I told my teens about F.I.R.E. (Financial Independence Retire Early). They shrugged and said, “Sure, that makes sense.”
By: Christopher Pascale
Having only found content about FI (Financial Independence), house hacking, F.I.R.E., and the rest in March of this year, I don’t know much. It started with a Mr. Money Mustache clip, which led to an interview, which led to other podcasts. Since then I’ve heard over 100 hours of The Mad Fientist, Choose FI, and some others–all on YouTube.
Learning about Financial Independence through a High Savings Rate
Immediately after, I was Skyping with my oldest, who is 17 and living in Australia as an exchange student. She highly approved of the name Mr. Money Mustache, and then it really resonated when she heard about saving 50-75% on the way to doing pretty much whatever she wants at 31-years-old.
Not to be outdone by the established community, she said, “I could just live off my allowance.”
She told me this knowing that when she returns, the value I’ll place on a 17-year-old doing chores is $17.00 a week.
“You definitely could,” I agreed, “at least for a while.”
I pointed out that she’s going to want a car, because waiting for us to give her permission is going to get old. She agreed, but what she said next really surprised me.
“The main thing is, I don’t want to be twenty-one and still living in your house.”
“Kid,” I told her, “that would be amazing.”
Freedom and Financial Independence
She’s thinking about having something of her own–she wants to be free. It's akin to that sense of freedom that comes with financial independence.
Unlike many with this sentiment, my kids have a great home life. She has a fairly large bedroom to herself with a double bed and an L-shaped desk with two closets. She has at least 2 parties a year with more than 20 friends coming over.
While she relishes the idea of getting out of my house, it’s not because I’ve made it a living hell; it’s because leaving to get her own place at 21 is a logical next step.
Why Is It Logical for My Kids to Be Financially Independent of Me at 21?
To be clear, at 21, my daughter will not be completely on her own. I’ll be paying for her college tuition. But her thinking of having her own home 4 years from now makes sense for the following reasons:
- She’ll have been working for 5 of the previous 6 years
- She has a Roth IRA
- She’s spent time abroad as a student
- She’ll have done a year of service
Working = Independence, Experience and Cash
As soon as she got her working papers at 15 we hit the pavement. She went into dozens of locations asking “How old do you have to be to work here?” After total failure, we met someone at the Rotary Club that sponsored her current exchange program who said she was in need of someone at the nursing home she ran.
The end result was that she worked 6 hours every Saturday, or, as she called it, “all day, Saturday” from 9:00-3:00. Some of our relatives had a good laugh at the idea that working from 9:00-3:00 was all day, but for a kid it is, just as for a non-athlete jogging is running.
Here this kid was in a nursing home with ornery patients, co-workers, a boss, a schedule, and responsibilities. I couldn’t be there to guide her, hold her hand, or protect her, because I only found out about things after they happened.
Getting into the car one day when I picked her up, she told me, “This woman told me she was going to commit suicide.”
“How?” I asked.
“She said she was going to hang herself.”
“That’s terrible,” I replied.
“She doesn’t have the upper body strength.”
“Yeah,” I explained. “It’s no small feat–hanging yourself. It requires dexterity.”
“If anything, she’s going to need someone to help her, and if it’s not done right, that’s murder-two.”
“I don’t think you get what I’m saying.”
“I don’t think you get what I’m saying,” I told her, “that’s fifteen years for the guy who helps. You think anyone at that place has fifteen years left? If anything, I’m sure she’s got a lot of prescriptions. She should just save up her pills and take them all at once.”
“Oh god, what are you saying?”
“What I’m saying,” I finally said, “is, ‘what did you do when this woman said she was going to kill herself?’”
My daughter told me that she talked to her. Afterwards, the woman felt better.
“Did you tell your boss?”
Handing her the phone I said, “Do that now. And in the future, do that immediately upon hearing anything like this.”
She called her boss, who was glad to know. And my daughter learned things that are only learned out in the world–an unsafe world full of all sorts of things, including people who will be depressed, and, as you’ll soon see, unkind.
Getting into the car after another day at work she said, “This woman kept calling me a f—– today.”
“What?” I laughed. “Why?”
“Because she’s old, and I wouldn’t let her have ice cream. She’s diabetic.”
“How did this go down?”
“Well, I was pushing her in her wheelchair and she said, ‘I’d like some ice cream’ and I said, ‘no, you can’t have any right now’ and she said ‘you f—–.’”
The way she described it was pretty funny. After a few minutes the woman forgot about the ice cream and asked if they could get some coffee.
“No,” my daughter said, pushing her around a little more.
“She can’t have coffee?” I asked.
“No, she can, but she called me a f—– about ten times.”
I worked when I was 15, but would have never considered that I could tell a customer no in response to a reasonable request. But she’s got this experience under her belt, and as a result has learned to make independent decisions without anyone to guide her.
Over the course of 6 months, my daughter worked about 150 hours for minimum wage, which in New York was $9.00, so she made about $1,350, none of which she needed until she left for Australia.
When she returns home, she’ll be back at work. Like I said, she wants to have her own house at 21, but is there enough money to be made?
Teens with Minimum Wage Can Attain Home Ownership
The question is: can a teen have enough for a house working part-time over 4 years? If that kid is 2nd Gen F.I.R.E., which I’ll classify as any kid who’s taking this knowledge from a parent, then yes, I think so.
The math for working 16 hours a week is this:
Years worked x Hours per year x Min wage
4 x 800 x $11.00
I may end up providing a vehicle for her, and if she values independent living over and above how she looks in traffic, she won’t take her $500 monthly income and use it to buy a brand new Honda Civic. If she goes the route of getting a shiny new car, then home ownership will more likely be at 31, not 21.
However, if she earns $35,200, and only uses about a quarter of that money for spending, then she’ll have roughly $26,000 in cash. With this kind of cash on hand, she can adequately engage in a house hack by doing the following:
- Buying in a reasonable location
- Having roommates
- Continue working
If she wants to buy a house where we live on Long Island now, it may simply be impossible. However, if she goes to school just about anywhere else, $26,000 can get her into a home.
When I discussed the idea of buying a house in the town where she goes to college (if that place isn’t in such an expensive area), she liked the idea and said she thought it could be cool to buy the house with 3 or 4 friends.
Hearing this, the dad in me wanted to say, “NOOOOOOOO! Don’t do that!” But the dad that is willing to send a kid into the world asked if she’d be okay with someone smoking in her home. After she said, ‘absolutely not,’ I explained that if it’s their home, too, you really couldn’t tell them they’re not allowed. At that, she understood that she should buy, and they should pay rent.
And, of course, having a home has expenses. Even if you have a $1,500 mortgage payment and are collecting $2,500 in rent, you’ll need a steady source of other cash (i.e. see Financial Samurai's article on How To Build Passive Income For Financial Independence).
Aside from this, it simply makes sense that my daughters will be owning homes–if they want–much sooner than the average person, and a big part of that is because it’s the next logical step.
It Starts with Other Assets–the Roth IRA, or an Index Fund
Getting her first paycheck, she started her Roth IRA. Recently, while Skyping, I showed her the statement to the account that gets $25 each month, and she was blown away that there are hundreds of dollars in it.
By having this growing asset, she will not only have cash in the bank at 21, but thousands in retirement savings. At that point, owning a small home will just make sense as a logical next step. And the idea that she is buying it not to live in forever, but as an investment that will be purchased with rental income is exciting for her.
Some might reasonably wonder if buying a home so young is a mistake–that she may be tying herself down to things that are a bit too grown up, but (A) what’s the alternative to being grown up as a 21-year-old adult? and (B) she’ll have traveled far more than many people by then.
A Worn Passport before College Graduation
As noted, my daughter has spent her 10th grade year in Australia. It’s been a great experience, and one that has made her deeply knowledgeable of a nation most Americans will never visit. Additionally, it’s made her want to come home and set roots. Prior to this trip, she talked about living in other countries throughout her adulthood. Living as a stranger in a strange land for so long, she still loves the idea of getting away, but now as a tourist.
While in college, my wife and I will be encouraging all of our daughters to study abroad. It could be a Winter Break Conference session, half a summer, or a full year. The goal will be for them to see the world and enhance their perspective.
This will also be done by committing to a year of service before college, which will give them an opportunity to live semi-independently away from home in the United States.
Being of Good Service: AmeriCorps
Among the things that make the US such a great and wealthy nation is that we are so generous. As a means of my children’s development, I have been talking to them about doing a year of service prior to going to college, primarily through AmeriCorps, or a program like it.
By joining AmeriCorps, they will do roughly 10 months of service in one of several capacities, all the while living away from home. They could be on a disaster relief team that travels in response to earthquakes, hurricanes, and tornadoes. They could wind up manning a desk at a hospital, answering phones all day long. Regardless of the program they join, they will obtain valuable skills, make a little bit of money, and get more perspective on the world, as well as a scholarship. Additionally, they will be another year older when they go to college, which I think makes a big difference.
As someone who went to college at 18 (for 1 year with a 2.7 GPA), and then again at 25 (with top grades), I’m not comfortable investing all of that money into the education of someone who is less ready to take on the responsibility.
I’m often asked, ‘What if they don’t want to join AmeriCorps?’ Well, it doesn’t have to specifically be AmeriCorps. That’s just one well-established program with a lot to offer. I’ve also told them they could volunteer with the Jeffrey Deskovic Foundation for Justice, which helps innocent people get out of jail. It’s a program I donate to every month, and if they think they want a career in law, it’s a fantastic place to learn more about it. The follow-up to this is sometimes, ‘No, what if they don’t want to do that; they just want to go to college?’
My responses vary:
- Most blunt
- I don’t care what they want; I care about what’s best. After all, if they got everything they wanted, they’d have an American Girl Doll collection instead of money in the bank
- Most argumentative
- Why wouldn’t they want to?
- Most Politically Incorrect
- They don’t have to, but if they want me to pay for college, they will
Kids on F.I.R.E. (Financial Independence, Retire Early): Conclusion
None of my kids have left the nest yet, but they love the ideas they heard upon first hearing them. They love the idea of having the kind of choices money offers, of gaining financial independence from their parents.
My oldest told me that when she saw her retirement statement, it made her feel like she had so many more options. That kind of feeling can create a positive feedback loop that leads to more of the same activity, like working to acquire more capital, then buying a home, and then going FI at 35 or sooner.
Recently, my 12-year-old asked why she can’t just go to college at 17. I let her know that she’ll have certainly taken some college credits before high school is over, but that it would be best to do a year of service in some capacity. Defensively, she asked, ‘What leverage do you have to make me do this?’ [an actual quote], and I almost said the wrong thing in response. Catching myself, I had her read the AmeriCorps piece linked to above. After reading it, she didn’t hate the idea quite so much.
Days later, she told me that as soon as she graduates high school she’s getting her own apartment. I told her that she could definitely get her own place because she’ll have the money. But she could also join AmeriCorps and get paid to be away while doing something cooler than working all week to pay bills. And when I say that, it’s not in a way to mean, ‘Hey, kid, your idea is the bad one. Now follow the path I’m laying out.’ I actually mean that both are possible, but one will take all of her money, and the other will give her more.
When it comes to F.I.R.E., the kids are on it. My 12 and 17-year-olds shrug like yeah, that makes sense, because they’re getting the information before they have any bills. When I talk to the college students in my accounting classes about it, they see the possibilities, and most are very receptive. But my older friends who are already in life with two incomes flowing through them like conduits to pay for things they already bought, or leases they signed, years ago, it seems more like a concept than a reality.
Tell your kids early and often, and if you can make some room to catch F.I.R.E. yourself–through savings or added income–do it.
Christopher Pascale is an author, accountant and adjunct professor from Long Island. He is the former CFO of Portfolios with Purpose. His finance writing has been featured on the AIPCA’s “Tax Matters” page, WealthyJoe.com, and others. He is also the author of a book of poetry, and is working on a novel due to be released in 2019.