During Chinese New Year, I visited a relative for a quick catch up. In the midst of our conversation, he casually remarked on property prices and how his kids can afford them by their own means in the near future.
Personally, I know he’s not alone in this. Today, it’s a shared concern for parents as they genuinely want the best for their children. Nice houses that are situated in nice neighbourhoods in the Klang Valley would cost at least RM 500k-RM 1m. This can be daunting especially when starting salaries for professionals is below RM 5k a month.
So, is my relative doing enough to prepare his kids for this?
Well on the surface, I believe he is doing his best. His kids are receiving the best academic and professional education there is. It’s the same drill – ‘good schools, good grades, good universities so that they can land themselves good jobs’. The drill today is the same as what it was 20, 30, and 40 years back. But still, the key question remains: “Can his kids afford to buy their homes in the future?”.
Practically speaking, one can send kids through private education and still could not resolve this issue.
And … do note that private education is not cheap.
Personally, I believe something is amiss.
Something is amiss when parents spend millions on education, including tuition and extracurricular classes, and still have low confidence that kids can buy their own properties independently.
To me, I believe the missing piece is – “Many parents place great importance on literacy, numeracy, music, art, sports, results, degrees, qualifications, … etc, but not on matters related to money.” Is money important? I’m sure it is. But, when it comes to education, money becomes unimportant and thus, sidelined.
Think about it.
In the future, when they earn their first income, do you expect your kids to:
- Save for a rainy day / retirement?
- File in and pay their income taxes?
- Get adequate life and medical insurance?
- Invest to generate passive income regularly?
- Make plans to buy their own real estate?
- Write their own wills and set up a trust fund?
and so on and so forth automatically by themselves?
Do we expect our kids to know how to buy properties right after college?
So, we can groom our kids to be academically and professionally successful. But they could be financially unwise. This is simply because of a lack of education in the areas of money and personal finance.
The problem is – “We can’t rely on schools, colleges, and universities to educate our kids on money matters. There is little curriculum on it. Are our teachers and lecturers financially savvy people? What are the chances?”. So, if we plan to get our kids prepared for an uncertain financial world, I believe there’s a need to be financially educated for both parents and kids alike.
It’s up to us to prepare ourselves and our kids for our financial future.
So, what’s financial education?
For us at KCLau.com, it is about understanding financial statements and the key words that make up a financial statement.
Then, it is about management.
Financial management is about raising income, controlling expenses, enhancing profits, increasing assets, optimising debts, and having cash inflows that exceed cash outflows. If we can do all of the above, our personal net worth could grow. This is how we can produce future millionaires.
Now, we could use the above to prepare our kids for their property purchases. I would share how the above knowledge is critical for your kids when it comes to being homeowners and landlords in the future:
- Income: How can I receive rising rent promptly from my tenants?
- Expenses: What are property expenses that are tax deductible?
- Profits: How much is my net rental income / loss from this property?
- Assets: How to Estimate the Market Valuation of a Property?
- Liabilities: What is my Debt-Service Ratio (DSR)?
- Net Worth: How would this real estate boost my future net worth?
- Cash Flows: What is my net cash flow for holding onto this property?
But of course, you may argue: “My kid is only a fresh graduate, earning RM 3k a month. He is not ready to buy a property.”
Yes, you are right especially if your kids are still in schools, in colleges or earning RM 3k a month as a fresh graduate. At those stages, they aren’t ready. But, how about the near future (5 years from today)? They can obviously begin preparing now. They can learn how to assess property deals, understand regulations, DSR, tax laws, … etc at any time before they can buy their first property.
Education is best initiated before they have the money to manage.
I can’t say my parents taught me about property investing.
But in my 20s, I bought books and have attended courses on property investing. Could I afford a down payment back then? Nope. But, the education, exposure, and beliefs that I received in my 20s propelled me to plan and take initiatives so that I can eventually afford to buy real estate.
To me, it’s about having some awareness and education.
So, back to the question, can our kids buy their own properties in the future?
I believe we can enhance the odds of that happening if our kids are equipped & empowered with financial education. We know many parents are doing great in providing academic and professional education to our kids. But let us not forget about financial education, which can be a pivotal difference between producing wealthy kids and poor kids in the future.
By Ian Tai Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in KCLau.com in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore.
