'Undercover Billionaire' star: The smart way I teach my kids about passive income and investing

"They're never going to learn this in school."

Grant Cardone with his daughters, Sabrina and Scarlett.
Photo by Jonathan Heinsohn

On average, kids ages 4 to 14 earn $9.35 per week in allowance, according to the allowance and chore tracking app RoosterMoney, which surveyed 50,000 users in May. The most common thing kids spend their allowance on is online gaming, the survey found.

New York Times-bestselling author of "If You're Not First, You're Last" and the author of "The 10X Rule" Grant Cardone, who starred in Discovery's "Undercover Billionaire" earlier this year, is taking a different approach to allowance. "We trade money for things they do. When they get money, we don't actually give the money to them, we invest the money for them," he says.

Cardone invests the money for his kids in a crowdfunding real estate platform. For spending money, each of his daughters, Sabrina, age 12, and Scarlett, age 10, gets a portion of the profits. "They can spend only the passive income earned from the investment," he says. They can't touch the principal.

"What they're learning is: First, I got to earn money; second, I got to protect it; and number three, I gotta get it to multiply, which are the three basic simplicities of finance," he says. "They're never going to learn this in school."

He helps his kids learn about spending vs. saving ...

Each month, when Cardone's daughters receive their passive income checks, they can decide how to spend that money. "They can blow the entire $60," he says.

When he first started investing their earnings for them, there were times when they did just that: "Certainly there have been times where they have gone and blown it all, and there are times when they're like, 'Papa, I need another $7, I can't buy this thing.' That's a problem for a kid," Cardone says. "I don't solve the problem. I'm like, 'OK, well, I don't know what to tell you.'"

They know they have two choices. "They've either got to negotiate, which they have, by the way, or they gotta come home just like the rest of the world and say, 'Hey, I don't have enough money to buy that," he says.

To his surprise, Cardone's kids generally take responsibility after they realize they spent when they would have done better to save. "They're supercool about it, they're not upset. It's not my fault, they're not blaming me," he says.

Instead, they've come to recognize the power of investing, Cardone says: "They just came up to me the other day and said, 'Hey, can I just reinvest in the property?'"

... and about looking for ways to earn more

Cardone's daughters have become so dedicated to their investments, they're looking for new ways to earn money to contribute to their holdings. For example, Cardone recently held a property investing event with a crowd of 12,000 people. When he asked his kids to participate by giving a speech, they replied, "'Yeah, but what are you going to pay?'"

He took the opportunity to teach them how to make a business deal. "I showed them how a contract works. We signed the contract, which said you have to write your own speech, deliver it, work it out, and then I'm going to pay you," he says. As part of the deal, they had to take their earnings and reinvest it in Cardone Capital, "and then they get to wait for their check every month," he says.

Aside from giving a speech, Cardone has figured out other ways to give his daughters earning opportunities. They come into his office to answer the phones and check in with clients. All of those earnings get invested, too.

Disclosure: While this works for Cardone and his family, investing involves risk. Before choosing a similar strategy for your family it is important to understand your objectives, tolerance for loss, and the possible benefits or disadvantages of teaching your children about investing their allowances.

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