How to teach your kids about: The Wealth Formula

In this article I’m going to talk about how to teach your kids ’The Wealth Formula’ using Elsa from Frozen and, Lego!

The Wealth Formula is the key to building wealth. This is super important for kids to learn as it’s not taught in school. If we don’t teach it to them then they will learn a FAKE version of the Wealth Formula via TV and social media which will have a negative impact on them.

So let’s start with the FAKE Wealth Formula using our friend Elsa from Frozen.

The Elsa Story - Part 1 - The FAKE wealth formula

“You have expensive things” = “You are wealthy!!”

This is the formula that will be imprinted in our kids minds from a very young age! It’s embedded in cartoons, adverts and general social interactions. It’s a very dangerous formula as it is very often untrue and leads to lots of bad money habits from those that believe in this formula.

Here’s a made up example, using Elsa from Frozen and, Lego, which you can use with your kids to demonstrate when the formula doesn’t work.

Elsa has had two very successful movies and now lives in a massive Ice Palace and wears beautiful clothes. She is a classic example as most kids will think “Elsa is wealthy” based on the FAKE Wealth Formula above.

Now let’s look into her finances in a bit more detail.

Elsa spent most of the money from her last movie, Frozen II, to pay for her Ice Palace. She is still getting paid 5 lego bricks each month as she is doing some shows and making guest appearances at kids’ birthday parties.

However, 4 of those bricks are used to pay for the upkeep of her Ice Palace (the air conditioning bill is very high!). With her remaining brick she goes out and buys a new dress.

Suddenly, a new Disney movie comes out. Less people want Elsa to come to their birthday parties. Now they want Mulan instead.

This means she now only gets 3 bricks income rather than 5 bricks each month.

Elsa still needs to give away 4 bricks to pay for the Ice Palace. This means giving away bricks from her Ice Palace and not being able to buy any new dresses.

The same thing happens next month and the month after that. Her Ice Palace reduces in size!

This is repeated over and over until her Ice Palace is gone.

So whilst Elsa appeared ‘wealthy’ at the start, she quickly lost her way as she was forced to give away too many bricks each month in order to meet her expenses.

Note for parents: Whilst this story is made up, there are many real-life stories where people who appear rich soon start to face financial difficulties. These include most premier league players after they retire, musicians, actors and even high-flying business people.

This is not the end to Elsa’s story. As with all Disney movies, I want to finish with a happy ending.

After losing her Ice Palace, Elsa meets Yoda at a party and he teachers her the REAL wealth formula!

The Elsa Story - Part 2 - The REAL Wealth Formula

With Elsa now only getting 2 bricks coming in due to birthday appearance requests falling, Yoda tells her she needs to make sure she has less than 2 bricks going out.

She takes action and now lives in a small apartment and doesn’t buy any new dresses for a while. This means she is now able to save 1 of her 2 bricks each month.

She continues to save this 1 brick each month.

The other thing that happened is that the bricks she saved started to produce more bricks. So now instead of getting 2 new bricks a month, she was getting 3 new bricks. This continued, then it became 4 new bricks each month, and then 5 bricks and so on.

Amount of bricks saved over time ….

As she had all these new bricks she would spend a bit more on things she liked but she made sure she continued to save at least 1 brick each month.

Years went past, she ended up with many bricks and could start to buy some of the things she had before. The difference is that she knew she could afford it over the long term as she had bricks saved and had more bricks coming in even without working.

She found out that the REAL Wealth Formula was a simple matter of:

Bricks IN > Brick OUT = Increased Wealth.

She had to be patient and she had to make the money she saved work for her.

She lived happily ever after. Roll the big power ballad and the credits!

Last word

There you have it - this story helps your kids see that just because Elsa started with lots of expensive things, she wasn’t wealthy because as soon as things didn’t go well she lost a lot. Those that look after their money (bricks in this example) are the ones that are truly wealthy.

I want to stress that I don’t want to turn kids off having ‘nice things’ - the main point is that our kids need to understand that there is probably a story behind those that are showing their wealth and in a lot of cases probably not a good story in years to come. As we are unlikely to find out about the full stories of the people we see on TV or on social media, there is no point trying to be like them. We should be looking for stories of people who look after their money rather than spend all their money.

This picture is a good analogy when you look at other people’s wealth:

For our girls, we show them their savings as Blue Trees and want them to build their own forest over time. They can use the fruits and branches from their forest to buy the things they want. It is those people that have a large forest that are financially secure. If people are trading-in their seeds (money) for ‘stuff’ then they will never have a forest and that is what a lot of people do.

If you would like to help your kids grow their own ‘Blue Tree’ forest, then you can create an account using the Blue Tree Sharing Tool. The tool lets you share your investment account and shows your kids their share as Blue Trees. They can use this to save their money, no matter how small, and see their forest grow. For more information visit www.bluetreesavings.com.

I hope you enjoyed this article. To teach your kids about other money related subjects make sure you subscribe.

NEXT: How to teach your kids about: Saving money to make money

Book recommendation: If you enjoyed this topic then you are likely to enjoy the book 'The Millionaire Next Door' by Thomas J Stanley and William D Danko

Other articles in the series:

• How to teach your kids about: The Stock Market
• How to teach your kids about: Saving money to make money
• How to teach your kids about: Saving money to spend later