(03) 9020 2905Marshmallows, money trees and managing risk. The first two are sexy enough to be easy sells to my DebtKids. The last one … just not so catchy, is it?
Marshmallows is about delayed gratification – “evil” scientist Walter Mischel’s experiment to see if kids could stay in a room without eating a marshmallow. Most kids scored an epic fail. The ones that passed scored two marshmallows and proved to be more successful in most aspects of life.
Learning to delay gratification is life’s most important money rule. It’s the absolute basis of saving. If you don’t delay gratification on some spending – that is, you spend what you earn every month – you cannot get ahead financially.
Once you’ve tasted a few bonus marshmallows, you’re ready to start growing money trees. That is, investing in assets that will provide you with, as Dire Straits put it, Money for Nothing.
Most quality assets produce reliable income. Interest, rent and dividends are known as “unearned income”, as you physically didn’t have to work for it.
Investments are money trees, particularly quality shares and property. Not only will the income (fruit) grow over time, but the underlying assets (trunk and branches) will grow bigger too.
The sooner you can get kids regularly investing (watering plants) into something – potentially a low-cost index fund – the better.
Managing risk means many things. One is diversification. Another is understanding your investment time frame and investing appropriately.
The more time an investor has, the more they should invest in shares and property, which will better create real wealth. And what’s the one thing kids have in abundance?
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and principal adviser with Castellan Financial Consulting.