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Entrepreneur Eric Malko had to completely change his thinking when he sold his company and became an investor. Since then, he has learned many lessons that he is now passing on to his children.
When The Art of Shaving, which Malka and his wife Miriam Zaoui founded in 1996, acquired Procter & Gamble for a reported $60 million in 2009, Malka realized that he should be engaged in education.
“When an entrepreneur like me is lucky with liquidity, we’re faced with … managing assets without proper training,” he told CNBC during a video call. Investors need to focus on patience and long-term profitability, while company founders often consider a short-term plan, “almost the opposite” mindset, Malka said.
He has taken wealth management courses, read investment books and now has a diversified portfolio of stocks, bonds, private equity and real estate, with about 10% allocated to riskier investments. In 2014, he founded the Strategic Brand Investments direct investment fund.
The lessons learned when you lose are more valuable than those learned when you succeed.
Eric Malka
Co-founder and CEO of Strategic Brand Investments
When it came to educating her children — sons aged 14 and 16 — about money, Malka’s attitude was to help them learn from the ground up.
“One of the challenges I’ve had with my teenagers early on is their belief that it’s very easy to make money investing through social media and what they hear from their friends,” he said. His eldest son believed he could get 20% of his monthly income, which Malka called “very worrying”. So Malka let him invest a small portion of his savings, hoping it would provide a learning curve – and his son lost 40% of that investment after trading currency futures.
“I hate to set my kid up for failure, but sometimes, you know, the lessons you learn when you fail are more valuable than the lessons you learn when you succeed,” Malka said.
It’s a sentiment echoed by Gregory Wang, CEO of Singapore-based wealth platform Endowus. He and his wife have children aged eight, six and three. He said he would teach them the importance of making mistakes when the stakes seem big to them, but may actually be small. “The emotional strength and humility needed to be a good investor is something people have to develop on their own,” he said.
Teach children to invest
For Dacey Olarte de Canavos, president and co-founder of real estate company Flag Luxury Group, teaching kids about money early is important.
She and her husband gave a “low-risk” amount of money to each of their three children in high school to choose companies to invest in. “Our children chose an apple, Amazon, Google and Alibaba. All but one had great runs. As long as they kept their money in the market and continued to approach it thoughtfully, we added to their money every year,” she told CNBC via email.
Olarte de Canavos said her real estate investing experience taught her the value of patience. “It influenced my business approach, emphasizing a long-term strategy rather than a quick profit,” she said. The mother-of-three described her own stock market investments as “very conservative to best manage the huge risks we take on in our property business”.
The allowance is given to them no later than the first grade.
Dacey Olarte de Canavos
President and co-founder of Flag Luxury Group
She suggested that children explain why they want to buy certain stocks because it “can demystify investing and make it exciting and an integral part of their education,” she said.
Wang said he talks to his young children about the trade-offs of investing on their own terms. “I ask them, ‘If we invest that $100 and the next year it drops to $70, how will you feel?’ “Do you want to spend $100 today on a toy or have it turn into $200 in 10 years when you’re 16?” Wang told CNBC via email. “Surprisingly, they are very rational and always go for delayed gratification,” he said.
Wang and his wife have investment portfolios for each of their children, mostly made up of gifts they received during holidays such as Chinese New Year. “Given their long investment horizons, they are in very diversified portfolios of low-cost stocks with multiple managers,” Wang said, and shows his children the results of their portfolios — positive or negative — whenever they ask.
Budget and savings for children
Age-appropriate advice is essential, Malka said. Now he’s focused on teaching his kids how to budget while providing them with a fixed monthly allowance.
“In the beginning, you know, they were spending in 10 days what they should have spent in 30 days…now I’ve been doing it for eight or nine months, now they’re really managing it properly, and I think that’s a skill that they don’t realize that they are taught,” he said. He recommended Jolene Godfrey’s book, Raising Financially Fit Children, which provides advice by age group.
“Give them a textbook no later than first grade,” is Olarte de Canavos’ suggestion. “The goal of the help is to enable them to learn to make their own money decisions and manage the consequences of their choices,” she told CNBC. “When they get older, teach them about saving, the concept of interest and the difference between good debt and bad debt,” she said.
For Roshni Mahtani Chung, CEO and founder of media company The Parentinc, long-term thinking is important. She and her husband opened a fixed deposit account for their eight-year-old daughter with the money she gets for Chinese New Year, and she gets a gold coin on Diwali. “My goal is for her to grow up financially savvy, confident and ready to make her own decisions,” Mahtani Chung told CNBC via email.
Talking to children about their heritage
Wealthy members of the Tiger 21 Advisory Network worry about how and when to talk to their children about their inheritance. “They are most concerned about their children leading independent, productive lives, and they don’t want the knowledge of the wealth they will inherit to distract or derail them,” Tiger 21 founder and chairman Michael Sonnenfeldt said in by email to CNBC.
About 70 percent of netizens want to wait until their children are in their 30s and working to detail what they might inherit — and when, Sonnenfeldt said. “However, about 30% of participants want to start working with their children in their teens or early 20s to train them to be responsible stewards of the wealth they will inherit,” he said. Both approaches are valid, he added.
“I suggest parents encourage open conversations about money and value-based investing,” Sonnenfeldt said.
