Retire early with a child… beyond the math.

I read Kyith’s post below and felt that it is a well written piece. Much like his style of breaking down the numbers to show us that financially it can be done.

Can You Retire Early if You have a Child? (read here)

Personally, being a father of two kids, and having have older colleagues with children (or acquaintances at work with kids themselves)… I guess as with most topics personal finance related, it simply goes beyond the numbers.

There is the ‘personal’ before the ‘finance’.

Please let me share my ‘2 cents worth of’ thought.

Hmmm… how to describe it?

It is like learning to drive. We have the theory test and the practical test, then actual driving on the roads. In theory / practical test…. everything seems logical, and people go by the rules, but ask any long time drivers (or taxi drivers), actual driving is nothing like that (esp. during rush hour traffic).

It is like investing in the stock market, when we think about market crashes, we think about how we would need to face our family at home when we think about the “losses”, rather than the factual aspects or fundamentals of the companies we are invested in. How to tell our spouse and kids that the kids’ varsity fees went up in smoke, or the planned year end vacation is going to be cancelled. It goes down to be very core of how we feel and our psychology.

Investing is more akin to an Art than a Science. A good book on this is “The Psychology of Money: Timeless lessons on wealth, greed, and happiness” by Morgan Housel.

Like how my director (in her late 50s with two school going kids) actually said to me…”In terms of figures, yes we can retire (actually by my own estimates, way beyond for her case), but it is not easy when we have kids.” Her husband is also a director in another company. They lived simply and has more than enough (money wise).

Like any doting parent, she wants the best for her kids.

Put it in another way: She is not talking about the numbers in their bank accounts or the value of their investment assets.

Having a child in essence is a risky investment from a pure financial point of view, because at the end of the day, we do not know if we would have any returns. Who can guarantee that your/my child can be financially stable after they complete their tertiary education (if they do make it there in the first place), and even if they are financially stable, they are not obliged to give us allowance. In some cases, parents continue giving financial aids to their children long after they reached adulthood.

Personally, if I am looking for a retirement plan, I think investment properties, bonds, dividend stocks or annuity work better.

Sorry, your kids are not your retirement plan (read here)

There is actually a section in the book “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, where they talked about Economic Outpatient Care provided by parents for their children (Chapter 5).

When we talk about our children, emotions cloud our judgement. When we think about how to bring up another human being….. for lack of a better word, it’s complicated (…. I even have problems dealing with myself). A child is not a lifeless object/asset like a car or house, which we can discard and buy new ones. We watch our children grow from hapless infants to full grown adults. With the increase in life expectancy, many will be around to see their children grow old.

Heck, some people even get emotional when they talk about their prized cars, apartments, collectables, watches, etc…..

We can ignore our cars for years, and they will still ‘love’ us back. A quick visit to the workshop and your car will be purring like a kitten and with a quick polish, shiny like new. Ignore our kids for a month… see what happens.

Remember Veruca Salt in Charlie And The Chocolate Factory?… Thinking of her sends me the chills.

It is simpler when kids are young, when we do not know their capabilities out there in the real cold hard world. If we have more than 1 young kid, when planning our will then, we can tell ourselves that we will be fair and spilt our wealth equally among our kids. However, often (as stated in the book), once they grow up… some parents would end up passing most of their wealth to the kid(s) ‘who need them more’ – in Thomas and William’s words: “Economic Outpatient Care (EOC)” or parental subsidies.

However, is that really the right choice?

Parents feel a strong need to provide kids (weakened by years of supports) with more EOC. Even after the children are all grown up.

However, it is like enforcing the strong rather than the weak. Those who lack financial discipline get most or more of the wealth / financial supports.

I guess not all things are black and white, or rational… humans have their irrational sides. It is harder when the thinking is entrenched from young.

Hypothetically, think of this example- imagine yourself walking up to a good class bungalow, and some kid (boy or girl) is standing behind the gate. Ask him whose house this house belongs to? In his mind, it is HIS house. In some way, that is not wrong (it is his family’s house) but more correctly, it is his parents’ house. As a kid gets older, society tends to expect him to fend for himself and get his own place. However, a person’s mentality (from young) is hard to change.

Or let’s view it from another angle: After many years, this same kid (who happens to be the only child) grew up and is now seated beside his dad who is now old and dying. Lying on his death bed, his dad told him, for the first time, that the bungalow and all the family assets will be donated to some charity. How would this kid (now an adult) feel about that? Would he resent his dad for giving away what is ‘rightfully’ his to some total strangers? In one night, in his mind, his net worth probably went from 7 or 8 figures to zero. Why is there resentment?

Having said that growing up in a wealthy family does not necessarily make someone a financial failure.

Thomas tells a story of a lady called Sarah (in a section called “Cinderella Sarah”). She is the child who thinks independently and in her case ‘defiant” from her father’s perspective.

Richard Ng Says His Wealthy Father Had 4 Wives And Smoked Opium With Bruce Lee’s Dad (read here)

As parents, we can give our child the best education, but to instill courage and the resilience to overcome failure is a different ball-game. Which I think is more important.

Money can’t buy that.

Some kids are born with the resilient character, some need more push and upbringing. Some may never ever acquire it (fact of life)… and parents (often those busy with work throughout their life) may end up blaming themselves for it. A product of their upbringing perhaps (or lack of it)? Kids don’t choose their parents, likewise, can we as parents foresee or choose our own children’s characters?

With money, it is not impossible to get the best tutors and the best tertiary education. Parents with money can ‘helicopter in’ and delegate the task to others. However, to make it in the real world, it takes more than that.

Yes, successful parents can ‘pull strings’ in the business or corporate world, ask their business partners / top management colleagues to lend a helping hand to their children’s businesses or careers.. but in the long term.. is this going to be beneficial?

How many times have we heard of stories of parents spending big bucks to give their child the best overseas Ivy League education, only for the child to forsake the degree / education / career path. Some still require EOC after that.

Richard Low Took 3 Loans & Borrowed Money From Friends So His Daughter Could Study In The US (read here)

Parents with investment properties may think that it is only right to pass on their properties to their kids. However, have they considered how their kids would think / feel once they live in such environments? If these kids are not financially capable and disciplined…being surrounded by people who actually have the income / ability to live the lifestyle there, how much dependency would this lead to?

Yes technically the kid is (with a stroke of the pen) a multi-millionaire (asset rich). The freehold condo itself is worth that. However, he /she may not have the high cash flow (income) to afford the ‘lifestyle’.

The wisdom of passing wealth and properties to the children (read here)

To quote the above article: “When I was pregnant with our first child, I was curious to know how PAW (Prodigious Accumulator of Wealth) parents avoid the fate of producing UAW (Under Accumulators of Wealth) children.

I looked for the answer in Thomas Stanley’s 1996 book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. I was convinced to create a “self-imposed environment of scarcity” – by adopting a thrifty lifestyle and living well below one’s means.

The practice is not for everyone, especially in a society that encourages higher consumption with higher income. It only works for people who truly enjoy a simple life and place non-monetary things over material possessions.”

Would this lead to a further lifestyle trap?

joneses BC By George | Media & Culture Cartoon | TOONPOOL

To keep up with the Joneses?

With a high end condo, ‘naturally’ (as what the mass media tells us) one would need a top notch TV with quality sound/entertainment system.

A TV / entertainment system like that looks out of place in a spartan living room. Let’s not forget the quality and easy on the eye ID renovation (with marble flooring, quartz finishing, German branded kitchen equipment & cabinetry.. right off the cover page of the recent ID magazine.. hey your neighbours have them too right?… and since you have done up the living room and kitchen, why not the toilets?… they need to go with the whole theme right?).

With the neighbours sending their kids to independent/international schools, would you want your kids to go to some neighbourhood schools? How would your kids feel if they see the neighbours’ kids with the latest iPhones or iPads? And your kids rushed to tell you that the neighbours just came back from a 2 week Europe vacation (Oh…Daddy / Mummy, we would love that too..). How can you deprive them of the trip?… Come to think of it, didn’t the neighbours just went to Disneyland California a few months ago?

Would you want to be seen in a second hand 8 year old Mitsubishi Attrage in the condo car-park while your neighbour who is a Senior VP at JP Morgan drives the latest model / top end brand new Audi?

Rinse and repeat, next week, next month, next year, the same thoughts, conversations and requests.

And if you (and your spouse) do not have the income to afford these, who can you turn to?

Personally for me, I am aware of enough examples of adult children receiving EOC from their aging parents (some are my relatives, some are people whom I known from work). Some of these adult children are even parents themselves (and they are jobless, relying on financial help from their parents). Parents in their 60s, 70s, 80s still working, while their 20s, 30s, 40s, 50s year old sons / daughters are not. Why is that even news worthy or surprising?

Yes, it is important to know the numbers on what we need to be able to retire. Don’t be a burden (to them). However, we must not forget to instill the resilience in our children for them to make it out there on their own.

Imagine, while you are enjoying your FIRE at the beach with a cocktail in one hand, your handphone on the table next to you rang. It is your grown up son (or daughter) on the line. He tells you about how he is struggling to pay off his debts and making ends meet, and having less than enough to live the life he ought to be living. From his tone you can sense sadness and desperation. Yes, the numbers work (for you), you can FIRE. However, at this moment, does the cocktail in your hand still taste as good as before?

Time flies… but in some obscure corner of your mind, you can still feel and remember the times you spent with your child (in happier times).. Yes, how fast time flies and how big he has grown… but to you, your child will always be your child (whether they are in their teens, 20s, 30s, 40s…). When he sees you, he will always call you daddy/mummy.

In addition, you/I might think this way, but our spouse (or our own parents / parents-in-law) may think otherwise. Lots of variables which are not within our control. My belief is that the only person who I can truly control is myself (even this.. with the many mental biases which I myself may not even be aware of… it is hard to say).

For some, parenting is a full time job or rather lifetime job… Literally. It ends when they are at their death beds.

StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Use the above referral code to enjoy the below benefits (Campaign Period: 1 Sept 2021 – 30 Sept 2021)