What I tell my kids about finance
We have 2 kids one is starting his second year of post-secondary and the other is just finishing high school. In British Columbia we have a good public school system and have great teachers but there is very little in the curriculum about money, finance, or business. Not even the basics such as, credit cards, mortgages, or setting up bank accounts.
In my opinion, they should have a mandatory finance course that teaches kids the basics and introduces them to the more complex investing, finance and business knowledge they will need to be successful. I am helping my kids with the basics now for banking, credit cards and the importance of being debt free. As they finish their educations I will be helping them understand mortgages, tax planning, investing, and the importance of starting young.
When I was a teenager I read an article in the local paper about the power of compounding interest, and I have heard different variations of the story but they are all the same principle. The story goes something like this:
There was twin brothers when they graduated high school one went straight to university to become a doctor, the other brother went to work in the trades and after setting himself up at the age of 25 he started saving $400 a month until age 35, then he got married and had kids and never saved any money ever again. The other brother finished medical school and paid off his student loans and began investing $400 dollars a month from the age of 35-till he retired at 65. On their 65th birthdays the twins went out for dinner to celebrate their retirement and the doctor said to his brother since the age of 35 I have put $400 dollars away a month for 30 years, I got a 7% return and now I have $468,000 dollars in my account. The other twin looked at his bro and said that’s funny I have put $400 dollars away from age 25-35 only ten years and I have gotten a 7% return and I now have $521,000 dollars in my account.
This story has stuck with me over the years and despite the doctor contributing $144,000 dollars over a 30 year period, and the other twin only putting in $48,000 for the first 10 years. He ends up with $53,000 more it certainly shows how compounding interest works. I have put a top 10 list together that I think any young person should follow.
Top 10 list
1. never borrow against a depreciating asset (mortgages, education and business loans are ok).
2. once you have a full-time job, pay yourself first ( automatic at least 10% savings)
3. have a financial plan as early as possible and stick with it
4. use tax efficient accounts when ever possible
5. don’t put all your eggs in one basket, diversify your investments
6. keep your investment fees as low as possible (index funds & ETF)
7. buy sufficient insurance and don’t mix insurance with investments (for most ‘term’ insurance is best)
8. make a Will and update every time there is a major life change
9. seek professional help from a totally independent financial advisor.
10. always remember compounding interest. How time is on your side
11. spend less than you earn
Spend less than you earn and invest the rest is probably the most important key to financial independents. There is too many people who are indebted and it becomes a heavy burden on their lives. Occasionally it is from unfortunate circumstances that are out of there control such as, health issues or job losses. But, the majority is due to spending more than they earn.
Below is a 5:00 min YouTube video. “Mark Cuban’s Advice to High Schoolers and College Grads”.
If you are interested I have written a post Here about YouTube copyright policies.