Good to Great: How to Scale With an Outsourced CFO

Back in the 1990s, Robert Kiyosaki wrote a book called Rich Dad Poor Dad, which explained the basic principles of financial independence learned from his best friend’s father. It sold roughly 26 million copies and stayed on the New York Times Best Sellers list for seven straight years.

Why did this book resonate with so many readers all over the world? Did Kiyosaki say something unique and ground-breaking? Not really. Did he have exceptional credentials that leant weight to his teachings? Only his own experiences.

What made Rich Dad Poor Dad an instant success was the way it filled a void. Most people don’t learn about financial independence the way we learn about algebra and grammar. We spend countless hours studying the earth’s elements and the history of Australia, but we spend precious little time learning how to manage our cash flow and invest in our future.

Instead of hoping that our children come across a book that will teach them to be financially successful, we can start educating them now and then by the time they’re grown, they will be well-practised in good financial habits.

Still not convinced? In this post, we’ll look at several reasons you should educate your kids on financial independence.

 

The Early Years Count (Enormously)

Let’s assume 8 percent annual returns and an investment of $250 per month.

If you start at age 25, you’ll have $878,570 by age 65.

If you start at age 35, you’ll have $375,073 by age 65.

If you start at age 45, you’ll have $148,236 by age 65.

Those early years make all the difference in the world, but many of us fail to start showing interest in financial independence until our thirties or forties or even later.

Tip: Why not help your children to start investing before they leave their home. As soon as they start earning money of their own, encourage them to use a budget and set aside a percentage of their income for saving. Like everyone else, young people can gain confidence as they watch their hard work paying off in the form of investment returns. The earlier they catch this vision, the better off they’ll be in adulthood.

 

You Can’t Count On Others to Teach Them

An OECD Programme for International Student Assessment (PISA) showed that one-fifth of Australian 15-year-olds do not have basic financial literacy, including the skills to read a payslip and detect financial scams.

And unfortunately, financial literacy is decreasing, not increasing, according to the study. The Australian government has spent millions of dollars on programmes to educate young people about money, but what they learn in school doesn’t always translate to actions in their everyday lives.

They need their parents to make the connections between lessons learned at school and the way they live at home. Teachers can’t monitor students’ bank accounts or remind them to set aside funds for investments. And when it comes down to it, parents can set examples of how to control money instead of letting money control them.

Tip: Model financial independence at home by explaining your own investment goals and planning to your kids. Discuss finances and money regularly. If someone tries to scam you, walk your kids through the whole situation so they can learn to recognise such tactics. Help them to set their own goals, and provide encouraging follow-up. You might consider starting a matching program: if they save $25, pitch in another $25 to help them reach their goal faster.

 

You’ll Preserve Your Own Wealth

Australian children are staying with their parents much longer than previous generations, and a recent survey of 392 people across Brisbane and Sydney cites “finances” as the number reason.

Of course, parents always want to help their children when they run into trouble. But you may be able to prevent future crises by educating your kids about financial independence while they’re young.

When you help your children to be financially independent, you preserve your own independence as well. Most people don’t plan on supporting their children through their own retirements. Increasing your kids’ odds of financial success improves your future prospects as well.

Tip: Don’t wait until the kids are ready to move out before you teach them about renting. Do they know about deposits and contracts? Have they built emergency savings in case of job loss or unexpected expenses? If your kids plan on moving out when they’re 18, make sure they understand the ins and outs of renting when they’re 16 and 17.

Next time you meet with your financial adviser, consider bringing your kids along. Not only will they see that you take your finances seriously, but they’ll learn to make connections about concepts they’ve heard about in school and at home. To set up a consultation with one of our wealth advisers, get in touch with us at Altus.