Financial lessons start early in life

Bruce Brammall, The West Australian, 26 March, 2018

Mother and daughter in the office. Isolated on white background

Last week, my little DebtGirl’s head was spinning Exorcist-like at her daddy – full of vile and bile – for about half an hour.

Moments of it might have been truly scary to an outsider. Neighbours might have been tempted to call the cops.

I was, apparently, the worst dad in the world. Worse than Homer Simpson crossed with Married With Children‘s Al Bundy. Why? Because I made her eat half a banana.

Yes, half a freakin’ banana.

“WHY ARE YOU DOING THIS TO ME, DADDY!?” “YOU’RE A BAD DADDY!” “SHUT UP, DADDY!” Each line over and over again, through screams and sobs.

Now, why would I do that, when she’s refused to eat bananas since they were once one of her favourite foods, about five or six years ago?

Firstly, because I love her to pieces. Secondly, because she’s been allowed to build up stupid mental walls around silly stuff, like “I don’t like bananas “. Thirdly, because my parents taught me better.

I’m not handing out parenting advice on eating habits. That’s just us and our kids. You’ll make your own food decisions with your kids.

I’ll stick to my knitting – financial advice.

So, why should you teach your kids good money habits?

Firstly, because you love your kids to pieces. Secondly, because too many people build up stupid mental walls around silly stuff, like “I don’t understand money”. And thirdly, because either your parents taught you better, or you wish they had taught you better, when it came to money.

My kids are just beginning to learn about money. They have bank accounts that money is put into when they receive it as presents. They get a bit of money to spend on presents for others. And to spend on hot chips or lollies.

They know that their dad helps others with money.

But I really want to teach them the universal rules of money.

I reckon there are five. If I can get them to understand the first four as children, I’m hoping they’ll remember them forever.

Rule 1: Delayed gratification

If you don’t spend it now, there will be more for later. If you can delay the gratification of spending it now and put it in a bank account, or invest it, the chances are it will grow for your future.

Teach your kids to save, at least something, of every dollar they receive or earn. Sometimes you have to draw on savings, but if this is made the exception and not the norm, they will develop good saving and spending habits.

Rule 2: Risk v return

You can put your money in a bank account, or you can invest it.

The sooner kids are taught about the potential power of the property and share markets, the better. There’s no harm in kids learning about the roller coaster ride of shares from an early-ish age. Such as an listed investment company (LIC) with reinvested dividends.

Rule 3: Compounding growth

Investments build over time. Teach your kids rules 1 and 2, and then help them see the benefits over the long term.

But for kids, “long term” is two weeks. The only thing that’s going to compound well in two weeks is the mould on the sandwiches at the bottom of their schoolbags.

Financial compounding, unfortunately, takes years for real benefits. And current bank interest rates provide only a poofteenth of interest compounding on a poofteenth of interest. So explain how growth of 10 per cent on $100 makes it $110, but 10 per cent growth on $110 makes $121, or growth of $11.

Rule 4: Diversification

Probably for their late teens. But show them how to purchase their first managed fund, or LIC, giving diversification against their savings holdings. While one is growing slowly and steadily (cash), their share-based holdings will fluctuate a little each week or month.

The fifth rule isn’t rude, but it is certainly “Adults Only”.

It’s the “power of leverage”, or borrowing money to invest, most easily explained by property. You pay $600,000 for a property, but you borrow, perhaps, $500,000. After five years, the debt is paid down to $470,000, but the value of the property has grown to $765,000 (5 per cent compound growth).

I followed up DebtGirl’s banana with a banana smoothie – one of life’s sweet pleasures. Now that went down a treat.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial advisor and mortgage broker. E:

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