7 Lessons to Raise Your Kids as Good Entrepreneurs—Not Good Employees

by | BiggerPockets.com

What makes a good employee? A good entrepreneur?

Good employees are obedient and willing to work hard at projects given to them by someone else. They accept a cap on their income in exchange for stability, predictability, and routine.

Good entrepreneurs are a different breed altogether. Creativity? Check. Self-discipline and motivation? Check. Independence? Courage to take calculated risks? Ambition to change the world? Check, check, check.

As you raise your children, which character traits do you want to instill in them?

Here’s the thing: Most parents instinctively try to “manage” their children. They try to make them obedient, predictable. They give them an allowance, often tied to chores, and if the kiddos get too “unmanageable,” they give them projects to keep them busy.

In doing so, they raise good employees, who go out into the world ready to be managed by someone else.

Don’t get me wrong—everyone should be an employee at times in their life. Sometimes you need the skills, the network, the money, or the experience that best comes from working for an established employer.

But some parents raise their children with a different mindset, an extra toolkit. These children grow up to be movers and shakers, and while they may work for others at times, it’s part of a greater picture in their life goals.

If you want to raise your kids to be good entrepreneurs, not just good worker bees, here are seven steps to prepare them for great things!

7 Lessons to Raise Your Kids as Good Entrepreneurs—Not Good Employees

1. Start with budgeting. | Ages 6-8

Most adults struggle with budgeting, yet a six-year-old can manage a budget if taught properly.

Why do most adults struggle? Because no one taught them how to do it properly.

Parents mess this up in all kinds of ways, but the most common is that they miss the most important piece: expenses. Budgets come with two columns, revenue and expenses.

And guess what? Revenue is the easy, fun part. Managing expenses and savings, on the other hand, proves a little messier.

Most parents just give their kids an allowance and call it a day. But if you want to teach kids budgeting lessons that are useful in the real world, you need to impose real-world expenses on your children—housing expenses, food expenses, entertainment expenses, and so on.

“What?! You want me to charge my six-year-old rent?! What kind of monster are you?!”

Imagine the following scenario: You start your child with a $20/month allowance, in exchange for X, Y, and Z chores. Of that, they’ll need to pay you $5/month in rent, $3/month for groceries, and a small percentage of entertainment costs that they request, such as dinners at their favorite restaurant, or going out to movies they want to see.

They also must save a bare minimum of 25% of their income. Whatever’s left, they can spend as discretionary income. Reinforce the habit to save early and often!

Don’t just deduct the expenses from their allowance, either. Make them pay you separately and specifically for each expense; perhaps different expenses are due at different times of the month.

Budgets have expenses, not just income. If you want your kids to grow up knowing how to manage their money in the real world, you need to teach them with a budget that resembles the real world as closely as possible.

kids-money-lessons

2. Demonstrate the power of ROI. | Ages 8-10

When your children have mastered the science of budgeting, it’s time to show them that their savings is good for something more than just looking pretty on their bank statement. (And they should have bank statements—show them early that money is not green paper, but an idea.)

At first, you’ll need to rig their returns to demonstrate a point: When they put their money to work for them, they get more money. And the more money they save and invest, the greater their returns.

Suddenly, instead of 50-60% of their income going toward expenses, they’ll discover that returns on their investments can cover a big chunk of their expenses. They magically have more money every month! And they didn’t even have to do chores for it!

To make sure they earn a good return, have them invest their money with you as a private note that pays high returns. (Hopefully they’ll also gain a new appreciation for your real estate investments, since their money is now tied up in them!)

After the initial lesson sinks in, phase down the note returns to be more realistic, and have them start investing in real market investments alongside you. Have them invest in low-cost index funds as an easy—and historically effective—investment. You can watch the fluctuations together and talk about why the market moved the way it did.

Still, as important as it is that they start understanding markets, the most critical lesson remains the power of passive income.

3. Constantly push flexibility & mental agility. | All ages

According to one Canadian study, nearly two-thirds of today’s elementary school children will work in jobs that don’t exist yet.

Likewise, many of today’s jobs will no longer exist in 10-20 years.

Our children need to grow up with excellent soft skills. They need to know how to work well with others, how to influence those around them tactfully but not rudely or aggressively. They need to know how to communicate persuasively, both verbally and in writing.

Teach what you can about networking, debate, public speaking, critical thinking, logic, negotiation, writing, data analysis, charm, and social graces. Help them find other people and places that can teach them these soft skills—since you can’t teach them everything.

Do whatever you can to encourage and develop their lateral thinking. Lateral thinking is about approaching problems from multiple angles to find effective and creative solutions. You know how corporate types are always waxing on about “thinking outside the box”? That’s lateral thinking, and it will serve your children well over their lifetimes, no matter how the economy or job market evolve.

4. Introduce them to their first venture. | Ages 10-12

Allowance is great for teaching budgeting, but it teaches nothing about entrepreneurship.

When I was a kid, I mowed my neighbors’ lawns for $5 each. No, it wasn’t that long ago, they were small lawns, goshdarnit! OK, maybe it was that long ago.

This is a great first gig, if you live in the right kind of suburban neighborhood. Alternative gigs include walking dogs, babysitting, simple landscaping work, etc. (In fact, you can even tie in your children’s venture with your rental business to earn even more from your rentals!)

Push your kids to do something similar. At first, they’ll complain about working on their weekends, then they’ll discover how much they like the extra money.

And eventually, they’ll start to get bored of the work. This sets them up for the next lesson: leveraging other people’s time and money.

5. Teach them about leverage. | Ages 12+

When your kid is bored of their business venture, you can start nudging them to use a little lateral thinking. Consider this conversation:

“Dad I’m sick of mowing lawns every Saturday and Sunday morning.”

“Understandable. What are some ways you could cut down on the number of hours you work, while still bringing in the same money?”

“Huh? How’s that even possible?”

“Spend tonight brainstorming ideas, and let’s talk again tomorrow.”

The answer to the riddle is, of course, that they bring on an “employee.” Your child has established a customer base of neighbors whose lawns they mow, and they know what they can expect in revenue each week. Now it’s a matter of finding another child (perhaps slightly younger) who’s willing to work for less.

Congratulations! Your son or daughter just got promoted to manager, who handles sales and marketing but not the actual labor. Even better, they can now expand their enterprise since they are no longer limited by their own time constraints.

Then, they quickly run into another constraint: physical resources. In this case, there’s only one lawnmower.

Your conversation could then turn to “what’s the constraint holding you back from bringing on more customers?” When your child comes up with the answer (equipment—the lawnmower), have them start scouting yard sales and classifieds for used lawnmowers.

Offer to lend them the money for a second lawnmower (with interest) to demonstrate that not only can they leverage other people’s time, but they can even use other people’s money to scale their business.

friends-family-financial-freedom

6. Partner on a real estate investment. | Ages 12+

As we talked about earlier, your kids have already been lending you money as a private note for your real estate investments, right? Well, now it’s time to bring them in as junior partners.

Bring them with you to scout potential investments. Have them show vacant rental units alongside you to potential renters. Explain how cash flow works. Model for them how to raise money, how to manage people and contractors, and how to evaluate risk.

Remember Nakeisha, the single mom whose 12-year-old daughter participates in her property investing and management? What started as the inability to afford a babysitter turned into a family business!

If you’re handy, this is a great opportunity to teach them about home repairs. If not, you can both learn together, giving you even more to bond over.

Your children should have some of their own money in the investment with you, however little. Otherwise, it’s not a partnership; it’s a tagalong.

And when you sell or lease the property, your son or daughter gets their cut. They get to see the fruits of their labor.

You can even invest in properties to help pay for their future college education!

7. Discuss the rules of the tax game. | Ages 16+

One of my favorite movie lines of all time is Walter ranting, “This is not ‘Nam. There are rules!” in The Big Lebowski.

And so there are, Walter. So there are.

Life is filled with rules, but some of the most important that your children need to learn are the rules to winning at the tax game.

It’s hard to succeed if the government takes 50 cents of every dollar you earn. But when you layer on federal, state, and local income taxes, payroll taxes, sales taxes, property taxes, and all the other taxes that slip into your wallet, we end paying a massive percentage of our income to taxes.

Most of us don’t even know it. Here’s a simple example: If you rent, you’re paying property taxes; you just don’t realize it because it’s indirect. Renters actually pay those taxes twice since they end up paying the property taxes themselves and also pay income taxes on that money.

Homeowners, by contrast, at least know they’re paying property taxes and don’t have to pay income tax on that money.

Real estate investors who hold their properties for at least a year pay the lower capital gains tax rate, rather than full income taxes. Many of the costs of owning and improving investment properties are also tax-free. Some exist more as paper losses than real losses, such as depreciation. Property owners can 1031 exchange their profits from one sold property to a new acquisition, and postpone profits indefinitely.

The list goes on and doesn’t just extend to real estate investing. Savvy investors know the rules for limiting their tax liability on everything from stocks to ETFs to private notes.

Who’s going to reach financial independence faster, someone who’s losing 50% of their income to their total tax burden or someone who’s only losing 25%?

The better your children know the rules of the game, the greater their chances of succeeding.

Leave the Rat Race to Other People’s Children

Most people don’t like their jobs. It’s a sad statistic: 70% of Americans feel disengaged from their jobs.

If you want to give your children the means to succeed in tomorrow’s economy, resist the urge to keep them obedient at all times. Embrace it when they (respectfully) question authority and assumptions. Encourage them to think laterally. Help them build skills that will always prove valuable. Teach them everything you know about money, investing, and entrepreneurship.

Remember blacksmiths? Well, OK, I don’t either, but most towns had their own blacksmith in the 1890s. By the 1920s, there were few blacksmiths left in America. The economy had moved on, and instead of jobs for blacksmiths we suddenly had jobs for car mechanics, car salesmen, car manufacturers, car washers, and so on.

Today’s world is changing much, much faster than the early 1900s. When the robots come for our jobs, your kids will be in a position to not only survive but capitalize on it, rather than lament the loss of yesterday’s jobs.

And that’s the best thing you can offer your children: the agility to succeed no matter what comes down the pike.

What are you doing to raise your kids to think differently? To be independent, entrepreneurial, ready for a rapidly-changing economy?

Ideas welcome! (Or you could just tell me I should be jailed for proposing that we charge kids rent. That works too.)

About Author

Brian Davis

Brian is a rental expert with a passion for house hacking! He and his partner Denise are the founders of SparkRental.com, which provides free mini-courses, webinars and other education on passive income and house hacking.

37 Comments

  1. John Bierly

    Well Brian, that all sounds nice, but I’m wondering exactly how many kids you’ve raised into adulthood? Speaking as the father of 5 ranging from 17 to 31, there are huge differences between individuals even with the same gene pool and upbringing. A couple of ours are self starters, a couple need someone providing structure for them, and one is somewhere in between; and all of them with an exposure to self employed parents while growing up. Those who are more comfortable as employees can provide valuable services and have meaningful lives as well and should not be disparaged.

  2. Douglas Larson

    Great article to chew on! My kids are 10, 7 and 2. I hope my kids are learning about running a real estate investing business through me. They help with small projects at our rental SFRs and they have looked at lots of properties with me. They watch how I manage subcontractors and they hear me tout the virtues of passive income. However, the other day when I asked my older boys if they wanted to do what I do they both screamed” No Way!”

    Of course what they actually want to do is probably not going to work out but I didn’t want to squash the dreams of my young, aspiring musician and my future pro skateboarder yet. The world will probably do that soon enough.

    In the meantime, your article has given me some other ideas to try so I can help them start thinking more entrepreneurial thoughts.

    Thanks!

  3. Randy Evanchyk

    Great article, Brian. I know this article will be a hotly debated topic considering the varied opinions on raising children, but your premise is spot-on considering the path to a comfortable life is not as straightforward as it was in the 1970s, 80s and 90s. I would argue that lateral thinking is a must in a technology-driven, contentious, and connected society. My opinion was formed by an interesting life experience.

    I was fortunate to have a 25-year career in hotel operations, sales and franchising that provided an excellent foundation for my REI career; specifically, my exposure to the Asian-American community. I watched, starting in the late 80s, the first generation Asian-American buy small, 30-unit properties that operated as a family affair; that is, the entire family worked the desk, cleaned rooms, worked the books, budgeted, and did all that was necessary to successfully operate the business. In fact, I would argue that these bilingual kids knew nothing but entrepreneurism from birth. These 30-unit properties were eventually leveraged in to large portfolios of hotels and other RE investments. The generational transition was impressive to watch.

    There was a seamless transition from the first generation to the second in terms of running a large portfolio considering the second-generation was involved from an early age. The attitude and success of this group was impressive to watch. I have many friends in the Asian-American community that have been role models on many levels. As radical as your article may seem to some, it makes perfect sense to others. Thank you for such a thought-provoking article.

    “Build your own dreams, or someone else will hire you to build theirs.”

    • Brian Davis

      Thanks Randy, and that’s impressive to hear, about the power of ingraining entrepreneurship in a family from an early age. Raising children is definitely a heated topic for a lot of people, so I expect plenty of pushback, but I’m glad to hear you’ve witnessed firsthand how powerful a family ethic of entrepreneurship can be!

  4. Edith tenBroek

    I have three teens, and I wish I had started them younger! One thing I’ve been urging my kids to consider is house hacking their first home buy buying a duplex or fourplex and gaining free or almost free housing. Great info to consider!

  5. Justin Sumulong

    Cool article Brian! I have a 17th month old now and often I think about how I can help guide him more towards a B & I mindset rather than E & S (referencing Kiyosaki’s Cashflow Quadrant). I’m sure I don’t want to just force him into it but these are cool ideas to point him down that path!

  6. karen rittenhouse

    Love the post, Brian.
    So much here that I did with my kids. I was a single mom of 2 boys. For example, I remember one asking me about receiving an allowance. I said, “you’re allowed to live here, you’re allowed to watch tv, you’re allowed to eat and take hot showers. You want something extra, let’s see how you can make that happen.” (Truth was, I didn’t have money for allowances…)

    They saw me work hard, I was never a fan of conformity, and we always discussed those in authority and should they have that position – was their position earned or just given.

    They were both stellar students and individuals and both loved to discuss, challenge, and think things through rather than accepting status quo. They both triple majored in college – my oldest was making 6 figures while still in college, by the way – and each own their own very successful web development companies.

    One thing I would add is that I encourage parents to really support their child’s strengths and don’t worry about tutors for their weaknesses. As business owners, we hire others to fill in areas we don’t like or aren’t good at so make sure your children have areas in their lives and skill sets where they really soar.

  7. I’m wondering whyou deleted my post just because I didn’t agree with you. All I said was it seem like you had no experience parenting young adults or adolescents. You should have a thicker skin being in the real estate business in all…

    • Hey random commenting Dude. It’s easy to be rude and harsh while hiding behind the anonymity of a keyboard. Guess what? Authors don’t have thicker skin just becuase insensitive people like you exist. They are normal people and deserve to be treated wirh respect. Did it ever occur to you that your comment might not be helpful or appropriate?
      Brian~ great job. Inaightful and thought provoking. I think someone could get basically similar effects by charging a kid for all the extras they ask for, and skip the “rent” charge. But either way you choose to personalize, the ideas ring true to me!

      • Angelou Masters

        Kate if you don’t like what I said tough luck! I don’t think I was being rude or disrespectful I was giving my honest assessment like he gave his. I’ve raised 4 kids to adulthood and took on another 4 after the age of 13. I’ve also been buying and selling real estate mostly successfully since 1992 in the Bay Area so I think I’m qualified to speak my opinion. And as far as anonymity do you want my number or something? I didn’t appreciate my first post being deleted the first time when I said nothing more than the second time. You can learn a lot from a dissenting opinion whether you agree or not. So if you want to put on your cape and save someone why don’t you just wait until Halloween you’ll be just as effective. Even Brandon accepts dissenting opinions without feeling the need to censor someone’s true feelings.

      • There was an interesting story this morning about Twitter deleting a conservative’s campaign ad because they deemed it “too controversial.” All, by the way, perfectly legal since Twitter is a private company, but not advisable.

        I was one of the first to applaud Brian’s article and the message he was trying to convey, but it’s a mistake to delete someone’s post, no matter how egregious the comments. BiggerPockets has given this “gentleman” a platform that he didn’t deserve – the commentary would have died had his post been allowed to stay.

        “To learn who rules over you, simply find out who you are not allowed to criticize – Voltaire.”

        • Brian Davis

          Very valid point Randy. It’s probably worth mentioning that I do not have the power to delete comments – BiggerPockets’ community manager handles all comments. They have their own guidelines about article comments, which they enforce as they see fit. I suspect the original comment was deleted because it was phrased more as a snipe than a conversation starter, but I have no idea.
          For what it’s worth, my experience with BiggerPockets’ community managers has been that they are quite tolerant, and encourage constructive disagreement and controversy, with the key word being “constructive.” When someone says “I personally disagree, because XYZ,” it’s always allowed.

  8. Shani Atkinson

    I love the idea of children paying rent! My five year old earns up to $20/month if chores are complete. I have read that the average cost of living is about 29% for rent. It’s important for them to understand that as they grow, they will have financial responsibilities. My husband and I always discuss, that we want them to be independent and financially secure. Great article!

    • Brian Davis

      Thanks Shani, and I agree, raising your kids to be independent and financially secure is among the greatest gifts parents can give to their children. It sounds like you and your husband are off to a great start with your little one!

  9. Ramondo Sai

    Love this article Brian!

    It’s always been on my mind to teach my children to be entrepreneurs and think outside the box. Your article provided actionable steps of how a parent can do that.

    I especially like that you wrote about “charging rent” to your kids at a young age. I plan on doing that with my kids once they get old enough to understand the concept of money. It’s a great strategy to make the expenses and budgeting real for them.

  10. Dave Roberts

    Nice work Brian. I’m not sure I’m going to wait till my daughter gets to 6 to start this though. She’s 4 now and already negotiates expertly – okay, so maybe I’m just wrapped around her little finger – but I’ve been thinking about ways to get her thinking differently before the school system turns her into a sheeple. Lots of very pragmatic and actionable ideas here. Thanks

  11. Erik Orozco

    Incredible article Brian! I’m have a 6 month baby girl and I am new to fatherhood and these ideas. I curious on your take of swapping out chores for reading books (educational books as the grow older and can comprehend more). In my reading I came across a story of a father who refused to pay his two sons for mowing the lawn like the neighbor did because he wasn’t raising them to be landscapers. He rewarded education.

    • Brian Davis

      Thanks Erik! I’m far from a parenting expert, so take this with a grain of salt, but one thing I’ve heard parents need to be careful about is rewarding activities that they want kids to WANT to do on their own. The idea is that if you pay kids to read, they associate reading as a chore, as work, something that’s tedious but that they’ll get an external reward for.
      Ideally, you want kids to learn to love reading for its own sake, as the end in itself, not something to trudge through because they’ll get paid for it. Like I said I’m no expert on this, we’re getting far from the realms of personal finance and real estate. But just a thought to bat around.

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