How can investors fast-track their child’s financial future? Maybe by teaching them a few life lessons. Philippe Brach is the CEO for Multifocus Properties & Finance and author of called Property Wealth in Any Market: How You Can Build a High Performance Property Portfolio has some thoughts about how we can all help our kids and grandkids.
Kevin: I’m delighted to have back on the show the author of a book we have mentioned on a few occasions, Property Wealth in Any Market: How You Can Build a High Performance Property Portfolio. It was written by Philippe Brach. Philippe is the CEO for Multifocus Properties & Finance and joins us once again.
Philippe, nice to have you on the show. Thank you.
Philippe: Thank you, Kevin.
Kevin: I wanted to talk to you specifically about how investors can fast-track their child’s financial future, maybe by teaching them a few lessons. What are some of the things that you could tell us about that, Philippe?
Philippe: The first thing is in terms of helping your kids build a financial future, the best thing you can do – and it’s one of the greatest gifts you can give your children – is actually empowering them to be successful. That works through education about financial matters, which unfortunately, lacks a bit at school, so parents have the responsibility to actually help their children to understand the big, wide world out there.
That can go initially through teaching them how to build up savings and then probably also talking to them about how compounding works. A great part of the education is as they grow into young adults, you can start discussing with them the various ways they can get ahead in life. That includes, obviously, the possibility of investing in property, either being a home or an investment property or even both.
Kevin: There are many topics, aren’t there? You talked about compounding, but also building equity in property and using it to get some gearing. These are all good lessons for you.
How soon can you start teaching kids this, Philippe?
Philippe: It will depend on the maturity of the child, but when you are starting to teach them about savings and their pocket money, etc., you can start fairly young. Some parents would disagree, saying a child shouldn’t become a young adult too soon, but at the end of the day, the sooner they get the good habits that will help them in life, the better it is.
Kevin: I suppose we need to understand, too, that they’re like sponges. They absorb information, so you have to be very careful around the dinner table how you talk and what you talk about. You may not even be talking to them, but they’re going to be listening and absorbing that all the time.
Philippe: Absolutely correct. The topics you can teach them, as you said, because they are sponges, the earlier you start, the better it is and the better it gets into their mind. Everybody wants to have successful kids, and you want them to start thinking long term rather than just short term.
Kevin: Philippe, help me here. Let’s just take one of those topics and talk about how we can educate young people. You mentioned compounding. How would you describe that to a child?
Philippe: It’s a good question. Once you get to talk to a child, it depends, obviously, on the age you start talking to them about compounding, but trying to explain to them that if you put $1 in and that $1 grows at a certain rate, it will double in a certain time.
Probably the best way to do that is to talk to the kids about the famous Rule of 72, which I think from memory, Einstein was playing with in his spare time. Pretty much, it says if you put $1 in the bank at 7.2%, it will double in value in ten years. Conversely, if you put $1 into the bank in your savings account at 10%, it will double in value in 7.2 years. You can play with little games like this to make sure it sticks in the child’s mind.
I think that notion of saying “7.2% doubles in ten years,” then you can extrapolate. What if it’s not 7.2%, but it’s less? Then you can start interesting the child in finding out. If it’s only 5%, it’s not going to double in ten years, but you do your calculation and it ends up doubling in 15 years.
The other thing you can do, using that same example, is to say, “If that $1 doubles in ten years, and you keep pushing that calculation, you actually get another $1 after 15 years.” The compounding means that the longer you invest, the more it accumulates and the better it works for you.
Kevin: I love that. That’s fantastic, the Rule of 72, 7.2%. We can apply that to a market, too. If a market is growing at 7.2% annually, then the property will double in value in ten years.
Philippe: That’s right. That’s why it’s common out there when people talk about property growth, they say, “Oh yeah, it’s going to double in ten years,” because we’ve been used to having these rates of growth around the 7% or 8% mark, so it makes sense. Nowadays, in the current market, excluding Sydney and Melbourne, you’re talking on average about 5%, which means your property will double in 15 years.
The important thing is for an adult and a young adult to understand how this works, that the difference between 5% growth and 7% growth makes five years difference into your investment objectives. Therefore, the younger you start, the better it is.
Kevin: Philippe, it’s great talking to you. Thank you so much. Philippe’s book is Property Wealth in Any Market: How to Build a High Performance Property Portfolio. It’s a great book. I’ve read it. I recommend it to you. Philippe is the CEO from Multifocus Properties & Finance. I’d love to have you back again on the show. You make so much sense.
Philippe, thank you for your time.
Philippe: Thank you, Kevin.