As per the global pyramid of wealth showing the global wealth distribution in 2020, 45.8% of the world wealth was controlled by only 1.1% of the people while 55% of the population was having only 1.3% of the world wealth. Based on the report of "Economic Mobility in the United States", it concluded that parental income has outsized influence on children's economic future. Hence, it can be said that family financial condition does have great effect on the children's financial future. Kids are our future and I guess all parents want their kids to succeed in life. However, succeeding in career but struggling financially will still equivalent to failure in life, agree? Let's review the 3 concepts that the rich teach their kids which the middle class or the poor don't to understand how to make our kids having better financial future and avoid the common mistakes.
Concept 1: the rich educate their kids about money at very young age. Warren Buffett once said before that he thinks the biggest mistake parents make when teaching their kids about money is that parents wait until their kids are in their teens before they start talking about managing money. Instead, they could be starting when their kids are in pre-school. Researchers have noted that 80% of our brain growth happens by age 3 and the kids are able to understand basic money concepts between age 3 and 4 and by age 7, kids would typically develop the basic concepts relating to future financial behaviours. Many parents might have known how important to teach their kids about money, but they did not take action at all until when the kids grow up.
Warren Buffett helped launch a children's animated series called "Secret Millionaire's Club" in 2011 to teach his family kids. Even the philanthropist Li Ka-shing exposed his own children to business when the children was only 8 – 9 years old. The middle class or the poor think that the children do not need to understand about finance in young age which they can learn more when the children grow up. Many parents put more focus on getting their children to study hard in school because they believe study hard in school can provide better financial future for their children.
Concept 2: the rich teach their kids about the difference between value and price. Each item comes with its value and there is a reason why an item will be expensive or cheap. Many parents nowadays just tell their kids that certain toys are too expensive, so the parents are not buying instead of explaining the value. This will make the children confused that money management is all about the price tag. When the price tag is high, it means they cannot have the item, or they need to work hard to earn more money to have it. Instead, these kids should be educated why certain things are more expensive than others and understand how to compare prices to search the best deal for a specific product.
Concept 3: The rich are donating most of the wealth they created to the charity as they believe their children will be able to build their own wealth. The few top billionaires such as Warren Buffett and Bill Gates are giving away majority of their wealth to charity. They let their children understand the importance of creating own wealth than depending on the money created by the family. On the other hand, many kids nowadays are not being taught to give away some of their monies to others. Instead, kids are being taught only to save. When I conduct kids finance workshop, I will surely see 1 or 2 kids keeping 100% of their money who do not want to spend or donate. Perhaps they feel that keeping the money makes them feel safe. However, we do need to educate our kids that money is just a tool. If all monies are to be kept only, the kids might turn into a money slave which worship money too hard.
So, what I have shared are the major 3 concepts how the rich teach their kids. Hope that you can follow and avoid making mistakes again. If we don't teach our kids correctly in finance, the police, thieves or scammers will. Protect our kids by getting them the right financial knowledge early!
Watch the video for the same topic here.
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