist ideas. I am interested in your thoughts.

        • jlcollinsnh says:

          Very interesting and detailed approach. I’m certainly no expert in child rearing but any positive thing we parents can do to guide their relationship with money is a good thing.

          Your technique certainly would have worked with me, but then I was on that path anyway.

          Since my daughter started working, I do something somewhat similar. Each year I fund her Roth IRA. While she likes the idea, the money is so long-term I think sometimes she’s not very aware of it. It certainly is not what motivates her to work.

          My concern with your plan would be along the same lines. The money might be too remote to motivate.

          BTW, if you haven’t already read it you might find this of interest:

          • Lil Pappy says:

            Thanks for the reference to the article. I had enjoyed reading it in the past. It does get to the internal/external motivation issue. Data from studies are clear, if someone in already internally motivated to do a thing, providing some reward for what they do will actually decrease their motivation and negatively affect their performance.

            The remoteness of the money is an issue. I remember my first job when they offered me $$s to invest at 22 to be able to spend them at 59 1/2. I said no thanks, which the majority of people do.

            I call my approach an experiment. To intercept someone’s spending muscle before it grows very strong and offer the development of a savings/investing habit in its place. I believe it has to be voluntary, but I stack the deck in the favor of what I thing will have the biggest payoff. By allowing money access at 25, they have to wait only a few years to access it. And, those years correspond to when their peers have little money as well.

            Will see how it works. I understand the benefits of frugality. Transferring that to other generations or people who don’t intuitively grasp this is of great interest to me.

            Thx for your articles and wisdom. I thoroughly enjoy them.

  27. […] How I failed my daughter and a simple path to wealth […]

  28. Alison says:

    How have we not had the civilization is the source of all our problems discussion?

    Love the blog, agree with everything. Jessica will probably come around to thinking about and managing money as she gets older (I will admit, I am shamed by my blase attitude to money back when I was 19).

  29. […] How I failed my daughter and a simple path to wealth […]

  30. Cassie says:

    Great advice, particularly , ” Avoid fiscally irresponsible people. Never marry one or otherwise give him access to your money” . Do everything else right except this and you still may end up with nothing !

  31. Mark Key says:

    Hello, good to hear from you via email, and enjoyed your blog as I have 3 boys growing up and we are in the process of doing the same thing. I am a bit behind you since my oldest is 11, 2nd 9 and 3rd 7years, but with cub scouts they all have savings accounts and we (I try to expaln) these things, and they appear to be picking it up.

    I look forward to seeing your home ownership blog (the detailed one you referenced) as I understand to a point (having read link), but the argument about appliance repair etc. are really amortized and thus a renter is paying for it anyway (however big complexes have benefit of buying at wholesale prices sometimes, but still a renter pays for this in the long run), additionally, these articles are coming just after the crash, and with the advice you mentioned about stocks (buy when they drop while others pull out), this is a great time to get a house at a steal (but an opportunity only if you are in the market now, and need to be in it for the long haul as with investments as you mentioned).

    In an unrealistic housing market it is better to rent, but with things the way they are now, as long as you are serious about wanting a home for long haul, then in many cases it will be less expensive to buy than rent (I have a friend who owns a number of duplex’s and apartment bldg’s and we have had these conversations, he agrees it is the best time to buy a home, but like stock market, when it is the best time to buy, economy down and stock market down, no one has money to take advantage, which is why he is full).

    However, single and moving around, moving up corp. ladder with potential to move in a few years, then renting is best. Overall GREAT ADVICE, unfortunately the school of hard knocks often is the best and only teacher, just be there without or restained “I told you so” reaction in the future. Of course, easier for me to say, but I will be dealing with this in the near/far future. Have a great day! Sincerely, Mark

    • jlcollinsnh says:

      Hi Mark….

      Welcome to the blog and thanks for participating.

      My post “Why houses are a good investment only for the undisaplined” is under construction and should be up in the near future. I’ll look forward to your feedback on it. You are one of the most astute finacial guys I know.

      Your points above are well taken and I’ll be addressing them. I will say, for those who want to own a home, now is an excellent time to be a buyer. It’s just not a good investment.

  32. […] Collins over at jlcollinsnh recently lamented how he is fearful that he has failed his daughter because she is not greatly interested in managing her […]

  33. John Noss says:

    Big Jim,

    Nice to here from you! I can just hearing you saying this at lunch or dinner, miss our conversations. I agree with no debit , no debit, no debit! Not sure I totally agree with home ownership portion, but can see the point.


    • jlcollinsnh says:

      Hey John…..

      Great to see you here. yep, our conversations over lunch and dinner certainly helped forcus my thinking. Great times.

      Most folks will disagree with my stance on home ownership. I’m planning a post focused on that subject in detail.

      hope you stick around!

  34. Tom Innis says:

    Hi, Jim:

    Nice blog – just signed up on the mailing list. We are also in the process of educating our daughter on finances. She’s very conscientious and has shown an ability to save her money for things she really wants, while having enough left over for charitable donations and a little savings. Hopefully this is a positive start to a secure financial future.

    I enjoyed the blog and look forward to more. Thanks for sending me the link.

    Best to you,

  35. Janine says:

    PS: You didn’t fail your daughter. You just let her be who she is — which in reality is all she ever can be successfully and happily.

    I know this is off topic, but I have the six year old girl with the fully developed personality. I know who she will be as an adult. Unfortunately, her amazing spirit and well developed moral compass is not appreciated by her kindergarten teacher. When asked to write something nice about each of her classmates, she often wrote a vague statement like “Ryan can play.” When she was told she should write “Ryan can play well with others” as a better answer, she refused as “he does not play well with others – he just plays”. When she put her foot down, I was called in for a conference. My mother always taught me, if you can’t say something nice, don’t say anything at all. She also taught me not to lie. For my daughter, those ideals are just part of her instinct.

    If we keep our eyes open, our children will amaze us. You have had the pleasure of seeing it. I am just on the opening act.

  36. Janine says:

    Jim, I loved the article. While I do pretty well with the big picture stuff, for me, it’s a trip to the dollar store where I easily lose control. I guess it could be worse!

    I can’t wait to hear your theory on hunters and gatherers. I myself feel that those brave enough to come to this country, before it was a country, had all the characteristics of a successful hunter/gatherer. I think our greatest leaders throughout history were “hunters” – capable of thinking and moving quickly from one thought to another. Today, in our compliant world, those with many of those same “skills” are outcast and given the label ADD – attention deficit DISORDER! How sad.

  37. Jim,

    Monica & I are with you. How in life to you have time to write these lengthy spreads? By the way, here’s something I would like you to comment on: the horrors of inflation and whet it will do to your ROTH’s. So why not suggest diversification into various vehicles. It’s OK to start with a ROTH, I agree, but after a while you need to protect yourself from inflation. And I think it’s coming.

    Knowing you all these years, Jim, I am not at all surprised of your eloquence in writing!

    Cheers to you!

    • jlcollinsnh says:

      Hey guys…

      great to see you here! glad you like it!
      Here’s how I’ve found the time:
      I quit my day job. :)

      I agree, inflation has the potential to be a very real concern going forward. Couple of points:

      A Roth is not an investment but rather a bucket in which you place the investments you chose.

      VTSAX (the investment in the Roth) is an Index Fund of the entire US stock market. Diversification.

      Many of the large companies are international in scope. That’s why I’m not concerned with specific international investments for diversification.

      Stocks are, over time, a fine inflation hedge. People forget that stocks are not just pieces of paper traded. Stocks are pieces of ownership in operating businesses. Sales, inventory, plants, equipemnt, brands et all. all of which rise in value with inflation.

      Finally, remember this is for my 19-year-old and other young folks with decades ahead of them. My wife and I hold some other stuff in our portfolio (Mmmm, another post idea!) but 50% of what we have is still in VTSAX.


    • jlcollinsnh says:

      BTW, everybody.
      Wolfgang mentions that he has known me for years. very true. what he doesn’t mention is that we met when he and his accomplice Trish kidnapped me in Ireland while I was on a bicycle trip. They tucked me in to the back seat of their VW bug and hauled me from Dingle up to Galway. Upon my release I had to hitch-hike back.

      strange how some friendships begin….

  38. Dan McLellan says:

    Malachi linked me this. I like what I’m reading.

    I’m in the process of getting rid of my credit card debt (1 card down, 1 to go!) and plan on implementing these rules.


    After I pay off my debt I want to build savings. Now my goal is to have 4000 by the end of the year. At what point should I put that in Vanguard? Is there a base of easily accessible money I want before I open the Vanguard account? Or should I just put it all in?

    • jlcollinsnh says:

      thanks Dan…

      glad you liked it and thanks to Malachi for linking you in.

      Congrats on dumping your debt. That’s huge, not easy and critical. well done.

      It is difficult to give you specific advice without knowing a lot more about you, your income, family, age, goals et al. more than you want to post on an open forum like this.

      That said, let me offer a few general thoughts;

      First, job one is paying off the debt. keep doing that and pour as much into the effort as you can. feels good, doesn’t it?!

      Second, one of the benefits of this is you are also learning to live on less. your income less the borrowing you used to do less paying debt.

      Third, once your debt is paid off just pour that money into your savings.

      Fourth, that saving is your emergency fund. get it up to 3-6 months of your living expenses (not your income, just what you spend each month to survive.

      Fianlly, VTSAX. Remember this is for very long term money and there will be times the market drops considerably. you don’t want to be selling into a drop so you have to be sure you can leave it to work for you thru thick and thin.

      Dave Ramsey has a good book out that might help in your situation: Total Money Makeover. Good stuff and I only disagree with him when he claims you can expect 12% annually from the stock market and safely withdraw 8% per year. Way too optimistic. Figure 9% average return and 3-4% withdrawal rates.

      hope this helps!

    • Jess says:

      hey dan is malachi mikey r?

  39. MissGina says:

    Love the advice and the post on F- you money!

  40. Trish Rempen says:

    Okay, Jim –
    I’m setting up the kids with their own Vanguard account (you’ve inspired me to finally get around to doing it-)
    Would you recommend – for them – an IRA? Or just the investment account?
    Thanks, Guru-

    • jlcollinsnh says:

      Hi Trish…

      that’s great news! The answer depends on a few variables and questions.

      1. Do your boys have earned income? IRAs can only be opened with earned income. So if this is money you or other people have given them it can only go into a regular investment account. That’s where Jessica’s VTSAX fund is.

      2. If they have earned income then an IRA is a great choice. But that leads to another question. Regular or Roth IRA?

      3. A regular IRA is tax deductable in the year of contribution and your kid’s income must be below certain limits to open one. Unless your kid is a child star this shouldn’t be a problem.  While in the IRA it grows tax free. But, and this is a big but, once your kid starts withdrawing the money taxes are due.

      4. A Roth IRA is NOT tax deductable in the year the contribution is made and again your kid’s income must be below certain limits to open one. Unless your kid is a child star this shouldn’t be a problem.  While in the IRA it grows tax free. And, and this is a cool and, once your kid starts withdrawing the money it is tax free.

      How to choose? If your kid is in a very high tax bracket and needs the current deduction use a regular IRA. This is unlikely for most kids.
      If they are in a low tax bracket, typical of most kids, the current deduction is worth little. The chance to grow for decades tax free and be withdrawn tax free is almost priceless! Go Roth.

      Using Jessica as an example, her money is in VTSAX in a regular (non-IRA) account. This is money that has come from gifts from relatives, allowance, etc. UN-earned income. This summer she plans to get a job as a bartender. She’ll have earned income and will then be able to open a Roth IRA. Since she’ll be in a low tax bracket and taxes are likely to be much higher years from now this is a great deal.

      What could go wrong? Well we are looking at money that will be in the Roth for decades and we are counting on the government not changing course mid-stream. Two ugly possibilities:

      1. The feds see all this $$ building in Roths and get greedy. They could rewrite the law and tax it after all. I think this is unlikely as the public outcry would be huge.

      2. Decades from now the feds could look at all the $$$ in Roths and eliminate the income tax. This would mean you paid tax way back when and didn’t need to. Plus if this were to happen it would be replaced with a national sales tax. And, of course, you have to pay that anytime you spent that Roth money. Gottcha!

      But we can speculate on what might happen forever. It’s best to take action based on what we know now. That why my kid will be in a Roth as soon as she has earned income.


      • Jim,

        Really terrific article. Love all the points and certainly empathize with the challenge of getting our kids to embrace them (I have 5 with 2 in college already – where did the time go? Same place my hair did I guess…).

        I’m also a big fan of the open-a-Roth-IRA-for-your-working-teens concept, or as Dan Kadlec calls it the “Family 401(k)”. Here’s a quick video on the topic that I did for the GetRichSlowly 2min video contest:

        Keep up the great work,

        • jlcollinsnh says:

          Thanks Bill….

          glad you liked it!

          and thanks for the video link. That’s exactly what I plan to do for Jessica once she has earned income. Didn’t know someone had coined a name for it: Family 401k. I like it!!

  41. Gloria Adams says:

    i can’t believe Jessica is in college. Where is she going??

    • jlcollinsnh says:

      Hey, I’ve got the bills to prove it!

      University of Rhode Island. They gave her a 12k yearly scholarship and she just finished her Freshman year with a 4.0. she’s in Iceland with her pal Libby at the moment. on her own dime.

      Pappa proud.

  42. Trish Rempen says:

    I sent it on to my three boys….they also have heard much of the same advice all their lives, and thank you for putting it in a nice, numbered, detailed format!

    • jlcollinsnh says:

      hope they like it and find it useful. my core belief is not only should investing not be complicated, simple gets better results. complicated, of course, pays Wall Street better. for those of you worried about them.

      Knowing you, your boys and how you raised them — they’ll be just fine and can likely teach us a thing of two. ;)

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s