While I wouldn't say that I was wealthy at all, we are comfortably well off and still owing a shed load of dosh. A long way to come for a refugee’s son in an extremely poor family indeed. Everybody thinks that their upbringing could have been improved upon. I would have liked being spanked and beaten up a bit less (heh!), but more seriously, I never got any education on how to manage wealth. My father used to complain about how much I would spend (still does), but his idea of investing and financial management was to have it all either in gold or in a savings account or land. Never got taught on how to manage wealth. As it so happens, I do think that most kids in the world do not really get this education either, although the situation is changing.
So I figured that as soon as my son will be ye high, will start his journey towards financial independence. So it was a multi pronged approach. First was to invest the Child Benefit which every child in the UK gets. So that is invested in a mutual fund and assuming 10% conservative growth, over 18 years, he should have a tidy sum of about 46k, enough for a nice little deposit on his first house. Second child onwards, you only get £53.6 per month which means that my little girl will only have £31k at the end of the 18th year period, so we bump it up to equalise.
Second was to open a savings account for both the kids when they are 6, and make sure that they contribute about 30% of their pocket money into the savings account. Not much, but the idea is to get them into the habit of making savings. Once they are 18, then will make sure that that gets converted into a pension fund. He seemed to have a reasonably good grasp of commerce from a relatively young age, here he is selling his old toys to the neighbourhood kids when he was 9 years of age. If I remember correctly, he made about £15-20 from the sale. He did it all himself, printed the fliers which were posted to the 40 houses around the green, went and stuck up the posters, and then ran the sale.
Third was to get my son to start learning about investments, my daughter will hopefully follow the same track with enhancements. So when he was 12, I gave him a copy of the bible of investments, The Intelligent Investor by Benjamin Graham and The Little Book that beats the Market by Joel Greenblatt. Since then I have been giving him other books such as on Warren Buffet and Rich Dad, Poor Dad. Had to very patiently explain the concept of values in the financial markets, what does ownership mean, what does price mean, how does company earnings translate into personal earnings, the importance of the P/E ratio, the importance of dividend yield, when to go for blue chips and when to go for penny stocks, the impact of FX, and so on and so forth.
Till he was 13, he was learning these things very gradually. Then he started to play a fantasy portfolio and I started to give him a hundred pounds once a quarter to get him started to invest. It was a very bad time in the markets last year, they were tanking badly and almost all the stocks he would invest in will head straight south, but his ideas were sound. I think he learnt a good lesson right at the beginning, that losses do occur and one has to have the balls to survive and ride out troughs in the market. He would invest in things like commodities, utilities, etc. So Now I am starting to feed him the official RNS reports, the annual reports, the analyst reports from the bank and any other news item that I find, give him my bits and bobs and thoughts, so that he picks up the idea that he needs to understand where he is going with the investment. Not doing too badly, over the past one year, his return has ranged between 40% and 15%, annualised its about 25%. Not bad at all. His dad made some stinkers of decisions as well, investing in Woolworths and Cattles so he is doing much better with his stock pics.
Finally, encouraged him to start thinking about earning money. So he would purchase sweet rolls and then flog them to his friends individually. So buy a roll of 10 sweets for 50 pence and sell them each for 10 pence. He also got paid £100 for making my wife’s website. Its pretty basic, but its a start. His career expectations and aspirations are all over the place, sometimes he wants to be a footballer, sometimes work as a stock broker, sometimes as a software programmer, etc. etc. Anyway, I dont have a view on what he should be, its up to him. I just need to make sure that he knows how to manage his financials. I keep on hammering the quote at him about compound interest being the strongest force in the world (an urban legend that it is a quote by Albert Einstein actually!). So asked around and got one of my friends to agree to take him in for a week or two in his software shop so that he learns how a software company works.
Separately, he came to me and said, Baba, I want to earn some money over the summer holidays and want to do a paper round. This involves school children working for news agents and using their bike, go about delivering newspapers at various subscribers. They get paid 2-3 quid per day for this. So I sat him down and talked to him about the power of leverage and bird and bees. Well, the former at least, I think he knows more about the latter than I do. So I told him how he can get others to work for him, gave him an example of doing web design for the neighbours, make up better websites for them to blog, share pictures and the like. So he is busy learning how to do proper coding after I passed some good tips from my tech guru friends. I hope he picks this up in the summer but no pressure, hope that will work out for him. No harm in him running a business and learn how to manage others. Also, couple of other things that I am working on should give him some investment options as well. So that’s under progress. Before you think he is turning into a boring old git, he is a keen footballer, loves to cook with me and has an interest in food,and I think he has a girlfriend. Plus he is studying hard at school, got a bollocking from me for having got some relatively low numbers on Religious Studies and Arts.
Hopefully when he turns 18, he will have a reasonably good net worth under his belt. He can use that for his education, to setup a new business and to buy a house. This started as an experiment, an experiment to see if one can use a basic set of resources in terms of education and a bit of cash flow to set kids up on their feet when they become adults rather than debt ridden well into their 30’s for their initial funding itself. If he can get to 31 and have all his basic life requirements (wedding, undergraduate and post graduate education, initial career, housing and car) paid for, then I think I will count myself as successful in giving him the right education, resources and tools as a parent.
Why am I writing all this? Because I read this article today and thought of jotting my experience down. I go about teaching young kids in various universities and tell them this constantly. Am also working with SIFE at LSE to further push the idea of investing out into the British education system. This isn't taught in the schools or in the universities either. The sad thing is that very few people listen and invest but the good thing is that more and more people are listening. But this doesnt mean that I have all the answers. What am I missing? Or better still, what have you done with your children to teach them about financial management and responsibility? Lets share experiences then :)