Personal Finance: Three Timeless Wealth Concepts to Teach Your Kids
Have you ever wondered why the rich get richer? Some say it’s because they can tap into greater wealth in each successive generation. However, for many, the real reason is that the rich teach their children financial skills that will stay with them for life. These skills are then used with greater skill in each successive generation, leading to skyrocketing wealth.
Therefore, this article highlights three wealth concepts that you can consider imparting to your children at a young age to give them a financial head start in life.
#Concept 1: Good debt and bad debt
Many people are drowning in debt today, and on the other hand, some people stay out of debt as much as possible. A more balanced approach is needed. Debt is important in our economy as it is used to finance large projects. Therefore, the key is to learn the difference between good debt and bad debt is the purpose for which it is used.
For example, credit card debt is bad debt when used to buy consumer products that are depreciating, while credit card debt can be good debt if you can use it to buy real estate and start getting a cash flow. cash from the difference between the monthly rental income and the monthly mortgage. mod cons. So teach your child how to use debt wisely.
#Concept 2: Cash Flow and Capital Appreciation
Many people cannot tell the difference between these two concepts. In general, there are two types of financial instruments and some intermediate hybrids. Most financial instruments are capital appreciation instruments, which means that when the price goes up and someone buys from you when you sell the instrument, you make money. (eg stocks and shares) Therefore, the principal (the principal sum you paid) has increased in value, hence “Capital Appreciation”.
On the other hand, there are instruments that give you a cash flow, that is, a part of the profits. Examples include real estate investment trusts and other mineral rights trusts such as oil trusts where you earn a portion of the monthly oil revenues. These instruments are great when you get a large enough sum out of your capital appreciation type instruments and put some of the money into them to use cash on a monthly basis. Children should be taught this difference early in life so they can begin to learn how the free economy works.
#Concept 3: Take charge of your own money
Fund managers and analysts love to tell you how they performed in the market. In reality, fund managers make money by managing your money. That is, they charge management fees or investment charges and not whether your portfolio makes money or not. This means they can mismanage their money and still get paid.
Studies have shown that, at the end of the day, many fund managers at the end of the day can do no better than an individual at stock picking and give rise to the report that monkeys throwing darts at random stocks on a dart board they can actually do well. better. So teach your kids to start learning more about investing and taking charge of their own finances and making their own investments.
In conclusion, teaching kids about finances at a young age is great, and in fact, some of today’s brightest money managers talk about their fathers and grandmothers analyzing stocks in front of them when they were little. Start teaching young children how to manage their own finances and how to understand how the modern economy works and they will grow up better positioned to manage the financial world out there.
Copyright © 2006 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author information with live links only.)