Teach Kids About Investing
If you have children, providing for their education is an important part of your financial plan. But, for the most part, that education won’t teach your children much about basic financial literacy. As parents, we need to recognize that much of what our children learn about finance will come from us rather than what they learn in school. In some cases, some parents will serve as financial role models. For me, the opposite happened, especially as far as my father is concerned. From him, I learned much more about what not to do financially than what to do. The money lessons kids learn from their parents can help to fill the literacy gap and instill habits that will improve their Return on Life.
You can teach these three simple financial lessons to your kids with activities that illustrate the basics of financial planning.
1. “Pay Yourself First.”
Many families have a rule that a certain percentage of any money a child earns for chores or receives as a gift must go into a custodial account. This is a good way of helping kids understand the importance of saving and investing in their futures. “Pay Yourself First” represents a basic element of solid financial practices. This principle applies throughout life, too. Those three words form the foundation of any regular savings plan.
However, many parents don’t take the essential next step of showing kids how their savings can grow over time. This can create awkward feelings around money and make it hard for kids to appreciate the result of their responsible behavior. Updating a simple spreadsheet together after a big birthday deposit can give kids a greater sense of control and deeper feelings of satisfaction about how they’re handling their money.
2. “Money Makes Money.”
Your kids have probably learned about Ben Franklin flying a kite in a lightning storm. You can also teach them Franklin’s lesson about the magic of compound interest: “Money makes money. And the money that money makes, makes money.”
Albert Einstein also highlighted the benefits of compound interest. He once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
Thanks to increased interest rates, your child’s custodial savings account might even provide a good lesson on compounding now. It’s also a great time to shop for a new savings account. Many banks are offering higher rates to entice new customers – especially online.
Most financial institutions also allow parents to open custodial brokerage accounts for their children, which can be another option for those special self-payments. Some brokerages sell shares of companies kids will recognize, like Disney, as a physical framed certificate. These gifts can help kids connect how they spend their time and money with an understanding of how the stock market creates and compounds wealth for shareholders.
Again, check in on these accounts every month or quarter and show your child how their money is doing. Down periods provide an opportunity to introduce the concept of volatility. Even modest losses might sting at first. But seeing their ROI move up and down over the course of a year will eventually help your kids get comfortable with managed risk. And if they start eying their toy shelf for other companies they might want to invest in, you can start talking to them about the power of diversification.
3. “Plan Ahead.”
Kids often think money works like a vending machine: swipe, tap, punch in some numbers, and what they want magically appears. Instant gratification is such a basic part of their lives that they rarely stop to think about where money comes from or how adults manage it to fulfill so many different needs. They see the result, but not the steps taken to get there.
Reviewing your monthly budget probably won’t hold your kids’ attention for very long. Instead, create new budgets that provide for both short- and long-term goals that will interest your kids. Break down the cost of a new bike or video game over a few weeks of allowance money. Or show them your regular savings plan for a big family vacation. This can illustrate how your financial plan provides for current needs while also progressing towards bigger goals.
We are always happy to help our clients have Life Planning-related conversations with their children, especially older teens who are starting to earn their own money. Give us a call and let’s start your kids on a path towards a healthy relationship with their money.
Whether you need to try some new activities or make a major lifestyle change during the year, your Life Plan can help guide you. Schedule an appointment and let’s talk about the resources available to you and how you can get more Return on Life throughout the year.
This Week’s Favorite Reads
In this week’s favorite reads, we share two articles with suggestions that can help you save money or minimize expenses. You will also find a link to this year’s Berkshire Hathaway shareholder letter from Warren Buffett. Another article offers a reminder to check your hearing as you age as well as some ways to check your hearing for free.
Here are the links to this week’s articles as well as a brief description of each and why you should check it out:
1. Every Bit Helps.
Just about everyone I know appreciates an opportunity to save money. The author of this article refers to his tips as lagniappes, or small gifts or bonuses. Apprise’s clients who like to travel internationally may want to consider the first suggestion as it offers a way to save on ATM fees when traveling. You will also find information about services that can provide cash back on your online purchases. Check out the article to learn more about these and other available, but not necessarily advertised, benefits. Those looking for more helpful savings tips may also want to check out “53 Ways to Minimize Your Expenses.” The suggestions come from Purse Strings. Phil is a Purse Strings Approved Professional.
2. How to Spot Hearing Loss as You Age.
Since it can happen slowly, you may lose your hearing without realizing it. You might go out to eat and come home thinking the restaurant was too noisy for you to hear anyone. Perhaps that wasn’t the noise in the restaurant. It could have been you. The same applies if you keep having to turn up the volume on your TV. Another sign can happen when you think those around you are mumbling. It’s important to get your hearing tested regularly, especially as you age. Hearing loss can lead to feelings of isolation and loneliness. This article even provides two ways you can check your hearing for free – you can take one test using your iPhone. The other one only requires a computer.
3. What Women Do More Than Men, and How It Helps Set Them Up for a Secure Retirement.
Historically, holding on through tumultuous markets and market downturns has led to better stock market performance than going in and out of the market. The data cited in this article says that women tend to hang on tight during market downturns more often than men do. This represents only one of the ways women are more disciplined than men when it comes to managing money with a long-term perspective. But it goes beyond playing the long game as an investor. It includes creating a plan that can help you get there. Plus, you must take action and make changes along the way. Not everything will go exactly according to plan. The article also addresses the following issues:
- The downside of thinking only long–term.
- Striking a balance between saving for retirement and enjoying life today including three steps that can help you maintain a “just right” amount of focus on the future.
4. The Indiscipline Of Overwork.
Most of us would say we work hard. But what happens if we work too hard or refuse to listen to our body when it tells us to take a break? This article shares a cautionary tale about what can happen if we work ourselves too hard. It also offers a reminder of the importance of moderation.
5. Berkshire Hathaway 2023 Annual Letter.
Due to the timing and sequencing of Apprise’s weekly blogs, we’re sharing this one a little on the late side. If you haven’t had a chance to read this year’s Berkshire annual letter yet, I suggest you check it out. This letter was Warren Buffett’s first since the death of his longtime investment partner, Charlie Munger, who died on November 28, only 33 days before his 100th birthday. In a separate note to readers before the shareholder letter begins, Buffett paid tribute to Munger who he called “The Architect of Berkshire Hathaway.”
Buffett also shared thoughts about how to build a lasting portfolio. He discussed stocks that “leave us comfortable” that he expects Berkshire to own indefinitely. Buffett also shared two more investments he expects Berkshire to own indefinitely. He increased Berkshire’s allocation to both in 2023. Check out the letter if you would like to learn what stocks he was referring to. You will also find several other highlights. You can also read these two articles (one and two) for more on this year’s letter.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.
