VIEWPOINT: What we need to teach kids about money

June 30, 2008

"What should I teach my 5-year-old about finance?" a client asked.

I responded: "Teach him that finance is fun."

Investment finance is neither complicated nor intimidating and, like a foreign language, the earlier the learning, the better the result. Thanks to a smart and active parent, I learned early, over the dinner table, or in the car. For example, my mother took me for a drive on the new highway near our home, and said:

"When this building program started, I wondered who would benefit. Answer: bridge builders, specifically, Chicago Bridge & Iron. We own the stock. It is doing well."

This compared to an experience I had as an adult. Early on, retailers checked for credit cards to avoid by looking for card numbers in a weekly pamphlet. Later, I noticed that retailers were swiping cards through an electronic box. "Who makes that?" I wondered. The answer was on the underside: Verifone. Verifone had to make money, in good times and bad. It became one of the best stocks I ever owned.

Five-year-olds go to McDonald's. What could be simpler than talking about both the restaurant and its owner? A colorful annual report should grab the youthful mind for a minute or two. What child does not pass through the doors of Wal-Mart, or observe cars made by GM, or send text messages on a cell system? All these companies publish reports, and they are subject to extensive coverage on Web sites.

If conversations about a company, and looking at its reports, light up young eyes, buy her a few shares, talk about subsequent price changes, and give her the dividend for personal expenditures, like an allowance. Get excited when the market goes up, and show what her stocks did that day.

Take a child to the bank. Open an account for her. Show how a check is written, and how it returns to an account. Explain bank charges, as well as credits for interest earned. Let her glance once in a while at a monthly mortgage statement.

Along with "dos," consider these "don'ts." Do not acquire a mutual fund for your child. Instead, buy common stocks, the building blocks of every other financial product. To thoroughly understand any product or activity, the student must understand building blocks. A building must have a foundation, and one founda tion of all finance is the common stock. (The other foundation is debt or bonds.)

In times of stress, do not display pessimism to the child, but direct him to the long term. Do not attempt to predict the market for him, or refer him to television shows that feature prognosticators.

Instead, locate a 100-year chart of the stock market, and mention historical events that took place at the times of peaks and troughs. If properly displayed and considered, the child will see that, most of the time, values were lower "then" than they are today. In other words, teach optimism, the primary attribute of any successful investor.

By the time I was 15, I had a personal stock portfolio. I had no fear of buying a stock, but I did have a philosophical reliance on fate, on a belief that most stocks rise over five-year periods, a few fall, and one might bite the dust. Overall, the result usually is positive.

Today, I do not hesitate. I just do it, thanks to experiences given to me at an early age.

Guy is president of locally based Wealth Planning & Management LLC.
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