4 Concepts Your Kids Need to Know About Money & Life

When I started reading non-fiction, it seemed like I learned a new concept on every page. Some proved to be helpful in a life-changing way, while others sounded 10x better than reality.

There are timeless, classic concepts that everyone can use. That’s what we’re talking about here. These are the concepts, principles, and rules I wish I knew as a teenager entering adulthood. They changed everything for me, and they can change everything for you and your child.

Let’s get to the concepts…

1. Rule of 72

We’ll start with a finance rule, because this is, after all, a finance blog.

The Rule of 72 shows you how long it will take for your money to double in an investment with a fixed interest rate. While it’s not 100% accurate, it will give you a good idea off the top of your head, which helps with investment decisions.

What is it? Divide 72 by the annual rate of return.

It’s that easy. It’s simple, but important to know when making investment decisions, if for no other reason than to compare.

Here’s some example figures taken from Investopedia:

Rate of Return	Rule of 72	Actual # of Years	Difference (#) of Years
2%	36.0	35	1.0
3%	24.0	23.45	0.6
5%	14.4	14.21	0.2
7%	10.3	10.24	0.0
9%	8.0	8.04	0.0
12%	6.0	6.12	0.1

As close as it is, it’s not fully accurate, but again, this rule isn’t meant for making decisions you need an accountant for, it’s a simple rule to give you an estimate.

It’s like converting a Celsius temperature to Fahrenheit by doubling it and adding 32. In most cases, it’s close enough for temperatures above zero.

Rule of 72 for Your Kids

Use small amounts, after your kids understand interest rates, and show them what they’re capable of. You can always start a conservative investment like a Certificate of Deposit (CD), just for learning purposes. While CDs are not great investments, they’re great teachers.

2. Pareto Principle (80/20 Rule)

For as much scrutiny as this principle has received over the last decade, it still stands as accurate in so many instances.

What is it? The Pareto Principle, or 80/20 rule, states that roughly 80% of the effects come from 20% of the causes or 80% of the results come from 20% of the work.

Joseph M. Juran, a management consultant, adopted this idea and named it after Vilfredo Pareto, an Italian economist. Pareto first noted this 80/20 idea in his first work, Cours d’économie politique, at University of Lausanne.¹ In Cours d’économie politique, Pareto showed that roughly 80% of the land in Italy was owned by 20% of the population.

Across most countries, around 20% of the population controls 80% of the wealth. In business, 80% of the sales often comes from 20% of the products. This idea is what caused Steve Jobs to slash Apple products down to a handful of items.

In life, 80% of our success typically comes from 20% of our effort. We spend a lot of time doing unnecessary work. Plain and simple. We focus on what we like to do, which doesn’t always equate to what we should be doing.

While many have criticized Pareto’s work, and this principle, I think we can all see the value we get from it: focus on what matters. If you make a list of 10 things that would improve your life or your business, you’d usually be better off if you focused on the top two things, and threw the rest in the garbage.

The idea isn’t that 80 and 20 are magic numbers, because it’s not always an exact 80/20 split. It’s about grasping the concept that the majority of your success comes from the minority of your actions, and then expanding this idea into every area of life.

Pareto Principle for Your Kids

There are plenty of ways kids can see this, but the important thing for them to understand is “focus on what matters.” For example, they spend roughly 80% of their playtime playing with 20% of their toys.

3. Parkinson’s Law

The main takeaway from this principle is the importance of deadlines, and how even self-imposed deadlines can greatly increase your productivity.

What is it? An adage that work expands so as to fill the time available for its completion. In other words, if you plan a one hour block for a task, you will work at a pace that gets the task done in an hour.

Of course this isn’t magic. You can’t force a four-hour task into a 30-minute slot, but you can get things done faster if you set deadlines. Think about all the times you had half the time you needed to get something done, due to procrastination or forgetfulness, and you still got it done. We’ve all done it.

Writing is a great example for me. If I don’t set parameters and limits, it can take me 12 hours to write a short article. If I say I’ll get it done in two hours, I’ll work in a manner that gets it done in two hours. Restrictions like this will help to keep the work flowing.

Parkinson’s Law for Your Kids

Do some trial runs to show your kids how they can get things done within the timeframe they choose. And show them how, when they procrastinate, it could take them 10x longer to accomplish something.

4. Pomodoro Technique

This technique goes together with Parkinson’s Law. If you speak some Italian, you may have figured out that this is called “Tomato Technique,” which seems weird, right?

It’s called that because it was first popularized by Francesco Cirillo, who is in fact Italian if you didn’t guess, and he used a tomato-shaped timer to track his work when he was in college.

What is it? The process of breaking your work into chunks. 25 minutes of work, followed by a five minute break – that’s one pomodoro. Once you complete four pomodoros, take a longer break (20-30 minutes).

Basically, it’s the idea of taking breaks, but we tend not to do that when we’re working, so this forces us to do so. Taking a break may be all you need to keep working for longer than you anticipated, not that you should work all hours of the day and night, but when you need to, this is how to do it.

As Alan Henry points out in a Lifehacker article, “Pomodoro is a cyclical system. You work in short sprints, which makes sure you’re consistently productive. You also get to take regular breaks that bolster your motivation and keep you creative.”²

Here’s the simple cycle:

• Work for 25 minutes, take a 5 minute break
• Work for 25 minutes, take a 5 minute break
• Work for 25 minutes, take a 5 minute break
• Work for 25 minutes, take a 20 minute break

Like the other principles here, the number isn’t where the magic lies, the magic is in the cycle. I typically do a 50/10 work session, and take a 30 minute break of my third session. It allows me to get more done than I ever would by working four or five hours straight.

Pomodoro Technique for Your Kids

Use this when your kids are doing homework. Have them take a five minute break after a 25 minute work cycle. If you find that they’re having a hard time re-focusing, try a longer work period, and possibly a longer break. When they get to the long break, they can do whatever they want to clear their mind before reengaging.

More Concepts

Compound interest is another extremely important thing for your kids to understand, but I already covered that in 15 Finance Terms Children Need to Understand, so be sure to check that out.

There are countless other ways to help your kids’ finances and productivity, but I’m trying to get better about not writing a novel every time I write an article.

If you know of some great concepts kids need to know, please share them below!

Further Book Reading

• Eat That Frog by Brian Tracy
• Teach Your Child to Fish by Holly D. Reid
• Make Your Kid a Money Genius by Beth Kobliner
• Money Monster or Money Master? by Norma LaFonte