(This essay was published in South China Morning Post on 22 February 2017.)


Hong Kong’s stellar growth of the past has slowed this century, resulting in a growing share of the younger population failing to prosper.


What lessons from this past are worth sharing with our children as they try to figure out how to work towards a prosperous life?


We know that a person’s prosperity depends on his starting position, work and savings behavior, prudence in investment, and luck. These can be augmented by investing in four kinds of capital – business capital, financial capital, human capital, and property capital.


To secure business capital, most new businesses require an entrepreneur to be creative and possess business skills, accumulated over time through experience. They also require an exceptional idea to get interest from financiers – venture capitalists, angel investors and private equity funds – and banks.


The prospect of raising funds for more ordinary ideas may eventually come from innovative financial technologies, like cloud financing, but Hong Kong lags behind the United States and the Chinese Mainland in this area because of regulatory barriers.


So my advice to the young aspiring entrepreneur is this: if you have great lucrative ideas, then try your luck. If you do not, then try to raise funds from willing traditional sources like parents, relatives and friends (although this is more difficult today because of smaller families). It also helps to marry someone who can bring or help bring such financing. And if all these fail, then pray fin-tech will soon blossom.


If starting a business is not to your advantage or liking, then you could opt to accumulate financial capital by investing in the financial market and benefiting from the rise of asset prices.


Professor Eugene Fama of the “efficient markets school” advises buying a fund that tracks the entire world market and charges you the cheapest management fee. You then just have to decide what proportion of your savings to set aside each period for investment in financial assets. And if you think you are really smart you can try picking your own investments.


Most people do none of these and instead rely on their own human capital to make earnings. The higher the stock of human capital one possesses, the higher is one’s income.


Schooling and health are the most important investments in human capital because they raise the productivity of an individual in work and play (or voluntary work).


Today we spend less and less time each year in working for pay, and more in voluntary work. Increased life expectancies are increasing the total proportion of years in one’s lifetime in non-paid work. This implies that an increasing share of economic activity in the future will occur outside the market economy.


Knowledge will be the key resource of the next economy, and knowledge workers its most dominant workers.  In the past, knowledge guaranteed success, in the future knowledge will be a necessary condition to having a try.


Families play an important role in nurturing children for this future. Children born in families with good backgrounds will have the advantage over those from poor backgrounds of being able to finance their human capital investments with parents’ help.


This factor alone justifies the case for intervention by government and concerned members of the community to support disadvantaged families to invest in their children, and prevent them slipping further behind.


The rising incidence of divorce and single parenthood have a negative impact here, because a broken family compromises the ability to provide human capital investment in children.


So my most valuable advice to my own children is to honor your own family, choose who you marry with care, and invest lots and lots of time in keeping your family together.


Finally, there is property capital. This is one of the easiest ways of investing for prosperity because you do not need human capital or an appetite for business and financial investments to benefit.


Property is usually an excellent long-term investment in any major economic city where human, business and financial capital are abundantly concentrated, because the appreciation potential is larger. Better still if the city is under common law jurisdiction so that private property rights are well protected.


Unfortunately in Hong Kong, the increasingly high down payments required in the 21st century are putting property out of reach, save for those who can get financing from parents. This has distressed young individuals as their lifetime prosperity prospects have been adversely affected.


In summary, I offer four pieces of advice for my children: work hard and play hard, invest in human capital, get married and stay married (not only for your children but also for yourself), and if you are smart start a business; otherwise buy property in Hong Kong.


And for those in power and with influence, I advise this: help families and young people to invest in human capital, don’t make it difficult for smart young people to start businesses through overregulation, and introduce policies to mitigate the adverse affects of high down payments to correct capital market imperfections in financing property purchases.


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