Warren Buffett, the American billionaire, philanthropist, and chairman of Berkshire Hathaway, is not only known for his investment acumen and frugal ways, he is also revered for his folksy wisdom. But did you know that he is also invested in passing on his wisdom to children? Buffett produced an animated series called Secret Millionaires Club, in which he voices himself serving as mentor to a group of smart and enterprising kids. His oft-repeated advice: the best investment kids can make is an investment in themselves.
What other things can our kids learn from the “Oracle of Omaha?”
Someone is sitting in the shade today because someone else planted a tree long ago.”
Some things might take time to bear fruit but that’s exactly why the perfect time to start working on them is now.
For kids, this could mean doing their best in school. Getting good grades will give them more options — and the possibility of scholarships — for college. Doing well in college gives them a better chance for landing a good job. The possibilities are endless from there onward. Good grades aren’t strictly necessary for success, of course, but the way you get them — with hard work, discipline, determination, and grit — and the mental muscles you build along the way are essential.
Starting early isn’t only for academics, either. Most successful athletes start young. The skills they pick up are invaluable; the mentality they develop is crucial.
But does this mean children should always be thinking of the future and forego enjoying their childhood? Of course not! The two aren’t mutually exclusive. In fact, the art of budgeting time and resources with one eye on the present and another on the future is another lesson kids can learn from this practice of starting early.
[Longtime associate Charlie Munger] thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.”
For your kids, this means investing in themselves by going to school, learning everything they can, and building valuable habits.
For you, it also means investing in yourself! Continue to learn, continue to build valuable habits. Do things that, when you ask yourself “Does this help me get to where, and who, I want to be in the future?” the answer is a resounding “Yes!”
Whether he’s looking for employees or business partners, Buffett looks for unimpeachable character, integrity, and prudence. These are just some of the things he has said or written through the years:
You can’t make a good deal with a bad person.”
“We intend to continue our practice of working only with people whom we like and admire. This policy not only maximizes our chances for good results, it also ensures us an extraordinarily good time.”
“We look for three things when we hire people. We look for intelligence, we look for initiative or energy, and we look for integrity… If they don’t have the latter, the first two will kill you.”
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
Why is having integrity and good character important?
Hmmm. It’s not as easy as it first seems to answer that question, is it?
In a world where people lie and cheat to get ahead, what is the value of values?
Let’s set aside the obvious questions of morality and eternity for a moment.
From the moment we’re born, we have a survival instinct to want to be around people we can rely on. We need to know that when we feel hungry, someone will feed us. We need to trust, as we take our first steps, that that person a short distance away from us will catch us if we fall. It’s an instinct honed by thousands of years of evolution.
School-age kids require the same trustworthiness from the persons around them. They will call us out when we make promises that we don’t keep. They don’t like playing with peers who cheat. An unreliable environment throws them off kilter and interferes with their ability to, for example, delay gratification. And so we want our child not only to have friends they can trust, but to also be the kind of person that other children want to have around.
Adulthood raises the stakes but the dynamics involved are roughly the same. If people don’t think you will do right by them, they won’t trust you with their money. If people can’t be sure that you’ll do what you say you’ll do in the time that you say you’ll get it done, you’ll lose the business to someone more reliable. If you behave in a manner that causes your company to look disreputable by association, you become a liability. It’s really that simple.
And obviously, isn’t it just better to be the kind of person who does the right thing simply because it is the right thing to do?
I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be read by their spouses, children, and friends, with the reporting done by an informed and critical reporter.”
This was what Buffett called the “front-page test” — and he may have written it as an instruction to his employees but it’s also something worth talking about with children. School kids often do things that are against the rules and then get mad when a classmate “tattles” on them to a teacher. And while a tattler is no one’s favorite person, the question that the wrongdoer should be reflecting on is: should they have been doing whatever they did in the first place?
It’s an important thing to reflect on because childhood is a critical time for building moral foundations.
It’s also a good rule of thumb to live by as adults.
It’s much easier to stay out of trouble now than to get out of trouble later.”
“After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers.”
Oh, the many problems that wouldn’t be problems in the first place if people only took this lesson to heart!
Teach your kids that while it’s great that they can solve problems, it’s equally useful to recognize when an enemy is stronger than they are. Things like alcoholism, other forms of substance abuse, debt, grade deficits, anything that snowballs or is habit-forming — these are better off being avoided. Tell them the story of Daniel and point out that while Daniel trusted God to save him from the lion, he never tempted fate by putting his head in the lion’s mouth.
Don’t put your head in the lion’s mouth.
We’ve done better by avoiding dragons than by slaying them.”
I know that for a lot of people, this is easier said than done.
Sometimes, through no fault of your own, you find yourself in a situation where you really have no other way to pay for your needs than through borrowed money. At other times, it might make sense to pay something off over a longer period of time versus a one-time bulk payment, especially if the difference in the total price you pay is minimal and you are assured of a stable income in the time it takes to complete the payments.
Otherwise, as much as possible, avoid debt like the plague.
This practice is easiest to start in childhood. Even at an early age, kids can learn:
Buffett biographer Alice Schroeder writes that “Spend less than you make” and “Don’t go into debt” could very well have been the Buffett family motto. Warren Buffett himself said:
We never want to count on the kindness of strangers in order to meet tomorrow’s obligations.”
Kids who are used to seeing their parents buy and pay later are learning a habit that will be difficult to undo in adulthood.
On the other hand, kids who learn to buy only what they need and can afford are the ones with the best chance of never having to rely on the kindness of strangers.
There’s a right place and role for money in our lives.
If someone goes through life and measures themselves solely by how much they have, or how much money they earned last year, sooner or later they’re going to end up in trouble.”
Buffett made this statement in the context of illegal and unethical Wall Street practices. The point is that if money is the most important thing in your life — so much so that it defines you and becomes the criterion by which you judge yourself and your actions — you’re likely going to end up being the kind of person who will do anything, even the worst things, to get more and more of it.
But if money isn’t to be desired for its own sake, neither is it something to be shunned.
If you think of money as a tool, and you keep in mind what it is you really want in your life that money is simply there to help you achieve, money can become a powerful force in your life without leading you astray:
[Money] could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.”
As your kids learn to set their own goals and plan ways to achieve them, teach them this most important distinction. Make money your slave, not your master.
This bit of wisdom actually is directed towards kids and their parents.
I’ve seen people try to steer their children, and the worst thing you could do is use money to induce given behavior with kids. I told my kids they don’t have to do anything…finish college, become doctors or lawyers. …I told them to use their talents in whatever form they think will create the greatest net benefit to society.”
For us parents, Buffett cautions us against steering our kids towards the careers that we want for them, instead of encouraging them to find their own paths. Of course, we all have big dreams for our kids. We know them, so we know their strengths and have ideas on what they can be good at. We also know how the world works and we want to guide our kids towards choices that we think will be good for them. Basically, we just want them to live their best lives.
In the end, it’s their life. In the end, they will have to live with the consequences of their choices. The last thing we want is for them to dutifully follow our every hint, nudge, or outright shove, only for them to end up miserable and blaming everything on us. We can guide them. We can equip them as much as we can for their journey. We can give them a safe place to land if they fall. But we have to respect them enough to let them make their own decisions.
As for what Buffett is telling our kids?
The first part is to use their talents. We all have different things we’re good at, as well as things we’re not so good at, and our kids are no different. Our kids have their own strengths and weaknesses. As they grow up, they will hopefully learn to manage their weaknesses, but what’s particularly important for deciding the direction of their lives is their strengths.
What unique gifts do they have to offer to the world?
And that’s the second part of Buffett’s advice: to use those talents to benefit society. It doesn’t have to be through one of the traditionally “helping” professions like teachers or doctors. Buffett himself says his own talent is “allocating capital” — not exactly one immediately associated with service — but 99% of the wealth that he has gained and will gain through that talent, he has pledged (and has already started) to give away to philanthropic purposes within his lifetime and at death. His kids have their own foundations tackling different societal issues. The Buffett family certainly walks the talk.
I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious.”
Yes, hard work is important and for that you should absolutely take credit. But don’t forget that you could just as easily have been born lame and blind, to an impoverished family with 10 children, in a village with no running water, in a country where disease and armed violence is a daily reality. No matter how industrious you’ve been, you’re never entirely self-made. A person who works just hard as you do, with equal effort, but under different circumstances and from a different starting line, will most likely have a different outcome. Luck by itself won’t bring you success but it never hurts to have it.
It’s important for kids to realize this so that:
Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, ‘One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one that is born in the United States?’ It says something about the fact that society has something to do with your fate and not just your innate qualities. The people who say, ‘I did it all myself,’ and think of themselves as Horatio Alger—believe me, they’d bid more to be in the United States than in Bangladesh. That’s the Ovarian Lottery.”
“I happen to have a talent for allocating capital. But my ability to use that talent is completely dependent on the society I was born into. If I’d been born into a tribe of hunters, this talent of mine would be pretty worthless. I can’t run very fast. I’m not particularly strong. I’d probably end up as some wild animal’s dinner. But I was lucky enough to be born in a time and place where society values my talent, and gave me a good education to develop that talent, and set up the laws and the financial system to let me do what I love doing — and make a lot of money doing it. The least I can do is help pay for all that.”
You’d get very rich if you thought of yourself as having a card with only twenty punches in a lifetime, and every financial decision used up one punch. You’d resist the temptation to dabble. You’d make more good decisions and you’d make more big decisions.”
“The difference between successful people and really successful people is that really successful people say no to almost everything.”
Childhood might seem too early to be learning this lesson, but not if you set aside the “financial decision” aspect of it and recognize the underlying principles.
These are all things a child needs to learn. The goal may be as simple as doing well in a performance. Prioritization might take the form of deciding what to buy with their Christmas money. Those things might not carry the weight of a slot in a twenty-punch lifetime card but it’s good practice for later in life.
Don’t risk what is important to you to get what is not important to you.”
I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”
Okay, our kids are not likely to be in the business of buying and selling stocks right this very minute.
But what kids can take away from this humorous but wise sound bite is, one, when we make plans, we have to expect that not everything will go exactly the way we think it will — and so we have to work that into our plans in the first place. What will we do when we hit road bumps? That essay will take longer than expected to write, so it’s a good idea, isn’t it, to budget a little more time than we think we will need? Plan A might not work for that project; so what’s Plan B?
Another takeaway is that failure is an inevitable part of our lives. Our kids need to understand this; forewarned is forearmed. When it does happen, we need to be there for our kids: talk them through it, hold their hand, teach them strategies for working through their emotions and getting back on their feet. And just like it’s a good idea to invest in a business so great that it can survive an incompetent manager, we need to live lives so rich that we can survive and eventually thrive through whatever setbacks will inevitably happen.
It’s a lesson even adults can use, isn’t it?
One of the most important things that you can ever teach your kids is that they can either live their lives according to how others think they should, or they can set their own goals, their own parameters, their own benchmarks for success, and assess themselves based on that. The former is what Buffett calls an “Outer Scorecard”; the latter the “Inner Scorecard.”
It’s something worth really thinking about.
If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best? In teaching your kids, I think the lesson they’re learning at a very, very early age is what their parents put the emphasis on. If all the emphasis is on what the world’s going to think about you…you’ll wind up with an Outer Scorecard.”
Buffett cites his father’s tremendous influence on the scorecard he uses for himself.
[My dad] was really a maverick. But he wasn’t a maverick for the sake of being a maverick. He just didn’t care what other people thought. My dad taught me how life should be lived.”
Of course, it’s important to listen to other people too, especially those who care about us and want us to succeed. They can give us valuable suggestions. Their feedback can be full of insights that haven’t occurred to us simply because we are too close to the subject: ourselves. It always helps to consider different viewpoints. But, ultimately, it’s our life and we have to take personal responsibility for what we do with it. We don’t want to get to the end of our lives and realize we spent it running around like a headless chicken, trying to live up to everyone’s standards but ourselves.
Buffett puts it this way:
I feel like I’m on my back, and there’s the Sistine Chapel, and I’m painting away. I like it when people say, ‘Gee, that’s a pretty good-looking painting.’ But it’s my painting, and when somebody says, ‘Why don’t you use more red instead of blue?’ Good-bye. It’s my painting.”
Love is the greatest advantage a parent can give.”
“Basically, when you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually do love you. I know people who have a lot of money, and they get testimonial dinners and they get hospital wings named after them. But the truth is that nobody in the world loves them. If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster. That’s the ultimate test of how you have lived your life.”
What more needs to be said?
Let us know in the comments below!