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Monday 13 May 2019

Why I'm Not Giving My Son R6 Million

Puzzling times
Consider two toddlers who are given an identical age appropriate puzzle. The only difference is that one child is given the completed puzzle, whilst the other is given all the pieces. I think it is easy to guess what each child would do?

The child who is given the completed puzzle will more than likely break it within a few seconds of getting it, and he will probably have a lot of fun doing it.

On the other hand, the child who has been given the puzzle as separate pieces, and then shown the corners and a few edges, would probably struggle for a few minutes, but eventually manage to put it all together. And, he too would have a lot of fun doing it.

What is important to realise, is that both children, at some point would have had a completed puzzle. So let me ask you this – who do you think would have the greater sense of pride, accomplishment and fulfilment at the sight of the completed puzzle?

Who do you think would have learnt more skills?

Who do you think would appreciate the completed puzzle more and feel rewarded for the effort that went into it?

My son is now at an age where he is really starting to enjoy puzzles, and I can tell you his eyes light up right after he inserts the final piece. In fact I can see the excitement, pride and self-confidence build with each piece that he correctly places.

That is because it is human nature to appreciate the fruits of being challenged and then overcoming that challenge. We thrive on learning, hard work, and the resulting successes. It’s something that is built into us.

I guess at this point you might be finding all this talk around puzzles…well…puzzling. So let me quickly jump to another unrelated (yet totally related) story from my University days…

During my second year I signed up at the Mathematics department of the University to be a Maths tutor. I really enjoyed the tutoring part of the job; the marking of weekly tutorials, not so much (although it was during the signing of thousands of front pages of tutorials that my signature was perfected…).

Either way, the pay was pretty good (by student standards) and soon enough I was stashing away some money with the aim of buying myself a computer. (I was getting tired of continually sharing my father’s PC and needing to get permission every-time I wanted to install a game educational software.)

By the time I was in my fourth year, I had enough saved to buy my very own computer –it was only a Celeron, with a huge CRT screen, but man I loved it! I ended up doing most of my Thesis on it and enjoyed many happy hours of gaming for many years after. Despite my wife’s loudest protests, I still have that (considerably worse for wear) PC, and don’t intend on getting rid of it anytime soon.

I think the reason I appreciated and valued that PC so much (and still do) was because it was earned.

I planned for it, saved for it, sacrificed for it, and worked hard for it. Much like the toddler who completed a puzzle, that PC represents the sense of satisfaction and reward that can only be experienced by working, struggling, and being challenged before achieving something (and this seems to be something which has largely been lost on society these days).

That sense of accomplishment can not be felt when something is handed to you.

And now that we have discussed puzzles and PC’s, it’s time to throw a third P into the mix…

Puzzles, PCs and Progeny

Since the article I wrote about how I am investing for my own Progeny, I have received a number of queries and suggestions from people who are looking to start investments for their own children. Many people were shocked that I was not using a TFSA due to the massive long term benefits it could have. And make no mistake, the benefits are HUGE.

In fact, this blog post touched on the fact that if you dropped just one annual R33k contribution into a TFSA for your kid as soon as they were born, at age 65 they would be able to retire comfortably (R6 Million in today’s money) – all from that single R33k contribution.

Pretty incredible!

Now, in truth, I could have footed a once off R33,000 contribution for my son. In fact I probably could have chosen to max out his TFSA each year from when he was born until he reached his lifetime limit (at around age 15). In that scenario he would have an inflation adjusted R6 Million at age 41 (and comfortably beat his old man to financial freedom!)

Make no mistake, starting an investment for your child at a young age is something really powerful!

So then why haven’t I gone this route?

Well, back to puzzles and PCs…

If I give my son a completed multimillion rand financial freedom puzzle, do you think he will fully appreciate it and derive the same satisfaction than if he had earned his financial freedom himself? Do you think he would have achieved the same fulfilment and learnt the same skills?

I think I know the answer to those questions.

In fact an 18 year old (they not that different from toddlers you know :-P) would likely end up breaking that financial freedom puzzle pretty quickly and, just like a toddler, have a tremendous amount of fun doing it!

I also believe that, much like my beloved PC, to truly appreciate anything, my son needs to earn it (and that goes for his financial freedom too). He needs to put in the effort, stay the course, learn the lessons and make the necessary sacrifices.

I just don’t see how him landing his ass in some multi million Rand butter will come close to forging him into the far better human being he could become by earning his own financial freedom. I believe that forcing him to walk his own path will be far more beneficial than simply handing him the keys.

For that reason I would rather give my son a puzzle that’s in pieces. I would rather give him the four corners of:
  • A good education (and I will be happy to pay for that, although it might just be free)
  • Experiencing the reward of hard work
  • Showing him the joy of delayed gratification
  • Teaching him financial responsibility.

After that I have no doubt he will go on to try some “pieces that don’t fit”, but each of those will be learning experiences, and he will be better off for it.

There is a popular anecdote I have come across a few times which I think has also influenced my thinking a little – the average family’s wealth lasts three generations. The first generation builds it, the second generation maintains it, and the third generation blows it.

I like the way this Chinese proverb sums it up:
“From peasants’ shoes to peasants’ shoes, all in just three generations.”

Okay one more P… (No more after this, I promise…ah dammit!)

It’s Personal

I am going to try preempt a possible backlash here, by pointing out that children are personal, investing is personal, and therefore investing for your children is …well…personal squared?

This blog post is my thinking around the subject, and something which makes sense to me. You are more than welcome to partially or totally disagree with my approach, and in fact I encourage it because it will make for some really interesting discussion!

I certainly do see the other side very clearly. We all want the best for our children, and I can relate to wanting to give your child the best head start, allow them to pursue their dreams, and allow them to have a better life than you. An investment in their name can very well tick all those boxes.

So if that is the route you want to go for your kids, absolutely nothing wrong with that! It is great that you are making use of the generous amount of time a young child has to really allow them to benefit from the power of compound interest. And it can be hugely beneficial to use a TFSA in their name to supercharge those returns.

Till next time, Stay Stealthy!
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