Kids and Investing: Yes, You Can Talk to Your Kids About Money at the Dinner Table
A few months ago, I started a conversation with my daughter about the stock market and how it’s possible for her to own shares of a company—even Disney if she really wants to.
I couldn’t believe it when she said to her dad later that day, “Guess what, Daddy! Mommy says I can own Disney. With the stock market!”
She’s four. Obviously, there will be dozens of conversations that happen from here on out, but she’s at least aware that there is something called a stock market and she can be part owner of a company, rather than just a consumer.
Hopefully, these conversations will plant the seed and get her interested in investing at a young age. I think it’s such a powerful message for young people (even tiny ones) to know that:
- You can choose to be a consumer or an owner.
- Owners are the ones who make money and get ahead.
Interestingly, I’ve read this before, and call it an overgeneralization if you will (and it might ruffle some feathers in the process) – sorry if it does:
Middle-class parents teach their kids to do well in school, go to college and get a good job. Rich parents teach their kids to think outside the box, own a business and invest, and in the meantime, encourage their kids to step outside their comfort zones.
Anyway, I digress. That’s really another topic for another day. The bottom line is that teaching your kids about money is a good thing, and financial literacy has to happen at home.
Teach your kids to save, not spend
As a kid, my brother was a money hoarder. Always envious of his piggy bank, I noted that it constantly teemed with pennies, nickels, quarters and those all-important bills. Unfortunately, my parents never encouraged either of us to do anything with our money except put it in a savings account, which earned little interest. (In their defense, it was the early ’90s, and it wasn’t like you could pop online and open a brokerage account—kids today have it so easy.)
However, my parents did encourage my brother and me to save, not spend, and we were both pretty good little savers. That habit has stayed with me my whole life, and to date, I hate parting with my money (even to go to the grocery store!)
Ultimately, your kids will likely fall back on what they learn in childhood when it comes to money, and whether you set them up for success or failure in this all-important lesson lies with you and your power to educate them. There are no financial literacy classes in school, folks.
How to spark your kids’ interest in the stock market
Investing can be such an intangible phenomenon, and unfortunately, online brokerages have the potential to make it even more intangible. You don’t get stock certificates like you used to in the good old days, and when you can’t see hard, cold cash, it’s tough to get excited about a bunch of charts and graphs on a computer screen. If you’re a kid, zoning out could really happen at this stage.
I remember when I was 16, my dad first encouraged me to open up a Roth IRA after I’d proudly held onto my first summer job as a lifeguard. I said to my dad, “You want me to what? Give up all the money I’ve earned for the whole summer?” I didn’t get it at all.
Inherently, though, I was interested in being rich—what kid isn’t?—and ponied up my money. I promptly lost interest in it after that, unfortunately, and I wish he would have kept harping on me to keep putting money in my fund.
So, how do you get a kid interested in investing? (And obviously, a lecture on the perils of buying stocks on margin isn’t going to hit home.)
Save the complicated stuff for when you’ve got a college-aged kid, or for high school kids who really are interested in dollar-cost averaging. (Do those kids exist? Gosh, I would kill now to have been interested in that stuff when I was 18.)
However, I think you can capitalize on the fact that most kids love the idea of being rich and being able to buy anything they want, and that can set you up well for a good conversation.
Talk about financial goal-setting
Include your kids in conversations about money at the dinner table. I think a big mistake parents make is not talking about the family finances as a family.
Make it a rule that your kids can’t buy what they want if they don’t have the money, and empower them to invest so they have money for the things they want to buy. Talk about how saving to buy things is the way you purchase items—not through financing.
Talk about goals—a great life lesson in general! Is your daughter’s goal to buy something she wants a month down the road? A year? Ten years? Then encourage her to understand the different options she has for saving. If it’s a long-term want—maybe stocks are the way to go. If it’s something she’s going to need sooner, maybe a more secure bond or another type of fund is a better idea.
If we go back to the “getting kids interested” way to talk about investing, bring it down to their level. The best way to do this is to keep it relevant. What companies do kids like? Disney, McDonald’s, Hasbro, Foot Locker and Under Armour, of course—to name a few. I got my daughter interested just by uttering the word “Disney.” Easy-peasy. Just make sure your tiny investor’s really interested in strong companies with growth potential.
Teach kids about risk
This is a tough one for younger kids to wrap their heads around, but for older kids, they need to understand the risks they’re going to take if they purchase a risky stock versus a conservative bond. Luckily, for most kids, if they’re investing at all, they’re using “fun money” and their entire future isn’t necessarily riding on the piggy bank money they’re investing. It still doesn’t hurt to teach kids about diversification now, though! (I know a few adults who could have used the diversification lecture in adulthood, too, unfortunately.)
How can parents facilitate purchases?
Of course, kids can’t own stocks or open brokerage accounts on their own. Luckily, parents can set up custodial accounts under the Uniform Gifts to Minors Act or Uniform Transfer to Minors Act. All you need to do is complete a form that features your burgeoning investors’ name and Social Security number and your name, as the custodian.
Ultimately, whether your kiddos listen to your stock market lesson politely for ten seconds, then scoot outside as soon as your back is turned, or they listen intently for hours, no matter what, talks about money are still good lessons for the long haul.
Furthermore, trust that your child is listening to you. Remember, because of our parents, my brother and I are both savers. (We didn’t become that way by accident!)