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One of the most crucial things every parent has to do, no matter how scary or challenging it can be, is prepare their child for the future. While parents are responsible for their children’s well-being while they are young, there comes a time when they must be able to provide for themselves and secure their own financial future. Steve Davis, CEO and lead consultant of the real estate investing education program Total Wealth Academy, explains how parents can prepare their children for the remainder of their lives.
Davis says that one of the more dangerous myths about securing children’s financial future is that saving for them is the place to start, but in reality, this can do more harm than good. “Trust funds ruin more lives than they help,” he explains. “You want to make your kids financially independent, not dependent.” According to Davis, it’s all about teaching them the principles they will need to succeed on their own terms. As the Chinese proverb says: “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”
1. Lead by example
Before teaching their children to achieve financial independence, parents must do so themselves. As Davis mentions, the best way to educate children is to lead by example. “You must be financially successful to teach anyone, including your kids, how to do it,” says Davis. “You can’t be living paycheck to paycheck while telling your kids to do the same thing you did to be financially successful. Your kids are even smarter than you think.”
2. Be upfront with your children
Many people believe that discussing their financial situation with their children is taboo — that they shouldn’t be burdening their children with these worries. But ignoring your financial situation will only raise the chances of placing them in the same position when they grow up. “Be humble,” Davis emphasizes. “If you are not in the financial position you want, admit it to your kids and get them on your team to change that situation.”
In being upfront and honest with their children, parents should share the facts about retirement with them. “95% of Americans fail to fully retire by age 65,” explains Davis. “Almost 30% are dead by age 65. The golden years are a golden lie. Live life now.” There are much better ways to prepare for financial success in your older years than to save for a retirement that may never come.
3. Teach them to be truly independent
The whole point of financial independence is just that — to be independent, rather than relying on someone else. Parents need to ensure that their children know that no one else is responsible for their financial future — not their employers, not their government, and especially not their parents. Once parents set their children on the right path, it is the responsibility of the child to take this and apply it.
4. Build a second stream of income
The best thing anyone can do in their youth to ensure their financial future is to build a second income stream, such as real estate investments. Although jobs are often considered to be stable, unpredictable factors could still occur and leave one struggling financially if their job is their only source of income. However, building a second stream of income can provide a safety net. If done right, it could even exceed one’s primary stream of income.
“When they were eight, I began telling my kids that they need to build a second stream of income along with their earned income from their career or job,” says Davis. “My son graduated college with $4,000 a month in a second stream of income from his 11 rental properties, and my daughter has created an even larger second stream of income. Now, she’s 27 and could retire if she chose to.”
5. Give them the necessary materials to succeed
Empowering children to achieve financial freedom also entails giving them access to the materials they need to learn how to do it. Davis recommends George Classon’s The Richest Man in Babylon and Stephen Covey’s The 7 Habits of Highly Effective People.
“High school and college will teach them nothing about wealth and affluence,” Davis asserts. “Tell them to read, read, and read some more. They must learn the rules of money on their own.”
Indeed, for future generations to achieve this financial freedom, they must take the initiative and start preparing for it now. But for parents, it’s essential to be a good financial role model for their children. “I can’t stress enough that, as the parent, you must do this alongside your kids, or before they do it,” says Davis. Setting an example by creating a second stream of income for yourself will show your children what they need to do to be financially successful in their future.
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Photo provided by the author.