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June 24, 2020

How to Help Your Kids Have a Mortgage-Free Future – with Sarah Phillips


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No matter where you are in your debt freedom journey, you can appreciate the power of what mortgage freedom means. A sense of freedom coupled with a boatload of options sounds appealing to most adults.

Now, imagine if you could share that power with your children. It might seem like the kind of dream that takes a bigger bank account than you can imagine, but helping kids obtain a mortgage-free future is well within reach.

Sarah Philips, a certified financial educator from The 4 Pocket Allowance, sat down with me to explore how families can set their kids up for success and build financial literacy from a young age. It doesn’t take a family fortune nor do you need to be an expert investor to get your family on this track.

Instead, helping your kids have a mortgage-free future is about starting small, having conversations, and being consistent. It might even involve a game or two.

Here’s how you can get started.  

Why a Mortgage-Free Future is Important

Sarah Philips and her husband see the value of financial independence. In addition to working toward it themselves, they envision a similar future for their children. Part of that comes from what mortgage freedom means to Sarah. Sarah says that a mortgage-free future is her hope for her children because of all it affords people.

A mortgage-free life is one where you have the ability to choose. While money may not directly buy happiness, it does buy freedom and the happiness that comes with that. Sarah emphasizes the power that comes from making your own decisions and its impact on mindset.

There’s an incredible shift in perspective when you choose to do something because you want to versus doing something because you have to. To her, mortgage freedom is one more way to position yourself to have more control over your day.

Helping Your Kids Become Mortgage Free in the Future

Surprised little girl

Parents all want what’s best for their kids. But it can be tricky knowing what that means when it comes to money. One of Sarah’s favorite quotes is something Warren Buffett said about leaving a legacy for kids.

“Leave your children enough money so they can do anything, but not enough that they don't have to do anything.” 

Warren Buffett

While Sarah doesn’t know that she will be handing over that kind of cash to her kids, she does appreciate the underlying sentiment in Buffet's message. To her, it’s one of empowerment and freedom. That’s why she is working to help her kids become mortgage-free by teaching them the basics of investing

One part of her 4 Pocket Allowance system is dedicated to investing. When she and her husband set up the system for their kids, they required them to set aside 10% of their money for investments.

Of course, investing $2 when you’re six years old isn’t going to compound enough to afford a house down payment in adulthood. But Sarah stresses it is doing something vital nonetheless.

By developing an investment muscle in her kids, thinking about their future becomes automatic. They learn the concept of paying themselves first and will have some money when they start to explore homeownership.

Even if homeownership isn’t for them in the future, Sarah knows that this investment money can offer them options. Perhaps it’s the pathway to income through real estate or rental properties. Maybe it’s the ability to invest more in the stock market. Regardless, it offers them more than the initial financial impact. It helps them understand investing, develop smart money habits, and see the return on their decision making when they are young. 

Why Sarah Focuses on Financial Literacy

One of the most important things to do as a family is to start building financial literacy. Sarah says she and her husband knew it was time when they could barely keep up with the requests–and subsequent refusals–to buy their kids things.

Whether it was a trip to the store or a visit to a museum (and its gift shop), her kids were always asking for things. No matter how many times they said no, the kids kept asking. Finally, it dawned on Sarah that her kids were struggling with their priorities. That meant it was time to talk about financial literacy

Because her kids couldn’t prioritize their wants, they asked for everything. Sarah likens it to throwing spaghetti at the wall just to see what sticks. That method wasn’t serving her kids, and it definitely wasn’t serving her or her husband. So she set out to solve that problem. 

After doing some research online, Sarah knew she wanted to help her kids understand saving, spending, and giving. She also wanted them to understand the importance of investing. After all, that could unlock a mortgage-free future for them. Because so much of our finances happen electronically, Sarah wanted to create something tangible and streamlined.

That’s how the 4 Pocket Allowance system was born.  

Other Important Savings Areas for Kids

Some families use The 4 Pocket Allowance, and others come up with configurations of their own. No matter what system fits your family’s needs, there are other important areas to discuss besides investing with kids.

Teaching Kids About Spending, Saving, and Giving

In addition to talking about investing with kids, there are three other areas Sarah addresses. When her kids receive their money, they put 10% into investing and 10% into giving. Like investing, giving is a muscle worth building. After that, her kids have the flexibility to divide between savings and spending.

This saving versus spending split invites the opportunity to talk about goal setting. She and her husband coach the kids through conversations by asking questions like, “What’s something that you want that you don’t have enough money for yet?”

That helps them see the value in setting aside more for saving instead of spending their money immediately. 

The Purpose of Putting Money Aside Now

Helping kids with investing and setting money aside now will pay off in the long run. Sarah sees myriad benefits to the work that she and her husband are doing. The process of splitting their money into different categories is a way to teach the concept of budgeting.

While they may not be keeping a budget in the sense that adults do, they are learning about categories. Plus, the fact that the kids are required to set a portion aside for investing helps them see that budgeting is a way to pay yourself first. 

Additionally, splitting up their money like this helps take abstract concepts and makes them more concrete. Sarah says that virtually all adults understand the concept of saving. It’s the consistent execution of it that we struggle with.

Girl singing for money

She sees a similar crossover with investing. Many adults feel nervous about getting started with investing. They feel that they don’t know enough to invest well.

Sarah says the point of investing with kids isn’t to worry about knowing all the ins and outs of investing. Instead, it’s about familiarizing them with the concept. It gives them the opportunity to practice making financial decisions without being scared of money. 

Overall, these habits are all about empowering kids. Imagine being comfortable with the idea of managing and allocating money as a child and teen. That foundation certainly removes some of the financial guesswork that many of us faced as young adults.

While Sarah is hopeful that this system will guide them toward money wins, she knows there will be missteps along the way. In fact, she embraces the idea of them making mistakes. She says that mismanaging money now and learning from those experiences can hopefully head off bigger mistakes in adulthood when the stakes are much higher. 

Tips to Succeed with Financial Literacy As a Family

Sarah thinks there is a lot of value in making investing, saving, spending, and giving tangible acts. It is important for kids to feel and see the money. It helps make the acts more empowering and memorable. To help with that, Sarah says it is important to be consistent.

For her family, a biweekly payment works for them. Each child receives $20 to divvy up. While you can adjust the time frame and the amount based on your family's preferences, you want to be consistent with what and when you move money to them.

To help with that, Sarah and her husband are constantly stockpiling small denominations of money. That way, they can transfer the money to their kids consistently. Just like kids need to build consistent habits, so do parents. Their small denomination stockpile is another way that they set themselves up for success as a family when it comes to promoting financial literacy. 

Key Takeaways for Helping Kids with Mortgage Free Futures

Even if you haven’t achieved mortgage freedom or financial independence, you can still help your children have a mortgage-free future. The most important thing to do is just begin.

Start wherever you are, no matter how old your children are. Find ways to incorporate discussions about money and look for opportunities to gamify it as well.

What do you think about teaching your kids how to invest to have a mortgage-free future?

Please let us know in the comments below!

Surprised child

Andy Hill

Andy Hill is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping young families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and watching Marvel movies.

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The Marriage Kids and Money Podcast is dedicated to helping young families build wealth and happiness.

With over 400 episodes and counting, we share interviews with wealthy families, award-winning authors, and personal finance experts to help you find your version of family financial independence.

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