Tips & Lessons Learned from National Lemonade Day

National Lemonade Day is right coming up on May 6th.  It was launched in 2007 by Michael Holthouse in Houston and last year it was brought to Bryan/College Station for the first time thanks to some great local sponsors.  The purpose of Lemonade Day, according to their website, is to provide a free, fun, experiential, business education program that teaches youth ages 5-17 how to start, own and operate their own business using a lemonade stand. The kids set up a stand for the day and sell as much lemonade as they can. They are encouraged to make and follow a budget, find an investor, chose a good location and sell as much lemonade as they can.  When I learned of the event last year I thought to myself we just have to do this!  It was going to be a great opportunity to validate the founders concept, support the local sponsors of the event, teach my 6 yr old son Sam the key elements of running a successful business and most importantly show him a tangible difference in a job (earned income) and an asset (passive income). While we had talked about the difference several times before, this would be a way for him to live it and experience it at the ripe old age of 6.    

Suspecting this was going to be a lot of work, I got my son's absolute and enthusiastic buy-in as step number one.  He loves lemonade and loves making money.  As far as he was concerned why wouldn't you have your very own lemonade stand? So we went to work. Through the process these were our take aways and hopefully they will help you if your family embarks on a lemonade stand.     

1.  Marketing: what I like about lemonade day being done all in one day is that it magnifys the concept of competition.  Having the best lemonade recipe, the best designed stand or the cutest kid (I'm possibly biased) would all get lost in the hundreds of stands the day of the event.  We developed a three-part marketing plan to try to drive traffic to our stand.  

• First, we decided we needed something other than lemonade as a draw that we could afford. Luckily for us, a close family friend offered the use of their motorized train to give kids rides through the park which was more than we could have asked for. 
• Secondly, created a Facebook page and documented Sam's journey leading up to the day. I would read Sam the comments and he would help come up with responses, since at the time he could not read. From our Facebook page, we got a GREAT idea from out of town friends of ours who own a marketing company. They suggested we sell lemonade on our Facebook page for friends and family who wanted to support the stand but could not be present to buy lemonade. It was a hit. It was also rewarding when the page was found by a teacher that was preparing for lemonade day with her class.  She gave Sam some very positive feedback.  You can check out his page at www.facebook.com/SamLemonadeStand. 
• The third piece of our marketing plan was the most effective but by far the hardest work. Sam hired two employees(cousins)and blanketedthe neighborhood introducing himself and handing out around 150 fliers. For a 6,8 and 11 yr old this sounded much more fun than it actually was! However it paid off. Probably 80% of our customers were from the neighborhood fliers. With the purchase of a glass of lemonade you got a free train ride. This got us repeat customers and made some of our lemonade stand competitors customers!      

2.  Get creative to keep cost down because margins are THIN!  The goal of the lemonade stand was to teach Sam how to run a business, so there were no free rides. We kept every receipt and Sam paid all of his employees. Sam would only make money if there was some left. The largest expense items were the stand, ingredients and employees.

• A tight budget immediately eliminated the grandiose idea of a 3D lemonade stand in the shape of a lemon. Even if dad made it, there was not enough money for materials. The stand ended up being a borrowed pop up canvas, borrowed tables, homemade poster board signs and our patio furniture under trees for customers to hang out.  
• Sam wanted to hire everyone he knows to help with his stand!  We had to talk about what we would pay each one and how many glasses of lemonade he would have to sell just to pay for each person.  We walked through what he needed from his employees and backed into who to hire. 
• Sam went to local businesses to get sponsors for ingredients.  Because his stand was a for-profit business and not a non-profit, it eliminated several larger business right a way.  So we focused on smaller, locally owned businesses and were able to secure lemons and ice in return for advertising them at the stand.

You may be reading this saying, "He must have made hundreds...right?"  While the day was a success and we sold out of lemonade at the end of the day, selling 277 glasses of lemonade at $1 each (vs goal of 250).  His expenses totaled $131 dollars so Sam made a profit of $146 (vs goal of $101).  While $146 is nothing to sneeze at, it was a lot of work for a onetime profit of less than $150.  

The Lessons:

The greatest lessons of lemonade day came from our discussions after all the work was done.   The greatest two lessons were:

1.  Selling lemonade at a stand is a job, not an asset.  An asset puts money in your pocket even when you are not there. Assets versus jobs is a concept I have talked to my son about on several occasions, but this was an opportunity to apply it to him.  I had a conversation with him that went something like this to confirm he got the concept.

Me:    Was working your stand a lot of hard work?
Sam:  Oh yeah!
Me:    Did you make a lot of money?
Sam:  Yes ma'am
Me:    How much money will you make if you are not at your lemonade stand selling lemonade?
Sam:  None
Me:    So is it a job or an asset?
Sam:  Job
Me:    Why?
Sam:  It doesn't make money if I'm not there.

  

It was a very simple conversation, but it illustrated the difference between a job and an asset.  Be sure to take opportunities to point out "how money works".     

2.  A person does not get rich based on how much money they make but how they spend the money they make. When our kids want something we often encourage them to save up their money or do more chores to earn the money they need to buy what they want.  We are teaching them to get a job and work hard for money to give themselves the ability to buy what they want.  This is conditioning them to join the rat race.  The reality is that if a kid makes $10 a week in chores and buys a toy for $10 every week they will always be broke.  If they make $100,000/year in salary and spend $100,000 a year in expenses, mortgage, cars, boats and a lake house they will always be broke.  On the other hand, if the $10 is used to buy assets they will have ongoing income from those assets to buy toys.  That is how they make money work for them.  When your child makes money on their lemonade stand encourage them to use the largest piece of that income to buy assets (see tab "Ways Kids Make Money" for asset ideas).  This will set them on the path to financial freedom.   

If your kid has a successful lemonade stand and uses the money to buy assets, drop me an email and share their story!

The Gift of Disney

Having young children, we are in a season of life where we are invited to many birthday parties. Kid parties are much more complicated than they use to be. What happened to the days of having your best buddies over to the house and playing for a few hours? Now days it involves renting a venue that can keep the kids entertained for a few hours, providing food and paying for the entertainment, and supplying gifts to all the attendees.

This is the perfect recipe for large birthday parties. What kid wouldn't want to play games at Chuckie Cheese, brave the foam pit trapies, or defend their lazer tag title? On top of that the birthday boy goes home with more toys than he or the parents know what to do with!

Our challenge and opportunity should be to find a meaningful gift. Disney is an amazing company that has made millions of movies and toys for kids for many generations. They have made one gift that never goes out of style, provides an opportunity to teach kids financial concepts they are otherwise not exposed to, and can provide ongoing income. I am not talking about Mater, a Disney Princess, a movie or some other toy that will be broken, duplicated or soon forgotten about.

The best gift Disney ever made is Disney stock. Next time your shopping for a birthday gift, think past toys, dolls, and remote control cars. Leave those gifts up to the others and think about giving a gift that amidittedly may be underappreciated at the time but can set a child on the right path of achieving financial freedom.  

Is that an Asset?

Which of the following is an asset?

a.       Lemonade Stand

b.      Gumball Machine

c.       Your House

One of my favorite definitions of asset is it puts money in your pocket even when you’re not there.  It is easy to remember and easy to apply.  Let’s walk through each of the options listed above.  Let’s start with your house.  Many American’s consider their home their greatest asset, but according to our definition, your house is not an asset.  As a matter of fact, it is a liability.  Every month it takes money out of your pocket.  Even if debt free, you still have maintenance, utilities, and insurance to pay for.  While your lemonade stand can make you money, it only makes you money if you are present working it and selling lemonade.  Your lemonade stand is a job, not an asset.  The gumball machine puts money in your pocket whether you are there or not.  It is the only asset of the three.

So how do you turn your home and lemonade stand into an asset?  Rather than running your lemonade stand yourself, you set up several around town and hire employees to run them for you.  This converts the job into a business.  The house can be a little trickier, but personally we have made an attempt at it. We rent out our barn apartment and some of our horse stalls to bring in monthly income.  While it doesn’t cover all the expenses related to the house it does reduce the impact of the liability.

Brainstorm with your child how she can turn things around her into assets.  To get the creative juices following, here are some things we have brainstormed in our house to help our son build his assets:

1.     He used his earning from last year’s lemonade stand on National Lemonade Day to purchase a gumball machine, which he then placed in a local business.

2.    We wrote and self-published an eBook on Amazon.com to teach children the concept of income.  You can check it out here A Day At The Carnival

3.    He has taken proceeds from his vending machine business to buy baby goldfish and grow them in our horse troughs to about 6 inches long and then sells them to others to put them in their water trough to eat the mosquito larvae and keep algae down.      

Do you have examples you can share?  I would love to hear them! 

Welcome to Financially Savvy Kids

Welcome to Financially Savvy Kids.  Our goal is to equip parents and kids with knowledge about how money works.  Public education does not teach our children what they need to know about money.  Society teaches them to buy what they want through debt and then work hard to pay for it. This vicious cycle typically starts before they are out of college and unfortunately, once in this cycle it can be very difficult to climb your way out, much less get ahead.  Breaking the cycle, once in it, takes great discipline.  Again, a concept counter intuitive to society’s teachings.    We want to educate kids about money BEFORE they fall into the trap.

For instance, you were probably raised with the idea that you should work hard to get good grades, go to college and get a high paying job. I would venture to say most of us want that for our kids today.  This path jump starts the cycle mentioned above and puts our kids at a great DISADVANTAGE. 

1.  As a reward for all their hard work and for securing that high paying job, they will buy a house, get a new car, and acquire a new wardrobe that will make them look and feel like a million bucks.  They are feeling pretty good about their money management skills because they have two new “assets” in their house and car, and they even throw a little money into the company 401K.   In a matter of a couple of months their entire paycheck is allocated to expenses, many of which they wrongly believe are assets, to support their new found and richly deserved lifestyle.  And so the cycle begins.  The ground work is laid for a lifelong pattern of dependency. 

2. They are thrown into the highest tax bracket and once the impact of that is realized, they begin spending money on things they think are assets to reduce their tax bill, such as golf clubs, boats, R.V.s and a second home.

3. All creativity and any entrepreneurial spirit is squelched by the realization that without the pay check they have grown accustomed to, they will  drown in their own expenses, and they are lured into believing working for a paycheck equals security. 

I am getting cold sweats writing this, because it is the exact path that I took.  About 7 years into my professional career and shortly after I had my son, I decided to take on the daunting task of breaking the cycle and replacing w-2 income with investment income.  It has been a long, slow and at times scary process.  I am not seeking a path of lavish luxury and wild riches.  What I am after is even better...financial freedom.  The ability to spend my time with my family, doing the work that I want to do, having the financial capacity to give to my church far and above my ten percent tithe, and to give my son a different example than what he sees among  most of society.  I want to teach him how to make money work for him rather than being a lifelong slave to money!

Through this blog we will share fun and easy ways to teach our kids about making money, spending money, creating wealth and giving back.  We hope to create a forum where you will share what you are doing to teach your kids about money for the benefit of our readers and together we can pull out the entrepreneurial genius in our children!