Wealthy Leaders on Financial Advice for Kids: Investing, Budgeting, and Inheritance

Entrepreneur Eric Malka had to completely change his mentality 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 purchased 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 managing assets without proper training,” he told CNBC via video call. Investors should focus on patience and on long-term returns, while company founders often look at a short-term plan, an “almost opposite” mentality, Malka said.

He took asset management courses, read books on investing and now has a diversified portfolio of stocks, bonds, private equity and real estate, of which about 10% is earmarked for riskier investments. In 2014 he founded private equity fund Strategic Brand Investments.

When it came to teaching his children (sons aged 14 and 16) about money, Malka’s attitude was to help them learn from the beginning.

“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 eldest 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 an opportunity to learn – and his son lost 40% of that investment after trading currency futures.

“I hate to point out failure to my child, but sometimes the lessons you learn when you lose are more valuable than the lessons you learn 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 but may actually be small. “The emotional strength and humility required to be a good investor is something people have to develop on their own,” he said.

For Dayssi Olarte de Kanavos, president and co-founder of real estate company Flag Luxury Group, introducing children to money at an early age is crucial.

She and her husband awarded each of their three children a “low-risk” amount of money in high school so they could choose companies in which to invest. Apple, Amazon, Googling 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 savings each year,” she told CNBC by email.

Olarte de Kanavos said her experience in real estate investing has taught her the value of patience. “It 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 sector.”

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 drops by $70 next year, how will you feel?’ “Do you want to spend $100 on a toy today, or do you want it to be $200 in ten years when you’re 16?” Van told CNBC via email “Surprisingly, they are very rational and always come first delayed gratification,” he said.

Van and his wife have an investment portfolio for each of their children, made up largely of gifts received during holidays such as Chinese New Year. “Given their long investment horizons, they are in highly diversified, low-cost, multi-manager stock portfolios,” Van said, and he shows his children the performance of their portfolios – positive or negative – whenever they ask.

Age-appropriate advice is very important, Malka said. His focus now is on teaching his children about budgeting by giving them a set amount of money per month.

“In the beginning they were spending in ten days what they should be spending in thirty days… now I’ve been doing this for eight or nine months, now they’re managing it really well, and I think that’s a skill that they don’t realize realize they are learning,” he said. He recommended the book “Raising Financially Fit Kids” by Joline Godfrey, which provides advice by age group.

“Give them an allowance no later than the first class,” is Olarte de Kanavos’s suggestion. “The purpose of a grant is to empower them to make their own decisions about money and control the consequences of their choices,” she told CNBC. “As they get older, teach them about savings, 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 have 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 grow up financially literate, confident and ready to make her own decisions,” Mahtani Cheung told CNBC by email.

One concern for wealthy members of advice 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 about the wealth they will inherit to distract or throw them off course,” said Michael Sonnenfeldt, founder and chairman of Tiger 21, 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 detail 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 parents encourage open, values-based conversations about money and investing,” says Sonnenfeldt.