The most frequent question I get:
"How do I raise wealthy children?"
The foundation of my answer comes from 'The Millionaire Next Door' by Thomas J. Stanley which talks about a concept called "Economic Outpatient Care".
EOC is the money that parents give to their children, which according to Thomas, can cause financially reliant adult children.
Thomas says that:
1) Gifts lead to further consumption rather than saving and investing—for instance, a gift of a down payment on a house in an expensive neighborhood can trigger more spending to keep up with neighbors’ lifestyles and further dependence on parents.
2) Recipients feel entitled to spend their parents’ wealth (they don’t distinguish between their parents’ wealth and their own), yet see themselves as independent. Two-thirds of adult children who receive gifts or subsidies from wealthy parents believe they succeeded on their own.
3) Adult children who receive gifts run up significantly more credit than adult children who don’t get parental gifts. They use credit to fill cash flow gaps while waiting for gifts or an inheritance.
4) Gift recipients invest much less money than those who don’t receive gifts. Most gift recipients are spenders, so they have little to invest. Exceptions are adult children who are teachers and professors—they tend to live more modest lifestyles, and if they receive gifts, they’re more likely to invest them.
I've had many parents (who financially support their adult children) give me a lot of slack for this information; but, the question keeps on flowing in "How can I raise my children to be wealthy?"
My mum raised me to be independent. When I first got my license, I asked if she would help me buy a car. She said no. She explained that it wouldn't help me to understand the true cost of buying and maintaining a car.
So, off I went to work for a further 6 months to save up enough money to buy my own.
And, oh boy - this was the best thing ever. I learnt so much and I cherished that initial car like it was gold.
Why?
Because to me, it was!
So - what should we teach our kids about money?
1. Financial Literacy - teach them how money works, how do markets operate? What is the difference between saving and an investment? What is good debt? What is bad debt? - you know the go...
2. Teach them that you are here to be their supporter, but that they will have to work hard and smart to achieve their financial goals.
Here's a podcast episode on this, if you want to hear more: https://open.spotify.com/episode/6YM8lRAg3U940JI4AiGHqK?si=TbJZcZFNT0O7jTWh2Q09Ig