raise children to be investors

Pause for a moment and consider what makes a good employee. Obedience? Check. Willingness to work long hours creating wealth for someone else? Check. Accepting a job and income controlled by others? Check.

Now think about what makes a good entrepreneur. Creativity. Independence. Self-discipline. Motivation. Courage and willingness to take (calculated) risks. The ability to inspire others to share your vision.

Which kind of person would you rather your children grow up to be?

To be fair, there are times in every person’s career when they should work for someone else. Perhaps building valuable experience, perhaps pursuing a passion, perhaps positioning themselves with contacts and skills. There are also some character-building lessons in learning how to take criticism, how to work as part of a team, how to check your ego at the door and listen to others.

But that doesn’t mean we should raise our children to be yes-men and good little worker bees. The days of long-term job security are several decades behind us in the 20th Century. Today’s young adults have an average of four jobs between the ages of 22 and 32.

Rather, we should prepare our children to forge their own path in the world, to create and build something beautiful of their very own.

So how can parents raise their children to be good entrepreneurs?

 

1. Instill Fiscal Responsibility

Before you can invest money, you have to learn how to budget and save money to invest. So before you teach your kids anything else about money, teach them that a sizeable portion of every incoming dollar goes toward the future.

Start with cash, and create basic budgets with your kids. That doesn’t just mean allowance and chores, it also means they must have expenses.

Does it sound cruel to charge a ten-year-old rent? They need to get the hang of budgets, and budgets have expenses, not just income. If a full allowance for all their chores comes to $20/month, perhaps their rent is $5/month, and perhaps they owe something like 1% of the grocery bill and entertainment costs. This teaches them multiple lessons, including that nothing is free in life – if they want to go see a movie, it’s has a cost associated with it (however small).

When they understand basic concepts about money coming in and expenses going out, you can then move on to the idea of investments, returns and passive income.

 

Teach children real estate investing2. Develop an Investment-Oriented Mindset

As Robert Kiyosaki is fond of saying, the poor and middle classes work for money, while the rich have their money work for them.

If you haven’t already done so, open a checking account for your child. This will move the idea of money from a concrete, physical thing to a more abstract concept (which in fact it is). Start having them pay their “bills” to you electronically, by sending the money via ACH.

Then you can introduce the idea of investment and passive income. Show your children how, with investment, more of their outgoing expenses can be covered by passive income from investments. With more investment comes more inbound money… that they didn’t have to lift a finger to earn.

Have them invest both in dividend-heavy stocks/funds and in a real estate loan… to you. This way you can pay them a guaranteed return, so that even if their stock pick drops, they’ll be sure to learn the lesson that investment does pay (even if you have to rig the odds for them in the beginning).

Maximizing the money out in the world working for you, to create passive income – this is a profound lesson that most adults don’t fully appreciate until much later in their lives.

And speaking of Kiyosaki, he has a game called CashFlow that can be a great tool for helping children learn and internalize this lesson. Problem-based learning will also help them with the next set of skills they’ll need to master.

 

3. Teach Flexibility

By one estimate, nearly two-thirds of today’s students will work in occupations that don’t exist yet. So even kids who grow up to be career employees will need to develop mental flexibility.

How do you prepare kids for careers and industries that don’t exist? You develop their soft skills: collaboration, public speaking, critical thinking, excellent writing, debate, data analysis, social skills.

Most of all, try to develop their lateral thinking. Problem solving, creativity, thinking outside the proverbial box. They’re going to need it for the unforeseen challenges of tomorrow’s world.

 

4. Demonstrate the Power of Leverage

As your children grasp the concept of investment, begin to show them how they can leverage other people’s time and other people’s money to work for them. Help them up start doing some low-skill job for the neighbors, such as mowing lawns. As they develop a client base, wait until they start complaining about how much time it’s taking from their weekends.

teach children financial skillsThen ask them how they might work less, while adding even more clients. They probably won’t come up with the answer right away, but keep nudging them until they come up with the answer on their own: hire other kids to do it for them.

Once they’ve made that cognitive leap, support them as much as possible, but let them “hire” the other kids on their own. Give them tips on negotiating pay with their workers. Help them with their bookkeeping, but make sure they do it themselves.

If they want to expand beyond the neighborhood, or need more equipment, negotiate rates with them for driving them around to other neighborhoods, or for financing another lawnmower. It doesn’t matter how little you charge them for these services, as long as you charge them something. Drivers and lenders don’t work for free in this world!

 

5. Share a Real Estate Investing Project

When your children reach their teenage years, they’ll be ready to learn some even more advanced lessons about entrepreneurship. Lessons which can be learned through a collaborative real estate investment with their old man or old lady.

Make them a junior partner, and have them put some of their own money in the investment. Go out shopping for the investment property together, and whenever possible encourage them to demonstrate what they’ve learned.

When you’ve found the right property, work with them through every stage of the deal. Negotiate the purchase price with them present. Borrow or raise capital with them at your side. Have them do physical work on any renovations (even if you outsource repairs, have your child go work with the contractor to get some hands-on experience). Make sure they help you stage the home or prepare it for sale or rent, and work with the listing agent. If you’re leasing the home, have them help you list it for rent, screen applicants and sign a lease agreement.

And when the profit comes, make sure they see at least a fair share of it, and maybe a little more.

Your teen will get experience evaluating investments, working with vendors, negotiating, raising capital. All valuable lessons for a budding entrepreneur and leader of tomorrow.

 

6. Teach Them the Rules of the Tax Game

Financial success is a game with specific rules, and nowhere are those rules clearer than in tax liability.

As your kids reach adulthood, show them how to minimize their tax exposure by utilizing tax-free vehicles like retirement accounts. Explain the rules of maneuvers like 1031 exchanges. Show them how to take advantage of deductions like a home office and travel expenses without breaking the law.

Perhaps after college they’ll even come join you to do some more real estate investments and build an empire of their own. You may start out as the senior partner, but if you’ve done your job right, you’ll find yourself a junior partner in short order.

After all, we know real estate investors are doing far better than the average American. And not just financially, either; a full 70% of American workers feel disengaged from their work. And who wants to work 47 hours/week doing something they hate?

Do your children a favor, and show them the shortcut out of the rat race.

What kinds of experiences have you had with hard money loans? Do you usually use a local lender, or a larger national firm?

 

 

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