Like all parents, Jonathan Pinsler wants the best for his two children. Like most advisors, he understands the importance of them gaining financial independence and avoiding common mistakes.
Pinsler, senior vice-president, portfolio manager, TD Wealth Private Investment Advice, told WP that with two girls, aged 12 and 14, he has begun to think about how to prepare them to be responsible money stewards for the years ahead, with the aim of empowering them to avoid painful pitfalls.
He said: “At their life stage, less is certainly more. When approaching conversations on financial preparedness, I try to keep things simple and practical. My main priority is to keep them engaged, and more importantly, excited about the prospect of managing their own finances both now and into the future.”
Central to this is instilling an understanding and appreciation of the benefits of saving and the power of compounding. Pinsler broke down sage advice to his girls into seven simple elements and explained to WP why they are crucial rules to live your financial life by.
He explained: “I believe that if most of the items on this list are achieved, healthy financial judgement will likely become a part of your DNA. Money alone will never equate to happiness but maintaining the freedom to pursue your interests will help provide the perfect backdrop to a life well lived.”
Money has a purpose
“On the surface, money is used to afford life's necessities and prepare for the unexpected – a currency that accommodates our needs as well as our wants. My hope is that my two girls are beginning to take this into consideration as they envision the types of careers they may pursue. As a parent, however, the purpose of money should be perceived with more nuance. Equally important to the purchasing power of money is the prospect of finding a career that makes our children truly happy, providing a sense of pride, and an ongoing source of satisfaction. The purpose of money goes far beyond that of collecting a weekly paycheque – the intangibles are vitally important. Like most parents, I want my children to positively contribute to society and to gain financial independence so that they maintain the freedom to experience all that life has to offer.”
Having a savings mindset early is a huge asset to helping build wealth
“Regularly spending most of your earnings is not a very wise strategy. As you continue to deplete your source of income, you significantly increase the chances of long-term financial hardship – and in many cases, eliminate the tools needed to successfully navigate the unexpected. This is easier said than done for most families, as the cost of living continues to surge. Further compounding the risks associated with an inability to save and save consistently, emergencies will inevitably come up throughout one's life, and weathering the storm requires a stockpiling of financial resources. Delaying a short-term want for something more meaningful later, will help you understand the value of money. Opportunity cost helps with this concept. It’s just another way of saying, ‘If you buy the latest smart phone, then you won’t have the money to buy that new pair of shoes’. At this age, you should be able to weigh those decisions and understand the possible outcomes.
The power of compounding is awesome. Invest your savings and learn to invest wisely
“Thanks to the power of compound returns, you can make money on your money over time – compounding repeatedly for years to come. With compound interest, you earn interest on both the amount you save and on the interest or growth that the principal produces. This means that an investment of $300,000 earning simple interest at 6% would deliver $36,000 after two years. With compound interest, that same 6% would deliver $37,080 interest. Doesn’t sound like much? Wait for the third year, as compound interest would generate $57,305 as oppose to $54,000 generated through simple interest. As the years progress, the compounding effect multiplies.”
Strive to maintain stable emotional behaviour when investing
“There is a certainty of uncertainty in life and an emotional brain can severely impact return prospects on your investments. We tend to have blind spots, knowing yours may be the most important economic decision you ever make. Mastery of one's emotions is key. The old adage rings true: ‘Be greedy when people’s fears are high and fearful when people’s confidence is too high’. When it comes to stock investing, stick with quality companies and if one goes down temporarily, buy more if the fundamentals are still intact. If a stock goes up too quickly, reduce exposure gradually.”
Pretend like you are going bankrupt tomorrow when you start working
“A wise entrepreneurial client of mine said this early in my career and it stuck with me. This will centre you when times are good, and it will help you invest in yourself and enable a more focused approach when times are bad. Fear can be a positive when channelled correctly. Grandma Freda never had a dishwasher – not because she couldn’t afford it, but because she was conscious of how she spent her money.”
“This is not something I'm generally a fan of, unless it relates to a carefully considered home purchase. The first large ticket purchase you will most likely be required to borrow for is a home. If borrowing is the only available option, use it responsibly and pay back your debts (and try not to rest easy until you do!). On the other end of the spectrum, Credit card debt is one of the most expensive forms of borrowing, and should be paid off monthly, if not avoided entirely.”
Be charitable minded
“My grandfather, Jack, used to say, ‘you never go poor by giving’. A successful entrepreneur, he believed that when you are in a position to give to the less fortunate, whether that involves money or time, take full advantage, as the act of giving is immensely more rewarding than that of receiving.”