Investment Advice From a Sixth Grader
My twelve-year-old son and his friends are showing a nascent interest in financial planning. They want to do more with their money than simply save up for the next new skateboard deck. And so I tried teaching them about investment risk.
I told them about interest-bearing savings accounts and certificates of deposit. I explained the basics of stocks and bonds and mutual funds. I introduced concepts like return on investment, venture capital, sweat equity. I showed them a graph of Google’s stock price as it rose and dipped and rose again.
Serious looks, nodding heads. These boys want to get rich. (As my son’s friend says, money doesn’t buy happiness, but it enables a good lifestyle!)
To test their comprehension of the material, I asked them how a person their age might invest a hypothetical $1,000.
“Something conservative like a savings account,” they said.
“But wouldn’t you want something with higher growth potential?” I asked.
They shook their heads. “No, you want the money to be there, no matter what.”
That wasn’t what I wanted to hear. Most financial planners would advise riskier high growth investments when you’re young. With time on your side, you can weather the ups and downs of a changing market while keeping the faith that things will ultimately go up and to the right.
I tried a different tack, and asked how a 95-year-old man should invest his life savings.
“Something super high risk like stock in a startup,” they said.
“But wouldn’t the old man want to be sure his money was there, no matter what?” I asked. “After all,” I explained, “he’s so old, he can’t work anymore. His savings is his only source of income.”
They shook their heads. “He’s gonna die soon, so what does he care? He might as well try to strike it rich and leave a ton of money to his grandkids. If things don’t work out, his family can take care of him.”
Tell that to seniors living off a fixed income portfolio.
Why are these 12-year-olds giving investment advice that’s the opposite of mine? Does the new generation have different expectations about money? Or is this a Silicon Valley thing (where we live), where it’s ingrained in high-tech culture to get rich quick by hitting a financial home run?
Maybe I’m just a lousy teacher.
© 2008 DadsHouseBlog.com. All rights reserved.
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Sorry Dadshouse, but I’ve got to say I agree with the kids plan regarding the 95 year old man, and I am sure Whatmenthink would back me up on that
x
Cara
Actually I’ve found that a lot of adults don’t have any better financial sense than most 12 year olds.
You should give them Rich Dad, Poor Dad to read. It’s a pretty easy read and the author started being an entrepreneur when he was about your son’s age. He tells lots of stories about the money advice he received when he was young.
As far as specific advice, show them how long it would take to raise the $1000 if they do it the conservative way, and how it would prevent them from spending any money on anything cool in the meantime. The BF and I just started seeing a financial planner (you’re e-looking at someone who finally has life insurance!) so I’m finding it very interesting at the moment as well
Thanks Honey, I’ll take a look at that book.
Metrodad - I agree completely
Cara - I’m curious what Gen-Y thinks about investing and risk/security in general. Do tell! Do you spend, spend, spend, and figure bigger money will eventually come? Or are you planning a nest egg for the future?
I spend, spend, spend. REFUSE to save for a pension (why should I? The government will only use it to discriminate against me).
But I save.
Yep, I spend and save.
However the savings are for specific things like a house, car etc. Not a nest egg.
I say, live life on the edge!
interesting blog. the lady was right about rich dad poor dad book. keep up the good work with your kids.
I buy beer, a lot of it. If I were you, I’d encourage people to purchase stock in Newcastle and Corona.
This is really a great post … I’ll have to ask my son (he’s 13 y.o.).
But, what I can tell you is this: the internet has definitely opened up entrepreneurial opportunities for kids. My son is a self-made e-Bay seller. He set himself up, researched his own wholesalers and drop-shippers and approached an Angel Investor (me) for an equity deal …($50 for 45% of his company) and promptly bought the Angel/me out after his first sales.
But, he gave me his portfolio to manage in my Scottrade account (he has a chit for 0.000025% of my portfolio) because he figured that bank returns were too low for him.
AJC, you sound like a great dad…teaching your kid the value of money and how it does not grow on trees and that to get a business up and running, they have to work hard for initial investment. It’s admirable that you did not just hand over the money without asking for some shares.
x
Cara
Cara!
I’m a financial advisor and I totally back DadsHouse on this one.
DadsHouse
I think a better understanding of market history, volatility, and the rule of large numbers would help your son. He obviously understands and likes the idea of compounding interest! He sounds like a bright kid.
Those in the financial services industry will tell you that GEN X and GEN Y have splintered themselves into a diverse number sub-groups when it comes to investing. While some are great savers and investors, some are terrible with money management.
WMT - thanks for your insights from the financial community! Do you have a post about What Men Think About Money? Not everyone goes out and buys the newest flat panel HD TV (though some do)
I choose not to write on financial matters very much. FINRA doesn’t appreciate securities licensed individuals to write anything public without going through the proper regulatory compliance measures. I’m not about to let them hack up my blog posts.