Teach You and Your Child to Fish...

There is no better time to put financial literacy on the agenda for both yourself and your children.  As the saying goes "give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime".  Teaching your children about money sets them up for the future. Ensuring you are investing in your financial literacy, gives you the means to better live the life you are looking for.

Today, we have a special treat.  A guest post from the experts at CodeWeath Property Investment Advisory. 

Kids learn to ‘save’ – Parents learn to ‘invest’

One of the greatest gifts we can give our kids is to teach them financial literacy, and one of the greatest gifts parents can give themselves is the education to invest for the future. Building the foundation early in kids can be easy and therein developing the right behaviours into adulthood, even easier.   
 
Parents are hands-down the most influential figures in regards to their children’s behaviour with research showing this also extends to money management. Even the wisest financial lessons won’t shape your children’s habits if they don’t observe YOU making fiscally responsible decisions. A perfect example is using a family budget to understand what income comes in, what expenses go out, paying bills on time and to demonstrate the need to save for life’s pleasures as equally as for any unexpected events.  
 
Five (5) important financial values critical for kids to learn;

1. Responsible spending                                                                   
The first concept is that people buy things with money. An increased use of credit cards, internet banking and online shopping means kids often don’t see actual money being exchanged for purchases. Even from a very young age shopping trips should be used as learning experiences.

We all know kids want everything (and want it now!) As kids mature they should learn the difference between their needs and wants. Once they have their own money, learning to differentiate between needs and wants will be a process of trial and error – and there will be plenty of mistakes along the way. The hardest part for parents is resisting the temptation to bail them out when the piggy bank is empty!
 
2. Work/Money connection
​From a young age, children should understand money comes from work, not mum and dad’s pocket or an ATM machine. Begin by explaining why you work, i.e. to make money for the family to buy things you use every day and to save for the future. The best way to help kids make the work/money connection is to pay them pocket money for chores. Kids under six need to be rewarded immediately for the work they have done to make the connection. Older children can receive regular payments so they can learn to budget. One idea is to provide two different containers so they can split their money – spend & save. This reinforces the two ways to divide (and appropriately allocate) their income.

3. Importance of saving 
Kids under seven cannot really comprehend that one day something may happen and they may need money in reserve. This doesn’t mean they cannot get into the habit of saving. Identify things they want and help them set up a savings plan to get them. Kids love instant gratification so they need to learn about the pleasure of delayed gratification! Once they are older enough to understand the concept, open a savings account with your children. This shows them what a deposit is, how interest is earned and also introduces them to compound interest so they see how they can earn interest on their interest. 

4. Budgeting
As they mature, involving your kids in discussions about the family budget helps give them the big picture about costs and spending. Budgeting teaches children the following key lessons; 

• important financial tools they will need later 
• how to spend less than they earn 
• how choices they make NOW impact their future 
• that one often must wait to be able to buy something 

Help older children create their own budgets using spreadsheets, online programs or mobile apps and watch them take ownership of their finances

Concept of debt 
So, your spendthrift has just blown their allowance or their first pay? What do you do? Rather than providing a handout this is an ideal opportunity to introduce the concept of debt. Explain you are prepared to lend them money but also explain there is a cost – when it is paid back, they will have to pay more! This is gentle preparation for the day they need to front up to a bank and ask for a loan. 

New concepts and the right age to introduce   
​

Ages 3 to 5: make saving a visual experience
Key lesson:  you may have to wait to buy something you want
 
Ages 6 to 10: learn through trial and error
Key lesson:  you need to make choices about how to spend money
 
Ages 11 to 13: show a variety of purposes for money
Key lesson:  the sooner you save, the faster your savings grow from compound interest
 
Ages 14 to 18: keep track of mobile phone data and usage
Key lesson:  monitor spending and adjust behaviour
 
Parents and young adults on the other hand need to grasp the concept of another five (5) critical financial values relating to investing.
 
1. Difference between good debt vs bad debt
A debt is an obligation owed by one party (the debtor) to a second party (the creditor). It is usually granted with expected repayment which includes repayment of the original sum plus interest. Bad debt is therefore what is more technically referred to as non-deductible debt. In essence, ‘money out…no money in’. Examples of these include personal loans, car loans and even a home loan! Good debt on the other hand is referred to as deductible debt meaning ‘money out…% of money back in’. Examples of these include investment loans for property or shares. So, just because the word debt exists doesn’t necessarily mean you should automatically avoid it. Understanding how to identify the difference can lead to success.  
 
2. Leverage
In a physical sense, leverage is an assisted advantage. As a verb, to leverage means to gain an advantage through the use of a tool. i.e. you can easily lift a heavy object with a lever than you can unaided. In the world of finance, leverage is the use of borrowed money to make an investment and the return on an investment. e.g. If you had an investment property valued at $500,000 and it went up 10% in one year, it would then be worth $550,000. This represents a 10% return on the $500,000 invested. If you borrowed 80% of the funds and invested 20% or $100,000 you would have a 50% return on your money. 

3. Capital growth
Increasing value over time is the underlining principle behind capital growth. The word appreciation (goes up in value) is another common reference as the goal of any capital you invest in such as property, shares or the like, is obviously to see its value rise. Ultimately its simply about making more money than what you put in the first place. The opposite of capital growth is depreciation (goes down in value) which entails items such as motor vehicles and machinery. The concepts of wealth creation and leverage are very closely linked to capital growth so it’s very important to understand their combined significance.    
 
4. Risk
Risk relates to the level of comfort or tolerance of an individual. Also, commonly identified as the gap between uncertainty and opportunity. It’s important to accept that risk avoidance is ultimately an unrealistic objective as everything we do in any aspect of life has a level of risk. The underlining assessment should be more so about risk management through two key concepts.                                                                           

1. Risk appetite (tolerance) or comfort to undertake a commitment categorised as low, medium or high
2. Risk profile (current situation) the ability or even the track record of managing personal financial matters. Again, categorised as either low, medium or high.

 
5. Wealth creation
Wealth creation is all about an accumulation of assets, particularly those that generate income also referred to as passive income as it increases in value without physical exertion. The concept of compounding that is learnt in the earlier years when understanding the basic mechanics of compounding interest, have a similar correlation as assets grow and therefore support accumulation of new assets which are also anticipated to grow in value.
 
Parents are encouraged to start as early as possible to practice these principles and adopt into their family planning. Along with the introductive education of money with their kids, investing will better position them as the kids grow and they themselves reach the twilight of their working lives. Not everyone can be experts in finance, the economy or with investment products although a little education and preparation can certainly improve your chances of success. The key is to either know how to plan and execute a strategy for yourself or alternatively seek the services of a professional who can do it for you.
 
So how can property investment provide the necessary money to fund your kids’ education throughout the thirteen (13) years of schooling?
 
Well ironically, the last consideration is the property itself! CODE Wealth follows 3 x chronological categories in STRATEGY – RESEARCH – PROPERTY.
 
Strategy – is about starting with the end in mind. What school would you like your kids to attend? How much will you need to pay for them to attend that school over the course of that 12-13 year period? How long do you have to generate the required funds? The answers to these questions effectively form the most important part of the equation…time & money! The second part of the equation involves determining the portfolio size & value along with how many properties are actually required.
    
Research – Quantified independent research from reputable sources are the only genuine way to achieve an adequate level of accuracy and impartiality. The three fundamental questions to answer in this area of your process are WHERE to buy, WHEN to buy and WHAT to buy. Unfortunately getting one or even two of these three will usually not suffice. Understanding the drivers of all the categories and knowing how to access the right information is absolutely critical to have a better chance of achieving your time/money goals from your strategy.
 
Property -  There are numerous property types such as units, apartments, houses, townhouses, duplexes, dual-occupancies and more. Which ones suit your strategy? The other key considerations involve choosing the most appropriate strategic property types such growth, cash-flow or hybrid performing properties. The more these core analytical factors are assessed the less you may even have to see the property if at all!
 
CODE Wealth property investment advisory is the benchmark and most trusted name in property investment advice. All advisors are qualified professionals who operate with the client’s best interest, follow a methodical step-by-step process and have a concerted focus on risk management to ensure optimum results.
 
Ultimately using residential property to generate a passive income for your kids’ education is something you can realistically achieve if you include…ACTION.
 
So, if you’re ready to start securing your kids future…call us today!  

“helping de-code the property investment puzzle”
www.codewealth.com.au