Two of my most popular blogs over the last year have been Career Advice for Kids and Earning Money 101: Different Sources of Income. Both of those blogs focused on HOW kids can earn money as they grow up. One area which I haven't written about much (and I haven't seen others do much either) is WHERE kids can earn money in the future.
The decision over where in the world your kids choose to earn their money when they are older can have a big impact on their future ability to increase and build their wealth.
Don't get me wrong, choosing where to live shouldn't just be about money, however, it should definitely be a consideration. Especially as relocating (even if for a few years) can be the start of some exciting life experiences.
In this blog, I set out a simple case study to highlight the potential benefits and then set out the different factors your kids will need to consider when deciding if relocating is beneficial.
Case Study: UK Teacher to Dubai Teacher
Sarah currently lives in London and is studying to become a primary school teacher.
Her plan was to stay in London and find a school near where she lives, especially as she's read that school teachers in London get paid reasonably well compared to those in other places.
She then meets a family friend, Matt, who used to work as a teacher in London but is now working as a teacher in Dubai. They get talking and discover that the salary of a teacher in Dubai is similar to that in London.
Sarah asks Matt why he decided to move to Dubai. He said that he wanted to build up some savings before starting a family in the UK. Sarah was confused as the salary seemed the same in both places.
Take home pay and expenses ...
Matt explained that whilst the salary is similar before tax, the amount of his salary he gets to keep is much more. In the UK, the teacher will have to pay around 20% of their income in tax (and national insurance), whereas in Dubai they don't have to pay any tax. This means that a teacher in Dubai is 20% better off (all else being equal).
That's not the only consideration. In Dubai, the cost of living is around 30% less than in the UK in terms of rent, food and other expenses. This means that Matt is able to save a significant amount more than if he saved in the UK. He hopes that after 5 years he'll have saved enough to put a deposit down on a home in the UK (something that he knows is very tough to do whilst working in London).
Matt also highlighted that he is enjoying the sun, meeting new people and experiencing a different culture in Dubai.
Not all teachers are better off ...
However, Matt did mention that not all of the teachers who moved to Dubai are financially better off than they were in the UK. Many of the teachers loved earning more money (after tax) in Dubai and instead of saving more, they simply spent more. These teachers would struggle to ever move back to the UK as it would mean they would have to give up the luxuries they have been accustomed to having.
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Factors When Earning Money In Different Places
As the case study highlights, there are a number of factors to consider if your kids are open to the idea of working in a different location when thinking about their career choices.
Salaries:
Some places pay higher salaries than others for the same role (all else being equal). This could be due to the demand for certain skills in that place.
For example, California has a high demand for people with computer technology skills (as that is where many of the big tech firms are based). Therefore, someone with that skill could potentially earn more if they move to California than if they stayed in their home city/country where there is less demand.
Tax:
As mentioned in the example above, the amount you save can vary materially depending on the amount of tax you pay. Countries such as the UK, many parts of Europe and many states in the US have a high rate of income tax. Therefore, moving to places with lower tax rates can materially increase the amount of income you keep. Places such as the United Arab Emirates, Hong Kong and Singapore have relatively low tax rates.
Cost of living (expenses):
Whilst places like Hong Kong and Singapore offer attractive salaries and lower taxes, these places are very expensive, especially when it comes to rent. These costs need to be factored in when considering places to live.
We lived in Hong Kong for five years and noticed our cost of living increased materially (for a similar lifestyle) but this was offset by the higher salary after tax. However, for some people, they lived in the centre of the city and didn't end up benefiting from the lower tax after they paid all their expenses.
On the opposite side of things, we have also lived in Vietnam and Thailand where the cost of living is much lower than London and Hong Kong. Whilst our income was lower, we managed to keep building our savings at a similar rate as our expenses were significantly reduced.
Need to follow the 3 Rules of Wealth:
Again, as I mentioned in the case study above, the lower taxes and the lower (potential) cost of living are only financially beneficial if your kids follow the 3 Rules of Wealth:
Spend less than they earn
Invest what they save
Be patient
Lots of people initially save more money when they relocate due to the lower taxes and expenses but instead of saving this money, they spend it. They inflate their expenses with fancy clothes, nice cars and renting luxury apartments. These people then find it very hard to go back to their old lifestyle, which means it is hard for them to relocate back to their home country in the future.
Non-financial considerations from relocating
The above has focused on the financial aspects of relocating. The other reason I would suggest that you talk to your kids about being flexible in terms of where they work is about life experiences. Meeting new people, experiencing new cultures, personal growth and creating new memories.
A lot of people only start thinking about moving overseas when they are older but by that time they have kids which makes it much more challenging. These people then have to wait until they retire or the kids move out before they can really consider living overseas.
When your kids start working, there are fewer challenges with moving to new locations. They don't have kids of their own (probably), no mortgage or other long-term commitments.
I'm not saying everyone's kids should relocate to increase their ability to build wealth, but I do believe that it should at least be considered (even for a few years). Therefore, I hope you raise this topic with your kids when they start thinking about their career choices, as it might not be something they automatically consider themselves (I certainly didn't when I was younger).
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Thanks for reading,
Will
What to read next?
P.S. Help your kids learn the 3 Rules of Wealth by buying them a copy of our best-selling money book for kids, Grandpa's Fortune Fables. Available on Amazon.
