I must have sat through hundreds of investment lectures in my lifetime – but there’s only one that literally made my jaw drop. Let me tell you about it.
It happened a few weeks ago in Omaha, at a talk that featured Warren Buffett’s only daughter, Susie, answering questions from the audience. A young Asian kid put up his hand and asked, “What would you do if your father had given you $10 million on your eighteenth birthday?”
“Well, I think it would have all been gone by my nineteenth birthday” she said, laughing.
It didn’t happen, of course. Her father, Warren (who has referred to his kids as being members of ‘the lucky sperm club’) primarily gave his kids love, kindness and a local public high school education.
At this point, Susie leant forward and said to the kid, “Hang on a minute … how old are you?”
“Eighteen”, he answered, sheepishly.
He told Susie that earlier in the year his father had presented him with a cheque for $US10 million – but it came with two conditions:
The first was that he could spend it on anything he wanted. “My father always asks me ‘Why don’t you buy a Ferrari?’ ‘Have you thought about buying a penthouse?’ ‘Why don’t you have some fun?’”
The second condition, however, wasn’t quite as cool: “My father says he will review my ‘progress’ on my twenty-first birthday – and rewrite his will accordingly.”
“How much is in his will?” asked Susie.
“Five hundred million dollars”, was his matter-of-fact reply.
Okay, I know what you’re thinking – this kid hit the genealogical jackpot, right?
Well, arguably the same could be said for most Aussie kids. Research out this week shows that more than eight out of ten Aussie parents admit to giving their children financial help. Flinders University even put a price tag on it, suggesting that Aussie parents give their adult kids a staggering $22 billion in handouts each year.
So let’s talk about the elephant in the room: no parent sets out to raise a ‘kidult’ (part child, part adult)… it just tends to happen. Yet what becomes of these kids?
Actually, I can answer this one, because years ago I was an expert on a show called The Nest, which looked at kidults who hadn’t flown the family nest. I’ll save you watching (my mum’s) boxed set DVDs – here’s what I learned:
The parents tend to kill their adult kids with kindness. The most common reason they give for letting the kids stay in the nest is the high cost of setting up on their own. So the kids live at home and save up their pennies. Or at least that’s what they all tell themselves around the dinner table.
But here’s the thing: sheltering fully grown adults from financial reality didn’t work well for the Soviet Union, and it has a similar effect on Australian twenty- and thirty-somethings. In most cases I’ve seen (including The Nest), none of the kids were saving any more than their friends who were on their own. They were just sponging off their parents.
Now let’s talk about the second elephant in the room: most parents can’t really afford it.
Research by AMP found that a kidult (aged between 18 and 24) costs a middle-income family $678 a week, or $35,256 a year. Compare this with the average retirement payout of $198,000 for men and just $112,00 for women.
Now if good old Mum and Dad could salary-sacrifice even a portion of this into superannuation each year – and perhaps downsize from their large family home – they could radically change the quality of their retirement.
Okay, but what if you’re a parent who can afford to cocoon your kids long after they’ve grown into a beer-drinking butterfly? Well, after years of being Barefoot, I firmly agree with Warren Buffett’s advice – give your kids “enough money so they feel they could do anything, but not so much that they could do nothing”. And that’s not as expensive as it sounds. It consists of a good education and a realistic understanding of how the world works.
And then there’s the other extreme …
“So what have you spent your money on so far?” I asked, after I cornered the instant-millionaire kid over a Coke following Susie Buffett’s talk. He shrugged his shoulders and explained that he’d stuck the $10 million in a bank account and bought a ticket to Omaha to learn from the Guru himself.
Or, as it turned out, the Guru’s daughter.
Tread Your Own Path!