Raising FI‑Minded Kids: What Really Works | 15-Year-Old Rishi Vamdatt | Ep 576

25:48How do you explain to the people that you educate about index funds? How do you explain what an index fund is and why that is, in your opinion, a more optimal investing strategy for your investing lifetime, which frankly is another 80 plus years, right? As opposed to individual stocks. How do you get that point across? Definitely individual stocks are something that most beginners would probably gravitate towards like I did because they're a lot more exciting and you can actually understand what they are really quickly because they're like companies that you see all the time, like household names.

26:25But the thing is, if index funds, it's basically a basket of all the, if it's a broad-based index fund, it's a basket of all the biggest companies. For example, the S &P 500 is the 500 biggest U.S. companies, and it's meant to represent a certain market. So when I explain it, I say that instead of trying to choose one or two winning stocks, which even the pros more often than not fail to do and end up losing money, instead of trying to choose a few winning stocks out of the entire market, why not just invest in the whole market? because that way you're over the long term, you're guaranteed to earn money at around 10 or 11 % per year.

27:05And instead of having to constantly worry about what to invest in, when to buy or sell, day trading, things like that, you're just invested and you're guaranteed to make money. So that's one thing where it saves a lot of time and energy doing thinking about where to invest and also worrying about if you made the right investment, when to buy and sell, things like that. And also, if you have to make a portfolio from scratch using individual stocks, you need to think a lot harder about what sectors to invest in, different market caps to invest in, also different regions, things like that. But if you're investing in a total market index fund, or even an S &P 500-based index fund, then you don't have to worry about diversification at all.

27:47At least when you're young and you still have a long time until your retirement, You can just invest everything or close to everything into index funds and not have to worry about that at all and just know that your money is going to be working for you and continuing to grow. And another thing that's especially important now is that a lot of people think you need a lot of money to start investing, but it couldn't be further from the truth because it's not timing the market. It's time in the market that matters most. So the earlier you start, you'll have a lot more money than if you start later.

28:19So one example I also use in some of my videos is that if you start investing at$20, just$150 a month, by the time you retire at around$65, you'll have$2 million. But if you start investing later, even at just$40, you'll have only around a tenth of that money because you waited until you have more money to start investing or you waited until you learned more. these kinds of things that people think they need, but of course, they don't actually need to be experts. The most important thing is to just start early. And one thing that's great with index funds is that you, especially now, you don't need a lot of money to start, especially with fractional shares and zero commission brokerages.

29:01Even if you just have $10 or$20 a month, you can start investing and you can get the ball rolling. And then once you're able to afford more, of course, you should increase your investing, but that way you can start really early and with a smaller amount and you can begin your investing journey, which can be the hardest step, especially for beginners. But it's also the most important if you want to start growing your money and building a nest egg for retirement or some other. I totally agree. And yeah, the power of compounding is just absolutely enormous. And this truly is the golden age of investing.

29:34It has never been easier or cheaper to invest, right? We don't advocate any particular platform, but we usually mention Fidelity, Vanguard, and Schwab as three very reputable places that are very easy to start investing. And yeah, I mean, in this day and age with expense ratios being minuscule on these S &P 500 or total stock market funds, usually three or four or five one hundredths of a percent, and there being no commissions or trading fees, you really can get started with those small sums that you talked about, which is awesome, right, I guess my question to you, and it's funny because I asked my daughters if they had any questions for you.

30:14And Molly wrote basically saying, what are the best tips to balance between saving money and spending money? Which I would add on to that, which is how do you convince people that they want to save in the first place? I think a lot of people, a lot of children, a lot of adults, frankly, spend all their money because that's what they, it's fun to spend, right? Like they, that's what they want to do. But yet they're obviously, if you spend all of your money, you can never reach financial independence. You can never retire just by definition. If you have a 0 % savings rate, right. Or you have to like get lucky or somehow hope that social security can cover everything.

30:51Right. But that's not, that's not a winning strategy. So I guess to my daughter's question, like how do you balance saving and spending? And how do you, How do you talk to people about the importance of saving when it's so easy to spend? Definitely, especially nowadays, a lot of people focus on spending, which is natural. Like you said, it's fun to spend. People like buying things and consumerism is really common. But I think it's really about finding the right balance between spending and saving. And one interesting story that my dad told me a few years ago, which really relates to this, is between a hedge fund manager and an author, where the hedge fund manager says that in just a day, he earned more than the authors made in his entire career.

31:36But the author said that he has something that the hedge fund manager will never have, which is enough. And I think that's really important when thinking about saving and spending, because wealth is not necessarily about having more, but as needing less and being content with what you can have. So like you said, people shouldn't think about it as just saving 100 % of their income and then sometime in the future being able to have financial independence. Like you can enjoy life right now, but also start working toward saving for the future and building a better future for yourself where you'll be able to enjoy a lot more because of decisions you make today.

32:15And this also is similar to what I was doing when I was younger. Like when I was around five, my parents tell me stories of how once I learned about Black Friday and how things often go on deep discounts, I wanted to not buy anything when it wasn't Black Friday. and of course that's not practical but I still try to buy everything on sale wherever possible and different things like that and I also use the same backpack for many years I've had this current one since the start of high school and I'll keep it till I graduate because of course backpacks don't break after a year you can keep using it so things like that wherever you find opportunities to save money in your life is where you need to find the right balance because it's not about just saving everything or spending everything.

33:02You need to really find a middle ground. So for example, I don't really care about brands or fashion or sneakers, things like that, but I do care about experiences. So instead of spending money on those things, for example, when I'm traveling with my family, I spend on experiences in the place I visit. Or I also look for sales on things that make me happy, like video games or fishing gear. Because to me, a$50 t-shirt is the same as a$10 one. I don't really get any enjoyment out of that. But if I save that money, and instead I buy a video game for$50, that would be a lot better because that would give me many hours of entertainment.

33:41But if I bought both, then that would not be an ideal situation. Because like you were saying, if people spend all their money, then they'll never achieve financial independence. So it's really about finding what makes you happy and what brings you value now and being able to balance that with where you're okay cutting back so that you can have more enjoyment and have more wealth in the future. Because through this intentional spending, you're really able to enjoy life in the moment while also really building toward financial independence in the future without having to sacrifice all of your quality of life now.

34:16Yeah. Rishi, the audience can't see this, but you can. I have a big smile on my face the entire time you're talking. And the reason why, aside from the fact that what you're saying is profound, is that you and I are so similar. It's unbelievable. So I kid you not, I have my high school backpack that I literally, I go to the gym basically seven days a week now. And I bring my Jansport backpack from when the time I was literally your age, 15. I've had this for 30 years and it still holds up. It's a great bag. The zipper is starting to break. So I think I might have to finally get a new one. But that's a nice thing.

34:52And we have a phrase around here that was coined many, many years ago by a good friend of mine. He's a doctor named his first name is Bo and he's been on the show a number of times and we call it being a valuist. okay so it's it's not being cheap it's not being frugal or being a miser or all the the negative connotations it's buying what you value and that is in the eye of the beholder and it sounds like like you see that in terms of it's not about trying to spend as little money as as you possibly can on things like you said it's about utility and finding the sweet spot for you like that 50 t-shirt in your case your example the 10 t-shirt is gonna be just as warm as the 50 one right like it might even last just as long.

35:36I have plenty of t-shirts that I am similar in that I try to optimize for shirts that I like. And I'll find a type of shirt that I like and then just buy five or 10 of them. And just that's my wardrobe for the next year or two. And it cuts down on decision-making. That's how my value is brain works. And it's interesting how I think that's a really good way of going through life. And again, it's not trying to buy cheap things that are going to break. I mean, there are many things that I buy that are much more expensive than the lower level version. But if I plan on using it for years, I'm getting value and utility out of that.

36:11And again, it's case by case, of course, but I think everybody should really think about that. Like, what are you looking to get out of this purchase and how can you optimize it for however that works for you? So yeah, I really, I really, really like how you said that. Thanks. So I am curious how, and we can jump around so much, but how and where do you invest now? So both, and you don't have to say specifically what brokerage, but you obviously earn, I imagine you earn some YouTube revenue and maybe other types of revenue. Are you putting that still into a taxable brokerage account? Are you putting it into a Roth IRA?

36:50How do you personally think about the different buckets where you can invest? Yeah, it's a great point that you're bringing up. When I started, I wasn't earning anything from EZPZ Finance. And even now, it's only very little from ad revenue. But because one of the most important things in investing, especially for retirement, is being mindful of tax advantages and how to best use them. I do invest the little earnings that I get from EZPZ Finance through a Roth IRA, because that way, especially since my money has so long to grow, and I'm not earning so much that I'll have to pay a high tax rate now compared to in retirement, definitely.

37:28That way, I can make the most of what I'm getting by investing it for the long term through compounding like with a traditional account, but also save a lot on taxes. And this is in addition to what I've been doing through my dad's brokerage account, which is taxable contributions of my allowance. But I am investing the little earnings that I get now in the Rata area. Okay, I like that. And yeah, I also like how, yeah, of course, just because you have a YouTube channel, even a successful one, it doesn't mean you're rolling in money by any stretch. But the nice thing is, yeah, net of expenses, whatever expenses you have, I assume you have production expenses and such, all that profit can just go in a Roth and grow forever.

38:06And you will never, because of the, by definition, the Roth account, you're never going to have to pay tax on that. So I mean, goodness, the compounding of working from 15 years old to even 59 and a half, not less 60, 70, 80, 90, when you may or may not need it. So yeah, I mean, that's really, really cool. Okay. So right. You said low cost index funds, and that's what you advise. realize how do you personally think about college? I think this is a big sticking point for a lot of people who, and you can never know where the world is going. So, and just like in investing, right, we don't try to prognosticate in terms of, is the market going up?

38:42Is it going down? Nobody knows, right? Like nobody knows if AI is going to change the entire landscape of jobs. I think it's kind of foolhardy to try to even do that. But nevertheless, the world is constantly changing. That we know for sure, right? Like that's not a stretch to say the world is changing. I think for many, many decades, certainly people my age and older, college was the path. And I'm curious both how you think about college and many people your generation think about college. Is it still just the de facto, like we are going to college after high school? Are people starting to think about other options?

39:22I guess it really depends on the person. Like a lot of things in finance, it depends on what someone wants to do as their career. But of course, a lot of it is the cost of college, which is a really big, not problem, but it's a really important thing to plan for, but both for parents and the student, because college is getting a lot more expensive, way faster than other things, because education inflation is really high. So the cost of college is definitely going up. But then on the other hand, there's also definitely value to a college education. Of course, it depends on the field you're going into.

39:58But college graduates can expect to earn significantly more over their life. But there's also other options like going to a trade school or things like that. So I think it really is on a case-by-case basis. You can't say there are definitely trends for how people are thinking about college. And I guess definitely fewer people are considering college, like you said, the de facto option. They're more considering alternative paths. I think college is still really important. And especially paying for college is something that parents and kids must think about, like whether they're going to a private college or an in-state school for cost, where they'll be able to get more scholarships or financial aid or looking for third party scholarships, things like that.

40:41So there's definitely there are now more factors to consider when thinking about both how to pay for college and whether to go to college. But I still think for most people, it's an important option that they'll consider. OK, yeah, that sounds that sounds about right. And that that ties to so I have a high school senior. My older daughter is a high school senior. So she is in the thick of she just got her applications in. And so, yeah, we are really in the thick of it now. And it is interesting because there are a lot of potential optimizations and we've talked about them here for years. I actually I'm going to ask you in a second if you have any thoughts on paying for college, because you actually told me before we have recorded that you're in 11th grade.

41:24So you're 15, but you're in 11th grade. So the college decisions are right around the corner for you. So based on your financial knowledge and wherewithal, I suspect you've already been thinking about this. But there are lots of things you can do. Like you said, there are many private scholarships. We've highlighted a bunch of them over the years, just some wacky ones. Even way back when there was a college caddy scholarship, a golf caddy scholarship that somebody talked about in the Big Ten, which is interesting. Recent guest, Sonny Burns, talked about a scholarship that the Department of Defense offers.

41:56I think it's called the smart scholarship for people going into engineering and tech, which is remarkable. They pay for your college and they give you a$25 ,000 stipend per year. So there are lots of these one-off things. But one of the most reliable ways that I've seen is going to community college. It's in many states, well, you get an associate's degree in two years if you're diligent. And you get rid of a lot of the initial requirements that many four-year universities ask for. and you've paid a tiny, tiny fraction of the total cost of that private school or even public school. And I know here in the state of Virginia, people are probably tired of me saying this, but I suspect this exists in many states, Rishi, is here we have a guaranteed admissions program.

42:42So if you go to a community college here in Virginia and you get a 3.4 GPA, which is very doable for many people, and you take certain classes and et cetera, you follow all the stipulations of the contract, you were guaranteed admissions to any state university in the state of Virginia, which include two of the best colleges in America, the University of Virginia and the College of William & Mary, not to mention Virginia Tech and James Madison and a whole bunch of other amazing schools. So, I mean, that's a really cool way. That's essentially saving half on college. And I can't even convince my own daughter to do this.

43:18So it's easy to say and harder to do. But I'm curious, how do you think about your upcoming college decision and paying for it? Definitely paying for college is really important and can be a challenge. But it's important, like you said, to consider all the different options. What you mentioned is also something that I've shared in some past videos about how you can go to a much less expensive school for the first two years of college. And then if it benefits you in your chosen career, you can go to a more expensive school later on. But like you said, a lot of the things that sound good in theory or on paper are not things that people want to do.

43:56So it's important to consider other options. Since a lot of these things don't work as well in practice, there are also other things, like you said, related to scholarships or going to less expensive schools that are still good for all four years, things like that. And personally, for my paying for college, what I was saying earlier about involving their kids in day-to-day activities. That's something that my parents did related to paying for college. Now that I'm a lot closer to needing to use the money in my 529, we've been discussing how to rebalance it because for a while it's been all in stocks, but now it's time to include more fixed income and make it more conservative.

44:37That's just another example where involving kids can be really useful. And that's also helping me see how important it is to save for college, as well as how much college costs compared to what I've saved, what I'll need to take out as a student loan or pay for with scholarships, things like that. Yeah. And I think this goes back to really the theme of the entire conversation, which is include your kids in the decision-making, right? And like, there are trade-offs to every decision. This is life. This is personal finance. It's trade-offs. So, okay, let's say your parents did save diligently in a 529, which is wonderful.

45:15And it puts you in a very, very comfortable, privileged, I don't love that word, but privileged place. But there were still lessons to be had from that, which are, all right, well, what if I went to a private school, which costs$80 ,000 a year? And we have even again, if we're in this amazing position where we have$100 ,000 in a 529. All right, well, that's going to go pretty darn quick. That's going to last about a year and change. But what if you went to a state school? Well, maybe that's only$30 ,000 or$40 ,000 a year. That makes a big difference. What if you went to a school that you could get a merit scholarship to that might not have as big of a or fancy of a reputation?

45:56All right. Well, that's a whole thing altogether, right? Now you have some money left over. Maybe some people have siblings that that money could go towards the siblings. Maybe your parents in that case would say, okay, well, if you go to the school where you get this full scholarship, we'll give you this money we have in the 529 and put it in your broker's account or a portion of it or something like that. Like, again, we're not trying to be prescriptive here. I think this is the most important thing to get across. There's no prescription. Okay. There's no prescription. When you teach lessons to your kids, you can play around with this and you can play around with it together.

46:32And the more that you include your kids in the, in the conversation, I think the better And the more that you give them decisions, age-appropriate decisions, the better off all of you will be. And the more well-suited they will be when it comes time for them to make decisions on their own, because frankly, that's coming quickly. All right. So Rishi, I think we talked about college sufficiently. I want to go back to the larger concept of financial independence. So how do you think about FI? Is FI even on your radar screen? Or is it just like the 4 % rule and all these things? Like, has this crossed your plate?

47:08Or are you just really focused on, hey, I'm working on the inputs. I'm saving as much as I can. I'm investing for the long term. And I'm just doing that week after week. Or do you think about the larger picture? I'm definitely considering the larger picture as well. But right now at my age, there's a lot of unknowns about what my situation will be, like exactly what my career will be, how much I'll need in my retirement per month, how the situation of the economy and the world in general will be, things like that. So like you said, right now, I'm mostly focusing on the inputs of investing, my allowance, and also the little earnings that I get from EZPZ Finance, and also familiarizing myself with different concepts related to FI and money management, which I'm also sharing through my videos and website.

47:57But definitely right now, it's more focused on the input. And once I get more clarity about how my life will be as an adult, then I'll start to specifically work toward five goals that are for me and tailored to my situation. Okay. Yeah. And that makes perfect sense. And of course, yeah, there's no way you could have any sense of what your life costs, not less come up with a five number, obviously, but it is just interesting that you're even just aware of the concept of five and that there is some number, There's some end point. And that goes back to that quote you said about enough, right? I think that was Joseph Heller, the author of Catch-22.

48:36I remember it was Kurt Vonnegut and Joseph Heller, at least whether it's an apocryphal story or not. I think it was a real story. And that is the thing. There is a point where you have enough. And I think this is one of the real fundamental underpinnings of Phi, is that most people don't have a sense that there's some end point, that it's based on what does their life cost. And then in essence, okay, my life costs$60 ,000 a year. I multiply by 25 and that's my fine number. I spend$200 ,000 a year. I multiply by 25. That's my fine, right? It doesn't, we're agnostic as to how much you spend. Your life costs what your life costs.

49:17But the nice thing is there is some number as opposed to, I think a lot of people get scared when it sounds so uncertain to them, right? the word I always use is nebulous. Like it just sounds nebulous. Like, am I ever going to retire? Is this possible? You have a lot of, a lot of people fear mongering in the personal finance world of everything's going to be so expensive. You can never do this. And I just think, I think that's a real shame because I think it, it turns people off and it makes them not even want to get started. And I think what you and I are trying to do is, is to get people embolden them to take action.

49:51And I think that is, it's just really critical that, that you don't just sit and A, be scared or B, just take in information, right? Like I think that's what you're trying to do is you're giving these bite-sized nuggets of information to get people to get off the couch and take action even in that small way, even investing$10. And I'm curious, you teach a lot of kids your age about money. Is there a first step? And the answer might simply be no, but like, is there something that you tell people? Like, just do this, just take action. For me, while you're thinking about that, I'll tell you what I do, which is for adults who maybe don't really know what their finances look like, it's just get it down on paper.

50:32Now, this isn't the same for a 12-year-old or a 15-year-old because your personal finance world is not that complicated. But for adults, it's just be honest with yourself, just write everything down, and then you can move forward from there. How do you think about educating and informing kids your age in terms of what's the first thing you can do to make your financial life better? I think the first thing that's really important is to know the difference between needs and wants and how to spend consciously and mindfully. Since especially for teenagers, there's a lot of things they can spend on.

51:02But like adults as well, they don't have unlimited money to spend with. So I'd say for people my age, the most important thing, like we were discussing earlier, is to find out what you really value and what brings you the most utility. but also know where you're willing to not spend money and instead use that money to save for the future or also to give to charity. Knowing needs and wants and also what makes you happy is a great foundation. And upon that, you can build with your future knowledge, like getting financial literacy skills, learning how to make a household budget for when you're older and have to actually manage your money, starting to invest either with allowance or things like that or from your first paycheck.

51:44But for people my age, I'd say the foundation is knowing needs versus wants and how to spend mindfully. And one thing related to that is some teenagers think that credit cards are free money, which might sound crazy to people who are more aware about things like that. But to young people who don't have the financial literacy education, unfortunately, those kinds of mistakes can lead to significant consequences. So just becoming more familiar with finance related concepts and practical money management, and especially to start with needs versus wants can be really helpful, both now when the person's a teenager, and especially when they're an adult and have to manage money and when mistakes that they make when they're having a job and getting a paycheck can lead to far worse consequences than if they make the mistakes now with an allowance.

52:34Yes, I love that. I absolutely love that. Richie, the last thing I wanted to ask you is another question that just came in from my daughters are texting me. So they wanted to ask what kind of jobs, if they wanted to earn some money, do you talk about the earning side as well? So I think the saving side, the investing side that we've covered, but what about jobs for teenagers? Somebody wants to get involved. They want to earn some money. They want to start investing. What do you say about that? Definitely when I started, it was more on the concept, But now I've actually made a video about that.

53:07And it's one of my most popular recent videos about how teenagers can make money online or using only their smartphone. And I think that's really important because for teenagers to be able to learn the best lessons, they also need to have money to use, especially if they don't get an allowance. or even if they do and they want to add to that, getting a job is really great to get practical experience and to get money to start to learn money management skills with. And in that, for teenagers, a lot of the best jobs are online. Things like designing thumbnails or updating websites or making websites load faster or creating TikToks or things like that, that don't require a lot of physical labor are things that teenagers are already familiar with because they're really tech savvy.

53:54Usually those kinds of jobs are really the best because they're things that teenagers would want to do. And after getting money from that, they can start to learn personal finance lessons. And of course, also spend some of it to really get the benefits of hard work. Yeah. I love that. It's funny that you mentioned thumbnails because I'm vaguely thinking about putting a video back on our podcast. And, uh, I spoke with a friend of mine yesterday and we're talking about YouTube and who's saying about the thumbnails. And I just like recoiled in horror at the thought of having to do all these silly faces and other things.

54:27And, uh, I don't think I'll, I could ever at this point in my life do that, but nevertheless, like I could get my kids to create thumbnails for me. I know they do that. My daughter has a rollercoaster channel. She's a rollercoaster enthusiast. And, uh, I think she calls it the coaster authority for anybody who's, who's interested. And yeah, I mean, she, she's just getting started. So there's not a lot of content there by any means, but she has these skills and I'm blown away by the editing skills that, that she has. And it's just a need because kids, your generation grew up on these things and people like me who, you know, I'm, I'm certainly pretty darn tech savvy, but I just, I had, did not grow up on this.

55:02So they're just skills that have eluded me. So I love that. And, and yeah, I just wanted to close out really parroting back something you just said, which I think is really summarizes our conversation perfectly, which is the kids are, they're getting money to learn money management skills. That is the key here. Okay. So both internally, but if you want to make this, if you're listening to this and you have someone, a niece or nephew or a friend or a child, the key is not, the key is not making them wealthy at eight years old or 12 or 15. The key is teaching them money management skills and teaching them the concept of trade-offs and making decisions.

55:43And like you said repeatedly, you can make mistakes, small mistakes now, and they don't matter nearly as much as making a big mistake when you're 25 or 35 or 55. And I think you've explained that just so beautifully. And I'm honestly, Rishi, I'm just really impressed by you. I think, yeah, I'm just, I'm blown away. And I would love, so we've mentioned repeatedly, so it's Easy Peasy. So Easy Peasy Finance is your channel. So you have a website of the same name, EasyPeasyFinance.com, Easy Peasy Finance on YouTube. There are just, I think, a thousand plus videos. These are amazing places to start.

56:22Rishi, is there any last advice you want to give or just simply how somebody could get in touch with you? Or is it really those two ways are the best? Yeah, those are the best. My YouTube channel is Easy Peasy Finance. And if you want to get access to quizzes, infographics, free courses, and other resources, then go to my website, easypeasyfinance.com. And as a final thought, I'd say it really depends on who's watching this. If you're a parent, then as you've seen in the conversation so far, definitely don't underestimate the role you play in making your kid gain financial literacy skills. You have the biggest role of anyone.

57:01So really involving them in the day-to-day topics related to money and bringing them into the conversation, as well as giving them an allowance and teaching using resources. Those things are really important to make your kid financially savvy for their future. And if you're a teenager or a young adult watching this, it's really important to start learning money management skills now if you're young and start investing from the first paycheck, especially since you have time on your side like I do. and by using the right strategies. Don't get tempted by day trading or Bitcoin or hot stocks. I know a lot of young people do unfortunately fall for things like that, but investing for the long term using index funds is the best strategy.

57:45And one thing that I also like to say in my videos is that the best time to start investing was yesterday, but the second best time is today. So don't wait until you have a lot of money or you think you need a lot of experience or knowledge to start. just start investing now with whatever money you have and your future self-defense. Rishi, that is brilliant advice. I love it. Thank you so much for reaching out to me. Thank you so much for coming on the podcast. Thanks so much for having me. Yeah, it's really important what you're doing. So thank you again. All right, everyone. Thanks for being here.

58:16Thanks for being part of the Chooseify community. As always, get involved, take action, pass this on to somebody. That's the point. You're not just sitting here passively taking in information. You're getting up and you're taking action. You're making your life better and the lives of the people in your world better. That's the key. That's what we're doing here. Thanks for being part of the community. And until next time, thanks for listening to Choose FI.