While money has traditionally been a sore subject in many households, the next generation of investors need to be able to leverage their parents’ knowledge in it if they’re to be successful in building out a portfolio one day.
Speaking on a recent episode of The Smart Property Investment Show, host Phil Tarrant was joined by co-host Alex Whitlock and Empower Wealth director Ben Kingsley, where the trio discussed, among many things, how parents can educate their kids at home around finance, so that they can be better property investors in the future.
“There’s a lot of things that we can share about the realities of how to use money and how to understand money,” Mr Whitlock said.
“I grew up in an environment where my parents didn’t talk about it, [but] I share everything with my children. Myself and Phil have got a substantial property portfolio… Now, to me, if somebody told me when I was 19 years old that I’d have any part of that, I’d have fallen over. It’s very normal to me now, and I want it to be normal with my kids.”
Mr Kingsley said there are three tidbits to remember when having the conversation with your kids about property investing: “Consequences, trade-offs and delayed gratification.”
“If you can teach your household, and the kids inside that household, that this is the consequence of this decision, and ultimately we don’t have unlimited money, so there are going to be trade-offs. If you understand consequences and trade-offs, then ultimately you’ll start to then focus on the concept of delayed gratification,” he said.
“The reason why 90 per cent of the population fail with money management all comes back to this idea that because they can’t build the habits, because they can’t see the incremental improvement straight away, because delayed gratification, or saving a deposit for a home, or all of those things, take a long time. The dial doesn’t move quick enough for them. Mentally, they just give up and they go back to bad habits.”
Mr Whitlock added: “It’s almost like this with the dieting thing, where you’re trying to lose weight. You can’t envisage yourself shedding that 25 per cent of your body weight, so the little incremental steps to cut down, it’s tough, and there’s very good reason… You’ve got supermarkets packed with garbage these days. It’s hard to walk around a supermarket without buying shit, to be quite frank. I think in terms of finance, it’s very, very similar.
“You’re surrounded by incentives to spend, to waste. You’re followed around the media by adverts for shit that you’ve looked at on whatever. You’ve got opportunities to take out credit cards.
“I think that psychologically for people looking to start getting ahead, it’s just hard, and a dollar going into the jar, so to speak, becomes seemingly so insignificant. The thing is, though, once that dollar goes in the jar, you just strengthen your financial muscles just that little bit. Then the next time you’ve got the incentive and the motivation to put $2 in the jar, and you start to build up savings, which eventuate into a deposit.”
Mr Kingsley noted that it is for this reason he and his team have created the Money Smart system.
“It works on the virtual jar theory. Effectively, it allocates the money that you said you were going to spend, which is your seven-day float. Your living and lifestyle, but the other money trapped in your offset, or in your high-interest saving account, if you’re saving for deposit,” he said.
“One of the best tips I can give you, in terms of how you can change habits, or how you can maintain a habit, is a measurement. You need to have a measurement piece in there. Whether we go for a run, we know how many steps we’ve done. The gamification is helpful for creating good habits, or maintaining habits.
“For us, the measurement is the monthly checkup, or the monthly check-in. Once you’ve set up your money, you then know, ‘Look, that money, the weekly allowance, that’s the jar that I said I was going to spend.’ I get the groceries, and then whatever I’ve got left, I know I was going to spend that on the things that I said. Whatever’s left over is basically money that’s going to sit in the offset and save you.
“Now, you’re going to have ad hoc transactions, so it’s those irregular ones. That’s what you provision for. When you do have, say, a holiday spend, then you track that, but you don’t have to track all your money. Everyone thinks that it’s hard work, and there’s apps out there that potentially track everything. You don’t have to track everything, but what you do need to do, and this is where budgets always fail, is that people don’t check in on it. They just have a list of things that they said they were going to spend, and roughly what should be hitting at the end of each month.
“It is not a rules-based system, and that’s why most budgeting fails.”