Lessons to Teach Your Children (Part 1)

(“Father and Son”; courtesy of Rune T)

I plan on having children, someday, and there are many important subjects–vital, in fact–that would empower children to live up to their full potential and that are simply not taught in school.  It is therefore left up to the parents to teach these subjects to their children.  I’ve been thinking of lessons that I would want my children to learn much earlier than I did, and the first lessons that came to mind are the following:

Aim to Start Your Own Business

“The 21st century will be known as the Age of the Entrepreneur . . .  It will be a time when Americans and others from many of the world’s capitalist economies will return to their roots of individual family-owned businesses. And, with this return will come not just enormous personal wealth for those who get there first, but also the resulting moral and family values, as well as freedom, that come with owning your own business and controlling your own destiny.” — Paul Zane Pilzer

The groundbreaking best-seller Rich Dad, Poor Dad written by Robert Kiyosaki compares the mindset of Kiyosaki’s father-who held several degrees and an important position in the government, but struggled financially–, with the mindset of his best friend’s father-who never even finished high school but left his son a financial empire. In his book, Kiyosaki explains that the mindset held by each of these two men, his “poor dad” and his “rich dad”, was largely responsible for each man’s financial destiny.

One of the main premises of the book is that “rich dad” taught Kiyosaki that he should get a job to learn and to acquire the necessary skills so that he could go on to start his own business. “Poor dad” saw his job as his source of income for life. While “rich dad” taught Kiyosaki to strive to become financially independent, “poor dad” taught him to depend on his employer for his financial well being.

In today’s economy it might even be riskier to hope for job security by working for a big company than it is to start a home-business. Paul Zane Pilzer has served as economic advisor to two U.S. Presidents, is world renowned as a leading predictor of economic catalyst and trends, and is also the author of five best-selling books, two of which are Unlimited Wealth and The New Wellness Revolution: How to Make a Fortune in the Next Trillion Dollar Industry. In his book The Next Millionaires he argues that we’re seeing a huge shift in our economy from large companies to electronically-connected entrepreneurs.

He explains that big companies were created because they were more efficient: the “transaction costs” of individuals doing business together who weren’t under one roof were so high—with transportation costs, communication expenses, delays, and so on—that costs would exceed their economic output. However, with technological advancements it is now becoming more cost-effective for corporations to decentralize and dismantle themselves, giving way to an environment of independent contractors.

Be Constantly on the Look-Out For Opportunities

Pilzer also advises that you pay attention to everything as you go through your day, from how you drive to work, to how you answer the phone, to when you work at your computer, to how you’re going to make notes of what you’re going to do the next day. At every step ask, “Is there a better way to do this?” If you’re going out to eat at a restaurant take a little time to think of how you decided where you were going and how you made a reservation, and ask: “What would make it easier for me?”

If you come up with an interesting idea on how to improve either a process or a product,  ask yourself if there’s a possible business there by making the process easier for everyone else. Pilzer explains that every good entrepreneurial business starts with a consumer who wants something they’re not getting or finds a better way of doing something. He adds that entrepreneurial opportunities will hit you by the minute when you stop and focus on them.

In his blog post, “Random Thoughts About Kindle”, marketing guru Seth Godin shares with his readers that he purchased a Kindle. He explains that the Kindle does a fine job of being a book reader, but does not improve the act of reading a book. He comes up with three examples of how non-fiction books on Kindle could be better:

• Let people highlight the books so that you can immediately see what thousands of people consider to be the best parts of each book.
• Let people write “notes” on the margin and let others vote them up Digg-style.
• Have links in the books to web sites or other books.

This is an example of someone who did not just passively purchase a Kindle and begin to use it, but who looked at the product and began to ask how it could be improved. Seth adds that anyone could easily come up with many other ways to improve Kindle.  This is the approach that should be taken with everything you do.

In addition, when you hit upon a good opportunity, you have to act on it. To use another example from Rich Dad, Poor Dad, when faced with an opportunity, “rich dad” would ask himself: “How can I afford this?” This forced his mind to think and to come up with creative solutions to be able to take advantage of the opportunity that had presented itself. Instead, when presented with an opportunity, “poor dad” would dismiss it by saying: “It’s too bad I can’t afford this.”

Have Money Work For You

Poor dad taught his son Robert to go to school, study hard, and get good grades so that he could find a secure job that would pay him a good salary and give him excellent benefits. That is, he advised him to work for earned income, or to work for money. However, there are several problems with this strategy. First, income streams from a salary are linear: you only get paid once for your effort. If you stop showing up for work, you stop getting a paycheck. It’s like being on a treadmill. Second, earned income is confined to the amount of time that you work, and time is a limited resource. Therefore, there’s a limit to how much earned income you can make. And third, earned income pays the most taxes.

Rich dad would say to Robert: “The key to becoming wealthy is the ability to convert earned income into passive income and/or portfolio income as quickly as possible.”  Passive income is income that does not require your direct involvement. You make a strong initial effort to get this type of income started, but then you do minimal work thereafter to keep it going.  It can include things such as royalties from books you’ve written or for inventions you hold patents to, rent from property you own, earnings from a business that does not require your direct involvement, and so on. Portfolio income is generally derived from paper assets such as stocks, bonds and mutual funds.

Another way to think of passive and portfolio income is as residual income. With residual income you work hard once, and it unleashes a steady flow of income for months or even years. You get paid over and over again for the same effort. That is, you get paid multiple times for every hour of work and the stream of income continues to flow whether you’re there or not. Therefore, you can spend your time doing things other than working for money. In addition, how much money you make is not determined by how many hours you work, but by how many residual streams of income you create.

Conclusion

These are the first three lessons that I think are important for children to be taught, and which I did not learn in school.   I once read that Warren Buffet–the greatest investor in history–bought his first share of stock at age 11 and regrets that he did not do so sooner. It’s never too early to start talking to your children about their future business and investments.  Be on the look-out for more posts on lessons to teach your children.

Editor’s Note: A post published today at zenhabits.net is a good illustration of the new rules of working that help support home businesses.

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