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.
Updated January 16, 2010 and originally published December 19, 2007.