(Guest Post by Mrs. 1500 from 1500 Days to Freedom)
We have two children, ages 6 and 3. We are passionate about bringing up not only well-behaved, respectful children, but we also want them to turn into financially responsible adults.
Our Background
My parents showed me how to spend frugally, by shopping mostly at garage sales (not a lot of thrift stores around when I was growing up) and using coupons. My mom was once featured in a newspaper article showing all the things she got for free using coupons, including my brother’s Big Wheel, which was a Crest Toothpaste giveaway. Pretty cool.
In both cases, we learned valuable lessons from our parents and we want to pass them along to our children.
The Children
In today’s consumeristic (is that even a word?) society, how do you teach your kids about money? We started like everyone else, giving the older one money for chores and helping around the house. We paid her in quarters, making sure she put it in one of three piggy banks; College Pig, Saving Pig or Spending Pig. We started this when she was 4, but the concept of college when she hadn’t even started Kindergarten yet was rather intangible. We also want to go beyond saving – we want to make sure our kids have a solid understanding of personal finance and investing.
Mr. 1500 and I are always talking to the girls about different financial concepts. We believe that as soon as kids are old enough to start asking for plastic toys at the store, they are old enough to understand concepts surrounding money. However, we want to take it one step further.
Lately, Mr. 1500 has been talking to them about what it means to own a share of stock. We wanted to see if the lessons had been sinking in, so we asked the 6-year-old what it means to own a share of stock. She said, “It means you own parts of companies.” MISSION ACCOMPLISHED!!!
(When we asked the 3-year-old if she wanted to own a piece of McDonald’s, she said yes. When we asked her why she wanted to own it, she said “To go sledding.” Obviously we have a pinch more explaining to do with her, but equally as obvious she isn’t quite ready to have this conversation.)
The Grand Idea
Before the older girl’s 6th birthday in February, I suggested to Mr. 1500 that instead of more stuff, why don’t we buy her a share of stock in a company she chooses? We gave her the choice between McDonald’s, Disney and Costco, three companies she is very familiar with. We figured it would mean almost nothing to buy her a share of American Express or IBM since she can’t relate to those. (Mr. 1500 would have been delighted if she had chosen Google or Tesla Motors.)
She chose McDonald’s, which gives us the bonus of being able to start teaching her the concept of dividends and dividend reinvestment (when she reinvests that dividend, we can try to explain to her that she now owns 1.000001 shares of McDonald’s.) At Christmas, we will again give her the option of two different stocks that she is familiar with and see what direction she takes.
Quarterly, we will sit down with her, tell her about major news with the companies she is investing in, and show her how much her investment is now worth. No, she isn’t going to grasp the ins and outs of investing just by owning a few shares of stock at age 6, but she will start to learn. You don’t sit down at the beginning of the day and grasp nuclear physics with one lesson.
When she is older, we will give her a dollar amount and let her do her own research into what companies she wants to buy. “Here is $100. You can buy 1 share of X, 2 shares of Y, or 15 shares of Z. What do you want to do?”
Now, I can already hear the nay-sayers, spouting off about how she is way too young to own stocks. You are entitled to your opinion, but financial education in America is nonexistent. If we want our children to know about finances, we have to teach them ourselves. This is especially true if we want them to think differently than 99% of America.
We want to teach them the fundamentals of investing and there is no better teacher than experience. As she gets older and understands more, we will probably stop with the individual stocks and start buying mutual funds. But to a 6-year-old, the individual stock is a concept that is easier to grasp. We view this an as ongoing project, from now until the day she moves out of our house. Teaching your child about investing can be one of the greatest gifts you give them.
But forget the kids for a moment. Many adults don’t understand the basics of personal finance and investing. All it takes is a look at the average credit card debt to see the prevailing thought is spend, spend, spend. We don’t want our children to be like that. We want to teach them how to save and how to invest. We think that buying them a share of stock is a great place to start.
How about you? Any unconventional ways you teach your children about money?
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Mrs. 1500 and her husband write about personal finance and their goal of early retirement at www.1500Days.com. Find their family enjoying life in their beautiful home state of Colorado. If you can’t make it out to the mountains, find her on Twitter atΒ @mrs1500Β and facebook atΒ facebook.com/1500days.
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Sounds like a great idea, and any way to improve financial education is good to me. She is learning patience, delayed gratification, that money can buy more money in the future… all sound principles.
Thanks, Pauline. We are still working on that patience, but she is really good with delayed gratification.
Love the guest post Mrs 1500! One of the ways I’ve heard other parents teach their kids about money is paying them for grades (mine never did this), but the twist that I liked the best was that if a kid did poorly, the kid owed the parents money. It was something like A – $10, B – $0, C – Pay parents $10…
HAH! I got money for good grades but hadn’t heard of PAYING – that’s awesome :)
No kids here, I was thinking it was too much for a 6 year old, but hell yes, it should be taught to all kids when they are growing up!
Hi Sue.
6 would definitely be too young to give a big bunch of money to, with no guidance. But since this is her first stock, we gave her limited options, and she chose the one she was most familiar with. I think it will be fun to show her how stock ownership works, good and bad, while she is young and it seems like a game. As she gets older, she will have more flexibility with what she chooses.
Financial education is sorely lacking in the US. We just want her to have a firm grasp before she goes out into the world of Coach purses and Jimmy Choo shoes.
Thanks for reading!
This is amazing parenting. Kid’s gonna be a billionaire.
Sense, you made my day. Thank you.
Good work! We are also trying to teach our kids about money. Our oldest knows that all of her birthday money goes into her college fund. I may have to start teaching them about stocks as well :)
Greg,
All you have to do is make it fun. Let them choose a stock that means something to them, and track it monthly, quarterly, or whatever. Maybe even make a chart so they can see where it was, and where it is going.
I like the birthday money into a college fund. We might have to implement that.
I think this is pretty cool! Maybe they won’t be intimidated by investing when they grow up. Just make sure that you don’t get too much money in their name or else you’ll be subject to kiddie taxes and when they go to college it could hurt their fafsa. Maybe have it in an account in your name or a trust or something… just some ideas.
Fafsa also takes into account the family’s “share” of the college tution, so if you save in either a kid’s acocunt or a parent’s account the child gets screwed!
But good point on the kiddie tax, of course that would be a good problem to have…
Lance and Brian,
Wow, things I didn’t think of. I am going to have to check that out. We will almost certainly be retired by the time they are in college. I wonder if it takes into account that you don’t have jobs? Of course, to be retired, we would have to have a significant amount stashed away anyway, so that point might be moot.
But thanks for pointing that out. Looks like I will be spending some time with Google soon…
My parents (and grandparents) did this with my sister and I. Of course we didn’t really get to choose the company and were stuck with shares of Eli Lilly, which both my dad and grandpa worked for at the time and got through employee stock purchase programs. But my dad and grandpa would go over how to read the fundamentals and evalute the company and other companys. Of course getting shares of Eli Lilly wasn’t terrible in the 80s and 90s since the stock split 3 times so I got to learn about those. There was also a spin off into another company so I got to learn about that too and finally that spin off was bought out in the mid 2000s. All in all it was a very good leason and has helped me get where I am today and feel confident about my own investing!
Brian,
I am happy to hear of the success of this idea. Makes me even happier that we decided to do it. I am hoping she will grasp the concept of money in general and investing in particular. I grew up with parents who invested, and while they didn’t talk about it a lot, they did mention it from time to time. I thought all adults invested in the stock market. Mr. 1500 works with numerous people who don’t invest, or when the market starts to fall, pull everything out. Another friend bought heavily in gold when it ran up so high, even refinancing his house to pull cash out to put into gold. Then it fell. A lot.
I want my girls to know that if they lose money, it isn’t the end of the world because they started young and have lots of time to make it up.
‘When we asked her why she wanted to own it, she said βTo go sledding.β ‘ That’s awesome…I can imagine getting the same thing out of our 3 year old, but I am sure his response would be something about Buzz Lightyear. ;) I think it’s awesome what you’re doing, not to mention doing it with companies she knows.
Hi John, thanks.
We wanted to make it relevant, so we chose a few stocks for her to pick from.
A few days ago, right before there was a huge run-up on it, she said “I wish I bought Netflix, instead.” Then the enormous price increase. Should have listened to her. Perhaps she is the Oracle of Colorado?
Interesting. I started a portfolio for my son at age 5 of stocks that I thought might be important to him at some point (McDonald’s included). He’ll turn 7 next month. I write 1 blog post each year about it, but I still don’t talk to him about it or stocks in general. I guess we’d both just rather play Catan right now :-)
It is never too early to talk about stocks. Well, maybe 3 is too early.
Almost 7 is a great time to talk to him about it. Show him what you bought it at, and where it is at now. Even if he has lost money, show him that, and how the stock will come back (unless it was Enron…) and that by starting early, he has so much to gain and what he can do with that money (retire early or pay for college).
You’re doing a great job in teaching your kids. We plan to do the same thing to our kids. We plan to give them money for every household chore they’ll do. We will also teach them how to save and decide where they want to put their hard earned money.
Thank you for sharing us that this trick will work on kids!
Thanks Elvin.
Apparently, this works well. There are several responses where people had stocks purchased for them as they were growing up and they had conversations about stocks and saw their money growing.
Can you imagine buying Apple a few years ago at $10 and watching it grow to $700? That would be cool to see as a kid. Of course, now it is worth $400… But just another lesson. A little easier to learn when it wasn’t your money that purchased that stock…
My grandmother started purchasing stocks for me when I was ~6 years old as well. While I didn’t get the pick of what she bought (my stock portfolio has like, Exxon Mobil, Pepsico, Proctor & Gamble, and other big blue chips.), she sent me the quarterly statements, and we had LOTS of long chats about what was going on with companies, dividends, etc.
She also taught me that while I owned these stocks it was my “job” to figure out how to support those companies with family buying decisions too, (“Tell your mom to buy you Crest toothpaste!”).
When I started investing on my own, I told her that I had purchased a stock while it was going up, and she berated me for an hour about why I should be patient for when the stock price comes down.
What she taught me goes against ALL common thought about personal finance–“retail investors shouldn’t buy individual stocks, don’t try to time the market, etc.” but how can I argue with her? She turned LITERALLY $500 worth of stock into $50,000 worth of stock!
It’s what fuels my passion for personal finance these days!
Leah, I love, love, LOVE this story!
Nice portfolio, too. Your grandmother sounds like one smart lady. I think if you use common sense when investing, you will go far.
SO COOL!!! I love your grandmother!
Nay-sayers? This is a great idea. You can scale the investing lessons as the child ages. By the time that they’re in middle school, they should be able to evaluate most dividend paying stocks. The math and logic needed are actually pretty simple. By high school they should be able to understand an annual report, grasp the basics of options, and be able to size up MLPs, BDCs, and REITs.
I am going to have to look up what MLP and BDC means…
But you are right. If you start early, with age-appropriate ideas, and gradually teach them about the more complex concepts, they will be comfortable with the idea of investing, and hopefully even see it as a must-do for retirement.
Great idea! Might have to try that with our three boys. My children will, as long as they live under my roof, put half of their pay at any job they hold down into a college savings account already established at our bank. They also have 521’s which we may or may not push all of that income into. They have known this rule since they were young enough to hear me say it! The oldest turns 14 this summer and plans to look for his first job the day after his birthday. I can’t wait for him to start earning his college education!
We, too want them to save for college. I was very proud when the 6-year-old came home from school to tell us about Junior Achievement, and when Mrs. Megan asked what the kids were saving for, she said “college.” WIN!!!
If you repeat it, they will remember it. Good for you! And it is an amazing lesson for your kids.
Good idea! Never heard of that one before.
That’s an excellent idea, Mrs. 1500. I really like how you’re trying to teach your kids about money at such a young age. Plus, does a 6 year old really need another toy? If they do, they’ll probably get it from relatives, so a stock of her choice from you guys seems like a great gift. Who knows, it may end up helping to pay for college in 12 years.
Thanks, Jake.
Oh, if you could only see the toy collection at the 1500 house. And we are on the low end, I am sure.
If you have the information, you can use it. If no one ever teaches you, how do you know what you don’t know?
My aunts and uncles used to give me stocks and bonds as gifts when I was a kid. I don’t think you are ever to young for these purchases. It’s just a matter of what type of account you put them in.
Of course when I was young, I thought it was the lamest gift because you couldn’t unwrap it or do anything with it. So I wouldn’t substitute it for real presents.
Yes, I would think this is a terrible gift, as a child. Fortunately, they are the only grandkids on Mr. 1500’s side, probably forever, so those grandparents take out all the stops when it comes to buying gifts. They are not lacking in the gifts-to-unwrap arena.
Hahahha I thought the same when I got my bonds :) Wasn’t upset when I got older though!
Which method did she use to do her valuations? Did she use a blended cost of capital to determine the discount rate? Did she use EBIT or EBITDA for free cash flow?
Iβm kidding with those questions, but I donβt know that a six-year-old would appreciate the complexities that go into a stock priceβ¦ Iβd much rather teach my tots the value of savings accounts or savings bonds
That’s kind of what I was getting at with my comment too.
The problem with savings accounts is that they pay .000001% interest or something close. It is so hard to see money grow that way. I see your point, the low-risk method is very easy to explain, but you start slow with one stock, something that interests them, and you gradually introduce other concepts like dividends, reinvestments and add a new concept when you feel they can understand it.
ANY education you can give your children just puts them that much more ahead of the rest of the pack.
Or it’s 1.00% http://banking.barclaysus.com (Fetched 27 April)
And the lesson they learn with a savings account doesn’t come from watching your balance grow due to interest payments; the lesson comes from watching your balance grow every time you choose saving over spending.
But I do agree that more knowledge is never a bad thing. But my first lesson would be the efficient market hypothesis.
Great article. Once you trigger a kid’s interest then all you have to do is clear a path in front of them.
Our daughter turned out to not be hardwired like Warren Buffett, but she tremendously enjoyed the beginner’s book “If You Made A Million”.
We built on that with the ideas for toddlers through teens in David Owen’s “First National Bank Of Dad”. It was a huge help. Today she’s approaching her 21st birthday: finishing her junior year in college with a budget, no debt, money in the bank, low-cost passive index funds in her Roth IRA, and a job waiting for her after she gets her degree. So far so good…
Wow, thanks for the book recommendations. I will see what our local library has in stock. The 6-year-old loves to read, anything and everything.
And you are so right, once you trip their interest…
Way to go daughter! And parenting! :)
I think it’s great to start them young, but I’d much rather stay away from individual stocks. We all know that diversifying is the key to long term investments, but I guess the knowledge learned is worth the risk?
As a long-term, serious investor, yes diversification is key. But as a 6-year-old, first-time investor, keeping their attention with stocks they recognize is very important. I keep using American Express as an example, and I actually like their stock for an adult who gets it. But she would have no interest in owning part of AmEx. But she thinks owning a part of McDonald’s is really cool.
Wanted to chime in that I think its a great idea too! Your children will have almost 2 decades more experience than their peers by the time they are an adult. Never too young to learn. Its just the concepts will start out simple and develop more complex as they grow up. We do the same thing with math.. why not investing?
Exactly! And we feel that with the 2 decades of additional experience, they will be able to say no to frivolous spending (for the most part) and not rack up tens of thousands of dollars in credit card and student loan debt. Check back in 15 years…
I really enjoyed this article. I do think you could set up a savings account at a bank and let her go inside to deposit money, etc. I also think you may be missing out on an important part of money: giving. What about charity? What about teaching that we are so blessed, and there are folks in the world who need some of our money? Being generous can be instilled in children at a very young age. I feel like College Pig and Saving Pig could be combined, to keep it down to three categories.
Samantha, you are absolutely right. We are starting with allowance in a few weeks, after we figure out what chores will be classified as doing your part for the house, and what chores are classified as extras that can earn you an allowance. 10% will go into the charity pig.
Being generous SHOULD be instilled in children at an early age. It is much easier to do later in life, if it is something that is a part of growing up. Thanks for the reminder!
I think this is absolutely fantastic! Your 6 year old already knows more about the stock market than a LARGE number of adults! This will definitely serve them well going forward.
One question though, why revert to mutual funds when they’re older? I’ve always viewed mutual funds as somewhere people put their money when they aren’t well versed in investing. If your children understand the fundamentals of investing, why not allow them to continue on with that education rather than paying someone else to look after it?
Whoa, I love this idea!
Similarly, my parents bought me a share of Coca-Cola when I was a little kid (I still get a few cents each year from it). However, they didn’t really explain to me what it was until wayyyy later. I think that action AND the explanation are necessary. And I love that you let her choose which company to invest in! If I were to ever have kids, I think I would do something similar. Keep it up!
Thanks, Lisa.
I do think it is important for her to be invested in the process from the start. (I know, a horrible pun.) But I really feel she will get more out of it if she is helping make decisions. Also, we only gave her 3 choices. Risky international stocks weren’t among them.
Wow! That is so awesome. I don’t have kids, but I’ll definitely be passing on these principles to them.
Mrs. POP I have never heard of kids owing money for bad grades. Good idea. I never really had bad grades. My parents just expect good grades, and it’s not good when we have grades that drop. I remember getting a handful when one of my grades would drop by a point.
That is an awesome idea, rock on! I am looking forward to being able to come up with fun ways to teach my daughter about personal finance.
Nick,
When you figure out some fun ways, please share with the class!
Hopefuly, I’ll teach my children to be better with their money than I was.
That said, I’m totally going to be one of those parents that has their kids learning college material in kindergarten. I remember my HS bio teacher bringing his 8 year old daughter to school one day for “take your daughter to work day” and she was totally schooling us on a test review.
Thanks, Edward.
I remember taking classes at the community college before graduating high school, feeling like a big shot.
If you want your children to be better with their money, share your mistakes with them, at age appropriate levels. My parents kept a lot of money stuff secret, and I wish they would have shared more. When I was in first grade, my dad lost his job. We couldn’t sell our house, and my mom had to go to work for a while. We almost had to leave everything and move in with my grandma. First grade is a little young to learn this lesson, but as I got older, they still kept money information close to the vest.
Showing them you have learned from your mistakes is a huge lesson in itself.
Our kids are grown up but when they were younger, we never got them involved in investing at the ages you mentioned. But when we bought items for them, clothes and food, we took them along and without saying anything they watched us how to shop and how to save money.
YES! My parents taught me nearly nothing about finances. I went into debt almost immediately. It’s been through my own research that I’ve finally learned about money. Glad you are giving them a head start.
It is really easy to fall into that debt spiral. Just a small amount of time spent explaining things to them will (hopefully) reap huge rewards in the future for them.
Good for you on getting yourself back on track!
YES!!!!! I am loving this. Kudos to you, I think it’s an awesome idea. Especially the part where you explain what everything means. It probably still doesn’t make sense to her — she’s probably reciting words/definitions but it will for sure sink in at some point. My mom is in real estate and my whole life I’ve heard real estate terms being tossed around — which I really think helped ME get my license — just cause I already knew the words, so I just had to learn how it all came together. Probably something similar will happen here.
Now that I’m an adult, I’ve found that my lifestyle up to when I was 18 or 19 really shaped how I make my decisions. My mom didn’t TALK so much about financial stuff as much as just lived very, very simply and made sure we knew the value of everything – made us finish our plates, didn’t buy us fancy electronics, etc. So even when I was set loose legally/financially, living well below my means had become a deeply ingrained habit — which is so much easier to keep up!
Keep it up, can’t wait to hear more stories from you in the future :-)
Thanks, Tiffany. I love hearing how people were shaped, financially, during their childhood. It just reinforces my belief that we are doing the right thing.
I’m LOVING this – once again, your generation is restoring my faith in you guys. You go – teach those little angels how to be financially savvy. We tried this approach with our kids – it stuck with our daughter; son is still a project in the works – we’ll see if it sticks with him – ha! And I absolutely laughed out loud (in praise) to your 6 year old’s response to “what is a stock”!
questions: does your daughter have a trading account in their name? care to mention what brokerage? or is it a share in your account?
We use E-trade. We purchased a share in our account, to see how it goes. We are looking into the tax implications before putting it in her name.
This is awesome. I have a 4 year old who is very bright, and very interested in money. We’ve had fun teaching him about saving and giving, but stocks weren’t something I had considered. Hmmm.
Sandi, I think you should go for it. What is the worst that could happen? You buy one share of stock that turns out to be worth nothing? That just shows him that you have to do diligent research when choosing a stock, or that a mutual fund or index fund is a better way to go. Let him choose the stock, make it mean something for him, and he will have fun with it.
I was lucky enough to have parents who allowed me to experiment with personal finance from a young age. I think, when done very carefully, it does wonders for the long term.
You were very lucky, indeed.
When you think your kids are ready, why not. The sooner they are made aware about money, the better.
So true, KC. I think you can start around 4 or 5, depending on the child, and teach them lessons about money that can get more in depth as they grasp the concept.
I bet your kids will enjoy the benefits of dividends for a lifetime. Are being held in an UTMA account for each child or in your name?
Right now, we are just holding it in our name. We are looking into the pros and cons of the stocks being in their names.
This is fantastic! You already know my parents were all about the financial lessons in my youth, but investing wasn’t as much of a focus. I really like this plan and I’m interested to hear how it turns out. Don’t listen to the nay-sayers.
My Dad gets a lot of backlash for how he taught me about net profit when I was seven. I sold donuts during my Mom’s yard sale. I made a nice chunk of change and then my Dad took the money he spent to buy the donuts and made me pay my sister. I never forgot that lesson and it started my whole love of finance! It’s even the story that kicked off my blog.
You’re doing such a wonderful thing for your daughters by teaching them about money young. Just another reason I love 1500 Days To Freedom!!
Thanks, Broke Millennial. I think your dad did a great job of educating you and your sister. In this day and age, so many kids don’t learn about the real world until they are thrust into it. Your first job is not the place to learn that you don’t get rewarded for everything, and a very hard place to learn that we aren’t all equal.
I love the donut lesson. That is what kids should be taught early on.
Haha your dad is awesome! Great lesson to learn early on :)
That’s great idea but how can I open an account for my 6-month old son? No brokerage firm would open an account for him and I cannot have it in my name for reason x.
Any suggestions?
I don’t know of any ways you can open up accounts for young kids like that without a parents name on it. Unless you just want to stash straight up cash in a jar or just put it in you own accounts you already have and earmark it for him?