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Entrepreneur Eric Malka had to completely shift his way of thinking when he sold his company and became an investor. Since then, he has learned many lessons that he now passes on to his children.
When the art of shaving – which Malka and his wife Myriam Zaoui founded in 1996 – was bought by Procter & Gamble For a reported $60 million in 2009, Malka realized he had to educate himself.
“When an entrepreneur like me is fortunate enough to have a liquidity event, we are faced with… having to manage assets without proper training,” he told CNBC by video call. Investors should focus on patience and on long-term returns, while company founders often look at a short-term plan, “almost an opposite” mentality, Malka said.
He took Wealth Management courses, read books on investing 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 private equity fund strategic brand investments.
The lessons learned when you lose are more valuable than those learned when you succeed.
Eric Malka
Co-founder and CEO, Strategic Brand Investments
When it came to educating his children – sons aged 14 and 16 – about money, Malka's attitude has been to help them learn from the ground up.
“One of the challenges I faced early on with my teens is their belief that it is very easy to make money by investing through social media and what they hear from friends,” he said. His older son believed he could generate a 20% monthly return, which Malka described as “very worrying.” So Malka let him invest a small portion of his savings, hoping it would provide the opportunity to learn – and his son lost 40% of that investment after trading futures.
“I hate setting my kid up for failure, but sometimes, you know, the lessons learned when you lose are more valuable than the lessons learned when you succeed,” Malka said.
It's a point that resonates with Gregory Van, CEO of Singapore-based Wealth Platform Endowus. He and his wife have children aged eight, six and three. He said he will teach them that it is important to make mistakes when the stakes seem high to them, though in reality they may be small. “The emotional muscle and humility it takes to be a good investor is something people have to develop on their own,” he said.
Children learn to invest
For Dayssi Olarte de Kanavos, president and co-founder of the real estate company Flag Group, it's premature to educate children about money.
She and her husband allocated a “low-risk” sum of money to each of their three children in high school to choose companies to invest in. “Our kids chose it Apple,, Amazon,, Google And Alibaba.com. All but one had great runs. As long as they kept their money in the market and remained thoughtful in their approach, we added to their nest egg every year,” she told CNBC by email.
Olarte de Kanavos said her experience in real estate investing taught her the value of patience. “It has influenced my business approach by emphasizing long-term strategy over quick wins,” she said. The mother of three described her own investments in the stock market as “very conservative, to best manage the enormous risks we take in our real estate business.”
Give them an allowance no later than the first year of school.
Dayssi Olarte de Kanavos
President and co-founder, Flag Luxury Group
She suggested having children explain why they want to buy certain stocks because it can “demystify investing and make it an exciting and integral part of their education,” she said.
Van said he talks to his young children about the tradeoffs of investing on their own terms. “I ask them, 'If we invest this $100 and it increases by $70 next year, how will you feel?' “Do you want to spend $100 on a toy today, or will it be $200 in 10 years when you're 16?” Van told CNBC via email. “Surprisingly, they are very rational and always go for delayed gratification,” he said.
Van and his wife have investment portfolios for each of their children, mostly consisting of gifts received during holidays such as Chinese New Year. “Given their long investment horizons, they are in highly diversified, multi-manager, low-cost stock portfolios,” Van said, and he shows his children the performance of their portfolios—positive or negative—whenever they ask.
Budgeting and saving for children
Appropriate advice is very important, Malka said. His focus right now is teaching his children about budgeting, providing them with a fixed allowance per month.
“In the beginning, you know, they would spend in 10 days what they should spend in 30 days… now I've been doing this for eight months or nine months, now they're managing it really well, and I think that's a skill that they don't realize they're being taught,” he said. He recommended the book “Financial Fit Kids Raising Kids,” by Joline Godfrey, which provides age-group advice.
“Give them first class at the latest,” is Olarte de Kanavos's suggestion. “The purpose of compensation is to empower them to make their own decisions about money and manage the consequences associated with their choices,” she told CNBC. “As they get older, teach them about saving, the concept of interest and the difference between good and bad debt,” she said.
For Roshni Mahtani Cheung, 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 for the money she receives on Chinese New Year, and on Diwali she receives a gold coin. “My goal is for her to be financially smart, confident and ready to make her own decisions,” Mahtani Cheung told CNBC by email.
Talking to children about their inheritance
One concern for the wealthy members of Advisory Network Tiger 21 is how and when to talk to their children about their inheritance. “They are most concerned about their children living independent productive lives and don't want knowledge of the wealth they will inherit to distract them or throw them off course,” said Tiger 21 founder and chairman Michael Sonnenfeldt in an email to CNBC.
About 70% of the network's members want to wait until their children are nearly 30 years old and have established careers to spell out what they might inherit—and when, Sonnenfeldt said. “However, about 30% of members want to start working with their children in their late teens or early 20s to teach them to become responsible stewards of the wealth they will inherit,” he said. Both approaches are valid, he added.
“I suggest that parents encourage open, values-driven conversations about money and investing,” Sonnenfeldt said.