Recently a bunch of things have happened which got me thinking. The teacher at school was teaching about loans, or bonds; a wholesaler for one of the mutual fund companies introduced me to a program they are promoting called “Raising Financially Aware Kids;” and finally, a friend called and said he wanted to open an account for his 11 year old boy. Apparently the boy was asking about investing in some stocks. It got me thinking, because my boys are 10 and 8 right now and we are trying to teach them responsibility with money. We’ve been strongly encouraging saving, and while we are doing monthly investing for them for college as well as adding to to a mutual fund account, they’ve never been involved in any of that (to learn more about my own personal financial plan, check out Finding True Wealth EP 026) In my experience, younger kids don’t understand the concept of a mutual fund or ETF very well at all. However, I think they can understand the idea of investing in a company that they know about. A company whose product or service they love. Over the past couple months, I’ve asked the boys to tell me about their favorite companies. They both came up with separate lists and named companies like apple, google, amazon, nike, eBay, and then also had some that I didn’t expect such as delta airlines and Costco. At least now when I tell them it is time to go to Costco they do not have a right to complain - I will simply remind them it is one of their favorite companies! It was a fun and interesting exercise to go through with them. Ultimately we needed narrow it down to pick their top 3 favorite companies, which proved to be a major chore for them! Important disclosure: any company listed is not a recommendation or solicitation to purchase. They are provided for illustration purposes only.
I wanted to move their entire bank accounts to the brokerage accounts, but mom said no. Therefore, we settled on just $300 each for starters. We set up the accounts as UGMA accounts so it is actually their money. We set them up with their own login on TD’s advisor client.com and we downloaded the app on their iPads. Once the accounts were funded, I showed each boy how to place trades in their account and let them click the send order button. It was awesome - they loved it! Especially jack who is 8 years old - he was like “Dad, I own one share of XYZ company!”
It’s only been a couple days but they are constantly checking their advisor client app - even on the weekends when the market is closed. Between Friday night and Sunday night I must have told Jack 5 times that his account value is not changing because the market is closed! I hope to teach them it is not healthy to look everyday, but since it is so new I am not worried about it just yet. At this point Jack is up $12 and he is already formulating his strategy on how he is going to add more money to his account. Music to my ears!
So far one important less has been learned - it is good to let your money work for you. I tell people, “NO LAZY MONEY! Let your money work for you!” And I think they are starting to learn that lesson. These boys are used to earning a quarter at a time and having to actually do the work/chores. I am trying to make a big deal and tell them hey look, your account went up $3 today and you didn’t have to lift a finger. Your money is working for you! I feel like if we can teach them just this one lesson we are on the right track!
James Stowers, founder of American Century investments said “It is important that your children learn what they can do with money early in life so they will apply the lessons learned at home as they face the real world in future years.” I agree completely with James. We use the same philosophy with parenting in all areas - let them learn the lessons as children where there are no “real” consequences so that when they get out of the house they can make good decisions without mom and dad. I want them to hear my voice when I am not there.
According to American Century, 88% of high school students learned what they know about money from there parents. They don’t teach this kind of stuff in school, so it is up to us - the parents and grand parents to teach the proper lessons about money - that goes for saving, investing, and debt. You are the CFP (chief financial parent). In your role as the CFP, think about what your parents taught you about money - the good and the bad. How have their beliefs about money shaped your beliefs? Do you have the same beliefs as your parents or did you rebel against them? Now picture your children and think about how your are impressing your own beliefs about money on them everyday. They are watching you and listening to you.
When I was a kid I was a pretty good saver. I would always be putting money in my savings account at the bank. Then I asked my mom why I was only earning a nickel in interest each month, because it didn’t seem like very much to me. Mom said, I think its time to open up an investment account for you. When I was about 15, we did just that. I saved enough so by the time I was 16, I could pay cash for my own car - $2,500 for a 1988 Ford Mustang with 4 cylinders and rear wheel drive. I promptly crashed that car on the first snow. I want my kids to be motivated to have their own car at 16 as well. I see kids today not interested in getting their drivers license and it doesn’t make any sense to me. I was in line at the DMV at 8am on my 16th birthday before they opened! I remember because I was first in line that day! We’ve told the boys when they turn 16 and they want to buy a car, we will match them 100% toward the purchase (we don’t want them in a 1988 mustang crashing in the snow - we want them to be safe!). This means every dollar they save is actually worth two dollars - and that 100% ROI has been a big motivator and also has helped us teach the concept of having a return on your investment. These boys are doing such a good job saving that I am beginning to worry how much this matching contribution is going to cost us!
I think we could also do a better job cultivating that entrepreneurial spirit in our children. Have them think about how they could create a business rather than just going and getting a job. One of the chores for my boys and I is to take back the cans. For those of you out of state, in MI we have a 10 cent can and bottle refund. And mommy drinks a lot of diet Pepsi…..A LOT. This means we can take back 500 cans and get $50. I always split the money with the boys, which is a pretty good hourly rate for them. Then we take it to the bank and make a deposit. I always make a big deal about this ritual and allow them to fill out the deposit slip and go up to the teller alone and make their deposit. On our last trip, we were talking about how the boys could create a business taking back other people’s cans. Perhaps we could put flyers in mailboxes and offer to take back their cans and we could split the money with them? Perhaps some people would let us have their cans? I was playing devils advocate and asked them how they were would to the store? Of course, they said, “dad, you will drive us.” But we are putting miles on the car, burning some gas in the bank, and the driver’s time and expertise - surely Dad gets a cut? It was a fun conversation because I could see the wheels turning about how we could create our own business.
Parenting is no easy chore. Sometimes it might seem like talking about money is too hard for younger kids to understand. But they are watching and listening you to see how you handle your money. Try to be a great model as the CFP (chief financial parent). Your children will thank you someday!
If you have a $500,000 portfolio and you’re wondering if you’re on track to reach your retirement or college funding goals, reach out to Peak for a second opinion. You can apply for an appointment or reach out to me directly at nick@peakwm.com. If you enjoyed this episode, I encourage you to go back to EP 001 and start from the beginning and also subscribe to the podcast so you don’t miss any future editions.