Wouldn’t it be nice indeed if your children end up millionaires? And what we wouldn’t do, as parents, to increase our child’s chances of success of being one. Oddly though, we sometimes think that the best way to increase the odds is by spending a whole lot on their education – starting in their pre-school years, giving them hand-outs, buying them expensive gifts. But this may not be the case.
Some young parents I know are obsessed in enrolling their children in an expensive private Montessori – thinking that this will boost their child’s chances of success in their adult life. While some believe that this may help boost their IQ (Intelligence Quotient), there is another school of thought that IQ is hereditary and that there is a maximum level of intelligence for a given person. While early childhood education helps us reach the maximum potential at a much earlier time – this will not be the determining factor of success in the adult years.
There are more important factors like EQ (Emotional Quotient) that will determine your child’s success. Unlike IQ, a good thing about EQ is that it can be taught and developed. And it’s best to start them young. But that’s another discussion altogether.
Rather than focusing on spending your way to your child’s success, consider the following tips I have learned through the years:
EDUCATION IS KEY – BUT NOT THE ONLY FACTOR
There is really little debate that high school success predicted college success. Nearly 90 percent of those educated are now in professional careers – with 40 percent in the highest tier jobs.
Those who graduate college would have developed the necessary discipline to finish what they have started – which will help them become reliable, consistent and well-adjusted. By all measures, the majority of graduates would have good lives.
But it also doesn’t mean that they will end up millionaires.
DO NOT OVEREDUCATE
Money shouldn’t be the reason for higher education. While it is true that higher education may lead to higher incomes, one should also consider the return on investment.
It can be said that in the long term, a plumber can make as much for a stretch of time than a Harvard graduate. For graduates of Masters and Doctoral degrees, Doctors and Lawyers, it takes a longer time finish studies, longer loss of full-time income, and longer payment on loans to complete a higher education – while a plumber have been making decent enough money a lot earlier, has less student loan, and investing earlier. Read more.
A plumber could have just as many chances to being millionaires as the doctor or lawyer next door because what really matters is how much of the income is invested.
TEACH THEM TO BE FINANCIALLY LITERATE FROM AN EARLY AGE
There is nothing much a high-income career can do for your children, if your children are not smart with the money they earn. We have heard of horror stories about celebrities, sport athletes, and lottery winners going bankrupt. Why? That’s because they lack financial literacy needed to manage their money.
Here are a few tips I read on the web:
TEACH THEM GOOD MORAL VALUES – LIKE FIDELITY IN MARRIAGE
According to the book by Danko and Stanley, ‘The Millionaire Next Door’, the majority of wealthy people are married and stay married to the same person. According to a study, people who split up experience an average wealth drop of 77 percent. That is how divorce decreases ones chances in becoming millionaires. More.
So, teach your kids to become loving and faithful. And it’s best to lead by example.
Furthermore, help them set priorities – like finishing school, finding work, and getting married before having kids. Studies clearly show that people who follow the success sequence do better.
DISCOURAGE A HIGH-CONSUMPTION, HIGH-STATUS LIFESTYLE
Guess who’s driving all those BMWs and Mercedes-es? Not millionaires. Eighty-six percent of “prestige/luxury” cars are bought by non-millionaires. The most popular car maker among millionaires, according to Stop Acting Rich? Toyota.
And why not? The millionaire mindset always think of value. And that’s why the majority of millionaires own their cars, rather than lease. And that is also why only approximately a quarter of millionaires have a current-year model, while another quarter drive a car that is four years old or older. And more than a third of millionaires tend to buy used vehicles.
A study from ‘The Millionaire Next Door’ suggests that actual millionaires tend to drive economical cars, live in middle-income neighborhoods, wear simple watches, and buy suits off the rack. That is why they are wealthy.
On the other hand people who look rich may not actually be rich; they tend to overspend — often on symbols of wealth — but actually have modest net worth and, sometimes, big debts.
And last, but not the least,
DO NOT GIVE CHILDREN TOO MANY HANDOUTS!!
The worst thing a parent could do is build propagate a lifestyle of entitlement. Most people who become millionaires have confidence in their own abilities. They do not spend time worrying about whether or not their parents were wealthy and are able to give them handouts.
Consider the following research uncovered about American millionaires in the book ‘The Millionaire Next Door’:
- Only 19 percent receive any income or wealth of any kind from a trust fund or an estate.
- Fewer than 20 percent inherited 10 percent or more of their wealth.
- More than half never received as much as $1 in inheritance.
- Fewer than 25 percent ever received “an act of kindness” of $10,000 or more from their parents, grandparents, or other relatives.
- Ninety-one percent never received, as a gift, as much as $1 of the ownership of a family business.
- Nearly half never received any college tuition from their parents or other relatives.
- Fewer than 10 percent believe they will ever receive an inheritance in the future.
Children need to grow up making their own decisions, become creative, accountable for their actions, self-reliant and independent. Hand-outs sometimes make them dependent, unable to solve their own problems – because they can always rely on their parents to solve their problems for them.
Encourage them to get part-time jobs as students, work hard, save for their expenses, and invest for their retirement.
The Millionaire Next Door is available on Amazon.ca.