A new poll by the Pew Research Center reveals that the age at which children should be financially independent, according to parents, has crept up over the past decade. In 1993, 80 percent of parents said children should be independent by age 22. But in the new poll, only 67 percent of parents agreed with that assessment.
Parents of young adults were even more lenient, with just 46 percent going along with the 22-year milestone. But 51 percent said they don't need to be independent until 25 or older.
Not everyone thinks it's a good idea to help out grown children. Andrew Hallam believes parents who help their kids financially actually hinder their growth. From a teacher's salary, Hallam amassed a million dollars by the time he turned age 38. He reveals his experiences in the first chapter of his book, "Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School." He devotes the rest of the book to sharing his secrets for building wealth.
Hallam stopped depending on his parents in his teens. He bought his own clothes from age 15 and his first car at 16. He began investing at 19 and has a strong aversion to debt, likening it to dealing with the devil. When he finished college, he owed $12,000 in student loan debt -- "I worked during my high school and college days to keep the debt to a minimum," he told me in an email from Singapore, where he currently works.
After landing his first teaching job, he set about paying off the college debt within a year, though he earned just $24,000 after taxes. He did it by avoiding paying rent when possible, by occupying the homes of snowbirds who left Canada in winter for warmer climes. To save on energy costs, he never turned on the heat, no matter how cold it got.
"I lived on less than $700 per month during most months," he told me, "but if I didn't have a house to look after, I shared a place with a roommate and needed about $1,000 a month to live." He could have sold off his investments to pay off the debt, but he elected instead to scrimp. At one point early in his teaching career, he rode his bicycle 35 miles each way to work to save on car fuel costs.
Once he paid off the debt, Hallam began investing in earnest. "I invested at least 50 percent of my paycheck each month after my debts were gone. I remained extremely frugal, and I was excited to add to my growing nest egg -- the one that I had started when I was 19."
Buy low, sell high
Six years after paying off his student debt, he bought a one-acre piece of oceanfront property on Vancouver Island for $147,000 in 2002, for which he had to make a 50 percent down payment. "I was upset that I had to sell some investments to do this, but I did it," he told me. "I chose a variable interest rate. At the time, it was 7 percent a year. I hated having debt, so I went back to my supremely frugal mode to kill the debt. After three years, the $70,000 debt was history, and I was able to redirect my money back into my investing." He sold the property in 2006 for $484,000.
When he bought it in 2002, no one was interested in the property, he said. "But everyone wanted that property (it seemed) in 2006. … Few people like buying things that haven't recently risen in value. Most people feel comfortable buying things that have recently become more expensive, whether it's gold, stocks or real estate. I never figured out why most people are like that."
And therein lies one of Hallam's secrets of getting rich. When the stock market falls, he gleefully purchases stocks because that's when they're on sale. It's a strategy that Warren Buffett advocates -- buy on fear, sell on greed -- and it serves investors well, whether they're in their 20s or 50s.
Another secret that Hallam shares in his book: buy low-cost index funds rather than actively managed funds. "The 'small costs' of most mutual funds can devour half of a portfolio's potential return over a 30-year period," he says.
In his book, Hallam writes that he drives a classic Mercedes Benz. He lives with his wife in a luxury condo. They enjoy massages every week and travel extensively.
Owning a Mercedes doesn't seem to square with his frugal nature, I thought. So I asked him how much he paid for it and the model year. He answered that it's a 1974 model he bought five years ago. It cost him $3,000, and he had it fully restored, which cost him another $9,000. "That wasn't a financially sound move, but the car is a lot of fun, and I enjoy it."
Hallam could retire early if he wants. But he loves teaching, and especially likes getting 13 weeks off each year. Though he doesn't consider himself wealthy, he likes the fact that he's financially independent.
It gives hope to those who wait until their 40s before starting their retirement planning. If they can just calculate the long-term opportunity costs of their purchases, Hallam says, they might think twice before spending the money. "If you want a new couch, you should ask yourself if you really need it," he says. "Most importantly, I believe, is to pay off your home as quickly as possible.
"A good friend of mine once said, half-jokingly, that if his house were paid off, at least he could subsist on his own greenhouse vegetable garden, if need be, whether he has money or not. You have to admit that he has a pretty good point."
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