Can You Teach Your Kid To Be Rich?

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There is an ongoing debate about personal finance education in school. It sounds like a good idea, but multiple studies have found that financial literacy classes don’t really improve future behavior. It may be too much to expect an easy fix to such a complex problem.

As a parent, how do you best set up your kids for financial success? In the end, how can you really tell if you made a difference anyway? You can only try your best. My personal philosophy boils down to this famous proverb:

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

Some parents plan on giving their kids a big pile of fish. An inheritance. Real estate. A business to take over and run. That’s out of love, and I am not judging that choice. I might leave them something, but I’m going to tell them to expect nothing. Instead, I hope they will see that I put in a lot of effort to help them develop the tools to go out and “fish”, and that as adults it’s up to them to make money for themselves.

To be clear, this is not the only thing that I am teaching them. Good relationships with family and friends are more important than an early retirement. However, I have observed several specific traits useful in navigating the financial world. As a result, I want to help them:

  • Develop good character traits like self-discipline, gratitude, and perseverance. If they can control their emotions, have empathy for others, and endure hard work, it helps everything else.
  • Obtain quality formal education. If they are going to solve the world’s problems, they need a strong, wide base of knowledge. A solid education and good teachers can really inspire and change a child’s life.
  • Experience entry-level hourly work in the retail, construction, and/or food service industries. They should understand how hard it is to make a living without specialized skills.
  • Create their own business ventures. I plan on helping them start any kind of micro-business that they want. It might be even better as a non-profit, donating the proceeds to the community. Through this, they will learn basic accounting, marketing, and interpersonal skills.
  • Improve interpersonal skills. Across all of their activities, from school projects to extracurriculars (sports/arts/music) to starting their own business, learning how to work with others is key.
  • Feel encouraged to take calculated risks. There are many ways to take asymmetrical risks where the upside is huge and the downside is small. This especially true when you are young and without dependents. I want them to take such risks.

None of the factors above require a ton of money, although private schools can be quite expensive. The best option may be maximizing the public school options available. My parents rented a small apartment in a good school district, as they couldn’t afford buying an expensive house with high property taxes. I only realized this recently when I visited our old duplex and found a house down the street listed for nearly $2,000,000 (median price in this city is $370,000).

I do plan to contribute to a 529 plan and minimize student loan debt. Maybe college tuition will be more sane in 15 years, but I think this is the best use of cash right now – keeping them from having to fight the power of compound interest in reverse. (I also classify paying for education as “teaching them to fish”.) I want to show them that we value education and also strive to avoid debt whenever possible.

Bottom line. How does anyone get rich? Most people who got rich quickly had equity in a business venture. This takes a combination of specialized skill, interpersonal skills, risk-taking, and luck. Most people who got rich over decades got there with a steady career, work ethic, patience, self-discipline when it comes to spending, and investing the difference repeatedly. I’d be happy with my kids taking either path, and tried to think up a list of ways to help promote these traits.

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  1. I especially like “Experience entry-level hourly work in the retail, construction, and/or food service.” I did this for years and it is character building. I also read your blog for several years as I struggled financially, never getting anywhere with the things I tried. Then five years ago a business I started became successful and now, suddenly, I have millions of dollars.

  2. The by far biggest factor is -as usual- genetics and completely out of control of the parents (aside from passing on the genes). Also, genetics is the only systematic factor whereas environmental influences create random effects that can revert at any moment. This is why interventions such as financial literacy classes, Head-start etc. all fail. We choose the environment that best matches out genetic makeup. If you score high genetically on conscientiousness, you will create your environment to be successful with personal finance. If you score high genetically on intellectual openness, you will create high income opportunities in your life. If your kids score low in both areas there is not much you can do. Thus, success and failure are most often passed on to our kids depending on our own genetics, with the variability of randomizing the parents’ genes. So there is somewhat of a range.

  3. Jigar Shah says

    Excellent post!

  4. I think your idea of success is still very limited, financially and materially-oriented. It’s still a good starting point, sure we don’t want to be materially dependent if we want to be happy (but do we ever become completely independent – that’s also debatable). Why not teach kids how to define success for themselves? You mention patience, empathy, egoless work ethic, those are again the bare base minimum for material well-being that parents always worry about. Trying and failing fast and safe are definitely good points. I’d add seeking for more intrinsic values that truly make us happy, not merely what TV and blogs tell us what we should be happy with. Yes I think each child should experience ego transcendence and self-evaluation, which may require both self-inquiry and experience with failure of material happiness alone. I see many people successful materially yet unhappy or unable to get out of the programmed loop of the rat race. How would you teach to avoid those pitfalls?

  5. Denizen of Babylon says

    Entry-level unskilled job: YES!
    Starting their own micro-business: YES!

    But steering them in a direction in their education that will have an insane price-tag, and which will lead to them being saddled with a huge amount of debt: I fear that is teaching them exactly the wrong thing.

    Community college offers a truly useful education at a reasonable price. And public libraries offer a wealth of free educational materials.

    I think, in today’s world, teaching kids industry, self-reliance, and self-confidence better prepares them for success than anything they will learn or experience in a University environment.

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