Wealthy leaders share financial advice they gave their kids: Invest early, learn from failure — and think carefully about inheritance

Entrepreneur Eric Malka had to completely shift his mindset when he sold his company and became an investor. Since then he’s learned many lessons he’s now passing to his kids.

When The Art of Shaving — which Malka and his wife Myriam Zaoui founded in 1996 — was bought by Procter & Gamble for a reported $60 million in 2009, Malka realized he needed to educate himself.  

“When an entrepreneur like me is lucky enough to have a liquidity event, then we’re faced … with managing assets without proper training,” he told CNBC by video call. Investors must focus on being patient and on long-term returns, whereas company founders often look at a short-term plan, “almost an opposite” mindset, Malka said.

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

When it came to educating his children — sons aged 14 and 16 — about money, Malka’s attitude has been to help them learn from the ground up.

“One of the challenges I faced with my teenagers early on, is their belief that it’s very easy to make money by investing through social media and through what they hear from friends,” he said. His older son thought he could generate a 20% monthly return, which Malka described as “very concerning.” 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 set up my child for failure, but sometimes, you know, the lessons learned when you lose are more valuable than the ones 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’ll be teaching them that it’s important to make mistakes when the stakes seem large to them, though may be small in reality. “The emotional muscle, and humility required to be a good investor is something that people need to develop on their own,” he said.

For Dayssi Olarte de Kanavos, president and co-founder of real estate company Flag Luxury Group, educating kids early about money is key.

She and her husband allocated a “low risk” sum of money to each of their three children in middle school for them to pick companies to invest in. “Our children chose Apple, Amazon, Google and Alibaba. All but one had terrific runs. As long as they kept their money in the market and continued to be thoughtful in their approach, we added every year to their nest egg,” she told CNBC by email. 

Olarte de Kanavos said her experience in real estate investing taught her the value of patience. It influenced my business approach by emphasizing long-term strategy over quick gains,” she said. The mother of three described her own investments in the stock market as “very conservative, in order to best manage the huge risks that we take in our real estate business.”

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 kids about the tradeoffs of investing in their own terms. “I ask them: ‘If we invest this $100 and it goes down by $70 next year, how will you feel?’ ‘Do you want to spend $100 today on a toy, or have it turn into $200 in 10 years when you are 16?’,” Van told CNBC via email. “Surprisingly, they are very rational and always go for delayed gratification,” he said.

Van and his wife have investment portfolios for each of their kids, mostly made up of gifts they’ve received during holidays such as Chinese New Year. “Given their long investment horizon, they are in very diversified, multi-manager, low-cost equities portfolios,” Van said, and he shows his children their portfolios’ performance — positive or negative — whenever they ask.

Age-appropriate advice is very important, Malka said. His focus right now is teaching his children about budgeting, providing them with a fixed allowance per month.

In the beginning, you know, they would spend in 10 days what they were supposed to spend in 30 days … now I’ve been doing this for eight months or nine months, now they’re really managing it properly, and I think that’s a skill they don’t realize they’re being taught,” 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 grade,” is Olarte de Kanavos’ suggestion. “The purpose of an allowance is to allow them to learn to make their own decisions about money and to manage the repercussions that come with their choices,” she told CNBC. “As they get older, teach them about saving, 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 opened a fixed-deposit account for their eight-year old daughter for the money she receives at Chinese New Year, and at Diwali she receives a gold coin. “My goal is for her to grow up financially savvy, confident, and ready to make her own decisions,” Mahtani Cheung told CNBC by email.

A concern for the wealthy members of advisory network Tiger 21 is how and when to talk to their children about their inheritance. “They are most concerned about their kids leading independent productive lives and don’t want knowledge about the wealth they will inherit to distract them or take them off course,” said Tiger 21’s founder and chairman Michael Sonnenfeldt in an email to CNBC.

Around 70% of the network’s members want to wait until their kids are close to 30 years-old and have established careers to detail what they might inherit — and when, Sonnenfeldt said. “However, about 30% of members want to begin working with their kids in their late teens or early 20s to teach them to become responsible stewards for the wealth they will inherit,” he said. Both approaches are valid, he added.

“I suggest that parents encourage open, values-driven conversations about money and investing,” Sonnenfeldt said.