In the pursuit of financial freedom, many people feel let down when they can’t find a set of concrete steps. It is as if many expect a kind of magic phrase, or to be told a place they have to go to find what they’re looking for. It doesn’t work like that, and in fact, if you’ve ever read a book on financial education, you’ll have realised that those steps don’t exist, although you will have found ambiguous language that you have to interpret.
As we said in a previous article, the only ways to achieve that longed-for financial freedom are through business, through investing, or by combining the two. Today we’re going back to the very basics.
Every profit comes, essentially, from buying at a lower price than you sell. Wow! I’m sure you all knew that already. That is the fundamental principle of business and investing. Buy a product at 3 and sell it at 4 or 5. Buy wholesale and sell retail. Likewise, buy components separately and in bulk, put them together into a single product, add the cost of labour and a profit margin, and sell it retail or wholesale. That is the essence of a business. After that, it’s a matter of studying the methods and “tricks” that exist to keep a continuous flow of working capital, or to make use of money that isn’t really ours (it belongs to the suppliers) but sits on our books for a few months.
The profits of the business are reinvested in the business to increase production, or they are invested in another kind of product, such as any investment vehicle. Again, we all know this. The point is that today a few 12-year-olds are going to teach us a lesson.
Let’s go to the United States
In Spain, if your child tells you they want a bicycle and you are a father in financial difficulty, perhaps unemployed or drowning in debt, but a good father, you’ll find a way for your child to have that bicycle, even if it means going further into debt, that is, even if you can’t afford it. You don’t want your child to be unhappy or to think that their father can’t buy them a bicycle.
In the United States, there are some fathers who could buy five bicycle multinationals. When their child says they want a bicycle, what does this millionaire father do? He doesn’t buy the bicycle; he teaches his child to earn it, and gives them a financial education along the way. That child will probably curse their father throughout childhood, but at a certain age they will remember that they owe a large part of their education and success to their father, for teaching them from an early age to earn their treats and use their head to give themselves those small luxuries.
A business project for 12-year-old pupils
A school in the United States was planning a trip. Each pupil had to put in 200 dollars, on the condition that the money was earned by the pupil through their own work. The quickest way for a child to raise money, and in fact a very common one, is to set up a small lemonade stand in the street. They buy the ingredients they need, borrow a folding table from the family, and that’s it: make lemonade and sell it.
Here are the three most striking cases among these kids.
Pupil 1
He set up the lemonade stand in his own neighbourhood, because people knew him there and he knew it wouldn’t be hard to sell to his own neighbours, even if they bought out of politeness. He spent 1 hour a day at midday, 4 hours on Saturday mornings and 4 hours on Sundays. He sold the lemonade at 1 dollar, and in a month and a half he managed to earn 240 dollars.
See also: Kevin O’Leary: how a $10,000 loan from my mother helped me build a $4 billion company
Pupil 2
This one was smarter: he went to the capital, where foot traffic is much heavier, so at the same price for the lemonade he managed to raise the 200 dollars in about 20 days.
Pupil 3
He called two of his friends to make lemonade in large quantities, then called his 16-year-old sister and asked her to call two of her friends as well. He set up a lemonade stand one Sunday afternoon right at the gates of a football stadium, an hour before the game, and stayed until an hour after it ended. There were six people serving at the stand and they couldn’t keep up. The lemonade cost 1.50 dollars. He used part of the profits to pay his friends, his sister and his sister’s friends. The total profit after paying them was 3,500 dollars, which means they sold more than 4,000 cups of lemonade.
What do these kids teach us about business?
Each of them teaches us something we will need in business. Pupil 1 teaches us that persistence and patience pay off when it comes to making a profit in a business.
Pupil 2 teaches us that the strategic location of a business matters, because we’ll make more profit in less time.
Pupil 3 teaches us that hard work is fine, but working smart is much better. Having a clearly defined strategy is already an advantage, and of course, as Donald Trump rightly said, if we’re going to think about a business, let’s think big.
And that is how financial education begins: by building your first capital with an entrepreneur’s mindset. If we took the school assignment into the real world of adults, we would find exactly the same thing: entrepreneurs who stay in a business to earn little money, and others who secure good positions but don’t make the most of them. Then there is the entrepreneur worth following, the person who racks their brains to earn more capital in less time, which leaves them time to think about other business models and to reinvest the profit, whether in other business opportunities or in other investment vehicles.
Would you be willing to teach your child this lesson? Would this way of learning work in Spain for our children? That would be another topic altogether.
Featured image: Malcolmxl5, CC0 1.0, via Wikimedia Commons.
