Have you ever stopped to wonder why rich people get richer? Many believe it’s because of the greater leverage they hold on wealth with every new generation. An equally impressive number feel it due to rich parents passing on the financial skills they’ve learned to their children. These enhanced skills are then utilized with the new generation to create an ongoing snowballing increase in riches.
This article is dedicated to three major wealth concepts that you should consider passing on to your kids at an early age.
Concept 1 - Good and Bad Debt
These days thousands of people are drowning in bad debt, thousands more on the other hand manage to steer clear of its clutches. Debt is an important facet of our economy because it helps fund large complex projects. Therefore, the key here is to learn to differentiate between good and bad debt.
Concept 2 - Capital Appreciation and Cash Flow
For many these concepts are confusing. Generally, there are two kinds of financial instrument with varying hybrids between. The vast majority of financial instruments belong to the capital appreciation category of instruments. This means you sell an item when the price increases which makes money. Therefore the capital has increased hence the name “Capital Appreciation”.
There are instruments that give a cash flow, otherwise known as a share of profits. A few examples would be real estate investment and alternative mineral rights trusts such as oil trusts whereby you receive a share of the trust’s monthly income. These are fantastic instruments for making a large sum of money from your capital appreciation instruments when you leave a portion of your money in them. Teaching this to children at an early age gives them an excellent insight on how the free economy functions.
Concept 3 - Take Control of your money
Analysts and fund managers love to blow their own trumpets by telling you how they constantly over perform the market. Actually, they earn their money from managing your own money. For example they’ll charge management fees or selling charges whether your portfolio is profitable or not. Yes, that’s right they can manage your money poorly and still be paid handsomely for their services.
Recent studies have indicated that most fund managers may fare no better fortune in effective stock selection. Many have stated that some are in fact akin and achieve less than a team of monkeys throwing darts at random stock on a metaphorical dart board. It’s important that you instruct your children to learn about investing and to take charge of their own finances.
In conclusion, the act of teaching your children about finances is vitally important. Some of the brightest and most successful fund managers of today speak of parents who would analyze stock in their presence as children. Teach your children about managing their own money and the workings of the modern economy and you’ll see them grow into better more able young adults who’re positioned to deal with the financial world.