As it’s commonly known, schools don’t educate students on the subject of money, leaving most people to learn about finances from their parents at home. However, what are parents actually teaching their children about money? And what sets apart those who become wealthy and successful from those who do not?
Here, we’ll explore key lessons about money that the rich teach their kids, but which the poor do not.
1. The importance of money.
In the realm of financial success, nearly all self-made millionaires and prosperous individuals recognize the significance of money and prioritize teaching their children about it. Despite some wealthy individuals not equating money with happiness, they still acknowledge its value in providing choices and an improved standard of living. This perspective allows them to view money as a resource and appreciate the freedom it affords, such as the ability to travel and help others. Conversely, those who struggle financially tend to avoid discussing money and may even downplay its importance. This approach can have long-term consequences for their children who will grow up in a society that emphasizes financial well-being while neglecting their own financial education.
2. The difference between assets and liabilities.
If you’re looking to build financial independence and achieve long-term prosperity, it’s essential to understand the distinction between assets and liabilities. Simply put, assets bring money into your bank account, while liabilities take money out. For example, owning a rental property is an asset because it generates rental income each month. However, purchasing a home to live in is a liability since you’ll be responsible for ongoing expenses such as mortgage payments, property taxes, and maintenance costs.
Many financially successful parents teach their children to focus on building assets and avoiding liabilities. By creating businesses or investments that generate recurring cash flow, they accumulate a surplus of money that can be reinvested to create even more wealth. Moreover, wealthy individuals understand the importance of using assets to detach their time from their income. Since assets generate cash flow regardless of whether you’re actively working or not, you can scale your investments and build more assets.
Rich people also have a unique perspective on spending patterns, which they use to teach their children. They compare the spending habits of the poor versus the rich and show how two people earning the same salary can have vastly different financial outcomes. By focusing on building assets and avoiding liabilities, the wealthy can create a solid financial foundation that generates long-term prosperity.
When it comes to money, how you spend it makes all the difference. Two individuals can earn the same amount, but have vastly different financial futures depending on their spending habits. Let’s take a closer look at two people making six thousand dollars per month.
The first individual spends their money on material possessions that make them look wealthy and successful. They buy the latest phone and TV, dine at fancy restaurants, and indulge in expensive shopping sprees. They might have a nice house and car, but it’s all just for show. In reality, they have little to no savings and are drowning in debt. Their credit cards, car payments, and mortgage are eating away at their paycheck, leaving them stuck in the rat race. It’ll take them years to climb out of the financial hole they’ve dug themselves into.
On the other hand, the second individual lives on a modest budget of three thousand dollars per month. They don’t feel the need to keep up with the latest fashion trends or indulge in extravagant meals. Instead, they focus on saving and investing their money. They put away three thousand dollars every month and by the end of the year, they have thirty-six thousand dollars in savings. They invest that money into cash flow investments that increase their monthly income. They continue living on their three thousand dollar budget, putting away the extra money they earn through investments. By the end of the following year, they have an additional forty thousand dollars to invest.
Fast forward ten years and these two individuals will be in completely different financial situations. The first individual will still be drowning in debt, while the second individual has built a solid financial foundation. He has created multiple streams of passive income and the money is working for him, not the other way around. Robert Kiyosaki once said, “looking good but going nowhere,” referring to the tendency of many people to spend money to appear wealthy while actually being poor. In contrast, rich individuals may appear to have less while actually accumulating wealth.
Although some may argue that many wealthy people have extravagant possessions such as luxurious homes and cars, the main difference lies in how they acquire them. Those who are financially struggling typically purchase luxury items using their own money or by going into debt, whereas the wealthy acquire these items through their assets. For example, if someone wants to purchase a car that costs $500 per month, they should focus on building an asset that generates $500 or more per month. This way, their bank account remains unaffected by the purchase and they avoid creating a liability.
It’s important to remember that money is a tool, not an end goal. The way you spend your money will determine your financial future. While it may be tempting to indulge in material possessions and instant gratification, it’s important to think long-term and make smart financial decisions.
3. How to manage their money
Have you ever thought about how to teach your kids about money and financial management? If so, you might want to learn from the habits of self-made millionaires and financially successful individuals. These parents often involve their children in household financial planning, letting them participate in reviewing financial statements and planning budgets. By exposing their children to these real-world experiences at an early age, they can help them develop essential skills for managing their own finances in the future.
On the other hand, parents with a poor finance mentality rarely discuss money with their children. They often keep their own income and expenses secret, and may not even plan their monthly budgets, leading to negative emotions and arguments when the topic arises. Unfortunately, this can result in children adopting similar patterns and behaviors that may negatively impact their financial well-being later in life.
In contrast, rich parents understand the reality of living expenses and try to associate positive feelings with them. They emphasize gratitude for having a roof over their heads and the ability to live comfortably. By doing so, they can teach their children that living expenses are a necessary and positive part of life, rather than something to be dreaded or avoided.
If you want to teach your children about money, consider involving them in your household financial planning. You could start by reviewing your financial statements and planning your budget together. Additionally, try to associate positive emotions with your living expenses and emphasize the importance of financial responsibility. With these habits, you can help your children develop a healthy relationship with money and the skills they need to manage their own finances successfully in the future.
4. The different ways of earning money
Did you know that Sasha Obama, daughter of former US President Barack Obama, had a regular customer service job? It’s not uncommon for wealthy parents to encourage their kids to have a regular job. There are a few reasons why, but one of the main ones is to expose their children to the various ways in which money can be earned, and teach them how each of these methods works.
There are two fundamental ways to make money: exchanging time for money, which involves working a job or freelancing, and building systems that generate income. This second method involves leveraging the time of other people as employees, using online systems that provide automation, or investing in assets that generate income, as described in Robert Kiyosaki’s “Cashflow Quadrant”.
The wealthy are focused on understanding and teaching these principles to give their children the freedom to not be confined to only one way of making money, but rather to have the ability to explore the other ways money can be made. In contrast, poor parents often only know one way to make money - exchanging time for money - and this is sadly the only thing they teach their children. Consequently, the latter group often grows up only knowing one way to make money, which limits their true earning potential.
It’s clear that exposing children to the different ways of earning money is a valuable tool for teaching financial literacy, and giving them the freedom to choose their financial paths in life. The rich understand this, and they work hard to impart this knowledge to their children, setting them up for success.
5. Developing productive habits.
Achieving financial wealth is not solely based on what you do, but rather what you do consistently. The Brits have long known this, and it’s a principle that has been passed down from generation to generation. For wealthy parents who are self-made, this is a fundamental truth that they understand well. They know that in order to achieve financial success, they must work and carry out their plans on a consistent basis. It’s not just about taking action once or working hard once, but doing it over a long period of time.
To make this happen, many wealthy parents focus on developing productive habits in their children. Habits that will help them attract wealth naturally in the future. This can be as simple as starting their day with a set of accomplishments or always looking at how they can bring value to others. By teaching their children how to build their own habits, they are providing them with one of the best skills anyone can have. Understanding the psychology behind modifying your own habits can be extremely powerful for your child’s long-term success.
So, if you want to raise financially successful children, teach them the importance of consistency and the value of building productive habits. By doing so, you’ll be equipping them with the tools they need to achieve financial success on their own terms. Remember, it’s not just about the money, it’s about the habits that help attract it.
6. No one owes you anything.
The journey to financial success and independence is never an easy one, and self-made millionaires are acutely aware of this fact. They understand that the path to riches requires hard work, dedication, and a willingness to fight for what they want, rather than expecting handouts or favors. This mindset is especially important for wealthy individuals, who often struggle to balance the desire to provide for their children with the need to instill a sense of independence and responsibility.
While it might be tempting to give their kids everything they want, wealthy parents recognize that doing so can create a dangerous sense of entitlement. To avoid this pitfall, many rich individuals choose to teach their children the importance of earning their success and working hard for what they want. For example, Bill Gates and Warren Buffett, two of the richest men in the world, have both publicly stated that they will not be leaving their children with a significant inheritance. Instead, they want their kids to find their own way and carve out their own paths to success.
By teaching their children the value of hard work and independence, wealthy parents are setting them up for success in the long run. While it might be tempting to provide their kids with a comfortable life, doing so can ultimately do more harm than good. By emphasizing the importance of earning one’s success and pursuing one’s goals, self-made millionaires are helping to create a new generation of driven, motivated individuals who are ready to take on the challenges of the world.
7. Social and influence skills.
When it comes to achieving success in the financial and business world, one skill that often goes overlooked is the ability to communicate and socialize effectively. This skill can be a powerful tool for creating opportunities and building relationships with others. Additionally, the ability to read and understand people’s emotions, motivations, and behaviors can help children develop into strong and influential leaders. While this topic may not be discussed as frequently as others in the financial world, it’s clear that social intelligence can be a key component of success in any field.
8. Delayed gratification, in other words, patience.
Creating and building wealth is a process that requires time, patience, and consistent hard work. Successful individuals understand this and teach their children the importance of this long-term perspective. However, many people today are more focused on immediate gratification, seeking out short-term pleasures like flashy cars or extravagant homes, rather than taking the time to invest in their future. As a result, they may not be willing to put in the necessary work or persevere through difficult times.
Gary Vaynerchuk, a well-known entrepreneur and business leader, suggests a solution to this problem: micro speed and macro patience. In other words, he advises individuals to work hard every day and stay consistent in their efforts, while also maintaining a patient and long-term view of their goals. This approach is the opposite of the quick-fix mentality that many people have today.
Ultimately, the ability to work hard and be patient is a critical skill for success in any field, and it is one that the rich understand well. By teaching their children to focus on the long-term and work consistently towards their goals, they are providing them with a powerful tool for building a successful and fulfilling life.
9. There is always more money.
When it comes to wealth, the rich have a unique mindset that sets them apart from the rest. Unlike many people who believe that money is scarce and limited, the rich understand that there is always more out there to be earned. Rather than settling for a limited income or feeling stuck under a financial ceiling, the rich believe that there is no limit to how much they can earn.
This abundance-driven mindset is a simple but powerful concept that can have a major impact on our financial decisions. While many people focus on saving money and reducing expenses, the rich prioritize increasing their income. They recognize that every opportunity to earn more money is an opportunity to create greater abundance in their lives, whether it’s by starting a new business or taking a well-deserved vacation.
This isn’t to say that the rich don’t pay attention to their expenses. They understand that every dollar saved is a dollar earned, and they are careful to keep their spending under control. However, their primary focus is always on increasing their cash flow and finding new ways to earn more money.
As an entrepreneur, it’s easy to fall into the trap of thinking that charging what you deserve is somehow wrong or unfair. However, this scarcity mindset can be incredibly limiting, preventing you from reaching your full earning potential. Instead, a mindset of abundance can help you recognize the value of your products and services and charge accordingly.
Many entrepreneurs struggle with feelings of guilt when it comes to charging their clients. They worry that they are taking advantage of their customers or not providing enough value to justify the cost. However, an abundant mindset recognizes that anyone can find the money for the things they truly want. If someone wants your product or service, why deny them the opportunity to have it?
Look around at society, and you’ll see that people always find the money for the things they want. They’ll save up for a dream vacation, work extra shifts to pay for an educational course, or scrimp and save to start investing. There is always more money to be had for the things that truly matter. As an entrepreneur, your job is to recognize the value of what you offer and go out there and get the money you deserve.
This abundance-driven mindset is a key reason why the rich continue to get richer. By constantly seeking out new opportunities and believing that there is always more out there to be earned, they are able to create incredible wealth and financial abundance in their lives. And while this mindset might seem simple, it can make a world of difference in achieving our own financial goals and creating the life we want to live.
10. The best way to make money is to help others.
One of the most valuable lessons that the wealthy pass down to their children is the importance of solving problems. The richest and most successful individuals in the world have all made significant contributions to solving big problems in their respective industries. From Steve Jobs, who revolutionized the technology, music, and communication industries, to Oprah Winfrey, who made a global impact in the self-development world, to Henry Ford, who transformed personal transportation, the most successful people in the world have all made a significant impact by helping others solve a problem. The difference between the rich and the poor when it comes to making money is that the poor often focus on getting paid for tasks, effort, and time, while the rich prioritize providing results and solving problems. For the wealthy, providing value is the name of the game, and they get paid based on the amount of value they provide. By solving problems, the rich are able to create something of value for others, and in turn, they are rewarded for their efforts.
11. They understand they don’t know everything.
Did you know that successful and wealthy individuals often form groups called masterminds? These groups bring together people with different areas of expertise, allowing them to learn from each other and grow their businesses and personal lives. Rather than thinking they know everything, the rich understand that they can always learn more from others. They actively seek out mentors and coaches who can help them improve in specific areas, and they are always looking for ways to develop new skills and build relationships that can benefit them in the long run. By taking this approach, self-made millionaires are able to stay ahead of the curve and keep growing their wealth and success over time.
It’s time to start incorporating these essential money lessons into our own lives and passing them on to the next generation. Remember, money is a tool, not an end goal, and the way you spend it will determine your financial future.