Last week, I wrote about a family that has a hard time saying no to the children when it comes to fulfilling the kids’ material desires. There were a number of suggestions in the article and the discussion on Consumerism Commentary with thoughts about how such a family could impart healthier financial values.
A recent New York Times article featured two families who have taken different approaches to teaching their children about finances. In Teaching Teamwork, but with Real Money, two upper middle class families are teaching their children about investing and entrepreneurship.
Mr. Rogerson is the director of family wealth services at BNY Mellon Wealth Management. In that position, I think it’s safe to assume he has some experience with investment. That’s the approach to financial education the Rogersons are taking.
Six years ago, when they ranged in age from 5 to 15, he and his wife decided to entrust them with $5,000 each year. The children were to invest the money, which would be used for the family’s summer vacation. If the fund prospered, they might “go to Disney World,” he said. “If it stayed flat, we would go around the country and visit family members,” he added. “If the investment fell, there was always a camping trip.”
The kids work with each other to come up with each year’s investing strategy, and haven’t always prospered. One year, their initial investment of $5,000 dropped 60%, and the family still managed to take a vacation. That’s not a bad reward for poor performance, but I also don’t think that it would be “fair” to plan a vacation contingent on short-term investing skills.
In fact, I’m not even sure that short-term investing skills are what these kids need. Chasing these quick gains is similar to the family from the previous article, in which the kids want instant gratification. Picking stocks in this style is akin to gambling unless you hold insider information. Investing in fundamentally good companies, which is the lesson I think these children should learn, may not pay off in the short-term. Therefore, they should not be “punished” when their results are less than stellar, as nothing as been proven yet. (It’s hard to call a camping trip “punishment.”)
A bad year can mean poor decisions for the following year.
During the second year, the children were so nervous about “putting Mom and Dad back in a tent again that they eventually put all the money in money market accounts,” he said. “They made $50,” he added. “That year we drove down to Florida to visit family…”
Education is a continuous process. I think it’s great that the children are given the opportunity to fail, make decisions on their own, and evaluate their success. I just think short-term investing isn’t perfect.
photo: mathewingram
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9:13 am (reply)
Yeah, I’ve always had a problem with the way most of us are taught about investing in school (if at all). If you get anything, it’s typically a stock market game where you pick stocks for just a few months and see who wins. That’s no kind of investing strategy to teach children. Maybe the financial education should start at like 5th grade and run all the way through the end of High School. That way they really have time to learn some skills and not feel pushed into quick returns.
9:48 am (reply)
I agree with the authors method of teaching kids. In this case, he is teaching his kids about the stock market, how it works, and how difficult it can be to make short term gains. Perhaps this will push the kids towards learning about alternate strategies like long term fundamental analysis.
10:17 am (reply)
We do not have kids yet but my wife and I plan to teach our children through helping them invest a portion of any earned income they make. We will start out with mutual funds but also get them a few individual stocks from companies they might purchase (cereal or toys). This way they can learn about the market through items they already enjoy.
4:14 pm (reply)
For some of us, camping is punishment! ;)
I agree with you that it’s probably not a good idea to encourage them to chase short-term gains. Maybe they can learn those skills for cases where that might be applicable—but I think it’d be better if they focused on finding good indexes and such.
5:26 pm (reply)
Hmmm…the excerpt says the kids were to invest the money, but why does that have to be funds? I guess one has to start somewhere, but it seems like kids have a better shot at success if they learn end-to-end. Instead of starting with fund investing, they could learn how money is made in the first place. $5K is pretty good seed money for a small biz; perhaps that could fund research into a business they could do online. How cool would it be for a bunch of kids to blog about personal finance from their perspective? Or teach themselves an easy to learn craft that they could blog about and sell the results on Etsy? Not only would that teach them money skills they would also get a taste of marketing themselves in the bargain.
Seems like the parents of these kids need a swift kick in the imagination dept. imho.
11:17 pm (reply)
I actually think it is a great idea. How better to learn NOT to invest for the short-term, than in a controlled first-hand experience.
Clearly it worked as the kids learned from their mistake and did better the next year.
6:19 am (reply)
3:41 pm (reply)
Great article…involving your kids in the investing process from an early age will ensure that they are more financially savy and secure as adults.