Imparting financial wisdom on your kids and grandkids not only sets them up for the future, but it can also help you build and safeguard your family’s wealth. Financial adviser Ben Nash explains how some forward planning can grant everyone financial freedom.
Ben Nash, founder of Pivot Wealth, is Australia’s most followed financial adviser and the author of Virgin Millionaire, a step-by-step guide to making your first $1 million. It’s sage advice for people of any age, but particularly for younger folk just starting out, such as your children or grandchildren.
The book takes you through five stages on a quest toward the ultimate goal: full financial freedom. Which is not an easy feat in Australia.
“You know, we’re really fortunate to live in an amazing country, but living well in Australia doesn’t come cheap,” Mr Nash says.
“We’ve got an average property price around the country at close to a million dollars. But the average income is only around $100,000.
“So, even if you just want to have an average house and set up your investments to deliver an average income in retirement, you’re going to effectively need to be a multi-millionaire.”
To get there, you’re going to need to need to be strategic. And the easiest way to do so, says Mr Nash, is to start early. It is possible to it starting later in life, but the sacrifices you’ll need to make will be greater.
“If you want to build a million dollars in investments by the time you reach age 60, if you’re 20 years old today, you only need to be saving and investing $6 a day to get there,” he says.
“If you wait until you’re 30, you need to be saving and investing about $15 a day. If you wait until you’re 40, you need to be investing about $45 a day.
“You can see that the longer you leave it, the more you have to do, the more you have to save, to end up in exactly the same position.”
He says trying to teach young people advanced long-term investment strategies will be a losing proposition, but the most important thing is just to get them started with good financial habits that will build momentum.
Teaching them can teach you
Sharing your existing good money habits with your family will eventually pay dividends by producing financially literate offspring who (hopefully) won’t need to rely on your nest egg to do things like purchase property.
But what if your financial habits haven’t been so great? Mr Nash says the five financial steps outlined in Virgin Millionaire are applicable at any age, and that passing on the habits learned to others can help reinforce the lessons.
The first step is what he calls the foundation stage. At this stage you set out your long-term goals, such as a certain level of income in retirement, and the short-term savings goals you’ll need to get there.
Next is the focus stage, where after building a savings base you focus on investing and getting your money into streams that will grow and starting to use some good debt leverage and maximise available tax efficiencies.
Mr Nash says what investments are most appropriate will look different for everyone and no one investment vehicle is king.
“People talk in absolute terms like ‘buying property is great’, ‘buying shares is good’, ‘contributing to super is good’, ‘contributing to super is bad,” he says.
“But reality is that any of those things can be good or not good, whether they are good for you or not really depends on what stage you’re currently at with your money.”
The next two stages, the optimise and accelerate stages, involve higher level investment, tax and superannuation strategies aimed at supercharging your returns as you head towards your final goal of financial freedom.
The final stage is what Mr Nash refers to as the impact stage where you’re essentially financially free and can do whatever you want from a financial perspective.
A great goal we’d all like to achieve, but by getting your kids and grandkids saving even a little as early as they can, you’re making their journey as easy as possible.
“You start at the start,” says Mr Nash.
“You’ve got to set the foundations. You’ve got to put in the early work, start saving, start investing. But then as you progress through the stages, there’s a different set of things that make sense, that are smart, and that you should be thinking about.”
Use that knowledge to safeguard family wealth
You’ve moved through the five financial stages, built your own wealth, and raised financially responsible children and grandchildren. Job done and you can now live out the rest of your days safe in the knowledge you’ll be comfortable in retirement and even have a solid nest egg to pass on.
Not quite, says Mr Nash. You’ll also need to make sure your estate is structured in such a way that the money can’t be lost to a third party.
“You need estate planning structures that are right, asset protection structures in place to ensure that the money that you do want to pass on to future generations remains with your future generations,” he says.
In particular, the spouses of your children and grandchildren could be a problem in the case of divorce.
“Obviously in Australia the incidence of relationship breakdown is quite high, and you do hear some real horror stories,” says Mr Nash.
“Parents that filled up a whole bunch of wells over one period of time to pass it on to their children and not have it structured in the right way, then the child has a relationship breakdown, and they see a big chunk of that money actually exiting the family through an exiting partner.”
Maybe while you’re teaching your kids good money habits, you could also teach them how to find (and be) a good partner? That may be a step too far, so make sure your estate is watertight.
Are your kids and grandkids good with money? What financial lessons have you taught them? Let us know in the comments section below.
Also read: Is a comfortable retirement now just a pipe dream?
