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Last week I told you how I try to instill strong financial habits in my two cubs. Obviously this is a sensitive issue because, sadly in my opinion, openly discussing money, especially with the little ones, is a bit taboo in our society.
That said, I think, early and open discussions on money are important. As you know, financial literacy rates in our country are abysmal. I truly believe that “early intervention” is tremendously helpful here.
Once you teach your cubs about earning and saving money, I think then the next thing is to teach them how to invest.
Investing
I am a super nerd when it comes to investing and personal finance (as you’ve probably figured out based on this blog). So I am more than happy to dive in to deep topics like tax optimization and asset allocation. But I can think of no quicker way to get the cubs’ eyes to glaze over and lose all interest.
For me, the hook to get them interested about investing is to sell it as a way to “get rich”. Most cubs like the idea of being rich, so this fits nicely. While keeping things age appropriate, I do tell them that our family’s net worth was a lot of hard work and savings, but then it grew several times that size because we invested it. Putting it that way seemed to pique their interests.
As far as telling them what stocks are, I try to keep it as simple as possible. A share of stock gives to a part of the company—if the company does well the stock goes up, and if it does poorly the stock goes down. That’s it. I don’t talk about bonds or dividends or anything else.
Buying actual stocks
Once I got the cubs excited about stocks, I opened up two brokerage accounts with Vanguard. First, all our family’s money is with Vanguard so that was the natural place to start. Second, and this is important, Vanguard offers free stock trades. As you’ll see in a second, frequent trades are important to keep the kids excited and engaged, so it’s nice that you don’t have to pay $15 each time you go in and out.
Since my cubs are minors, the account is actually in my name (to set it up for a kid is a monumental hassle). Once they were opened, I funded each with $1000. And we were ready to go.
I asked the cubs the simple question, “What stock would you like to buy?” They wondered what their options were, and that’s where it became really cool—all sorts of companies have stocks. We walked around the house looking at stuff we have that they like, and most of those were made by companies with stocks.
Mini Fox’s first investment was in Duke Energy since they’re our electric company, and ‘Lil Fox’s first was Edwards Lifesciences since I had done some consulting work there. I bought $1000 worth of each stock and they were stockowners.
I tried to follow up by having them fill out a worksheet on each company so they could learn about it—the name, the headquarters location, what they make, how much revenue they get each year. This worked at first, especially because we started in the summer, and they needed stuff to do, but I got lazy and they stopped doing it. But I definitely think something like this is a good idea.
After a couple weeks I would ask them what the next stock they wanted was. Obviously, in the real world I would never invest like this—individual stocks and very short time horizons. But this really isn’t investing as much as it is education.
We’d go around the house again and pick another stock. We’ve had Disney, DuPont (Mini Fox was obsessed with chemistry for a while), Vail (since Dad goes skiing every winter), and a bunch of others. Right now Mini Fox is in Facebook because they own Oculus Quest 2 which he loves, and ‘Lil Fox is in Hasbro.
Celebrate the wins
A key to keep the kids engaged is to show them how they’re doing. Obviously it’s more fun for them if the market is going up (dollar cost averaging is not a concept to teach right now 😊). Fortunately, since we started this last summer, the stock market has been on a tear, up about 40%, so there have been a lot of wins.
Every few days I show the cubs what their stock is at. Ironically, they don’t seem nearly as interested in how their stock is doing as much as “Did mine do better than my brother’s?”
Early on, ‘Lil Fox was rivaling Buffet. He picked Valvoline (we got our oil changed there), Exxon (where we get gas), Toyota (I drive a 4Runner), and Pulte Homes (they built our house) all did tremendously well. I’d call him a stock picking genius, and he had a lot of fun telling his friends that.
Mini Fox didn’t do as well (he invested in Tesla early but missed their huge run up) but made some good picks with Catepillar, Microsoft, and DuPont.
As of today, ‘Lil Fox is up on his brother, but they’re pretty much in line with the market. That said, it’s a few hundred dollars in profit, and that gets them really excited, and that’s kind of the whole point.
Who knows if this is a good approach or not, but I think it’s important that the cubs dip their toes in. This is how we do it. What do you do?