Time Is on Their Side

Editor's Note: This article originally appeared in the Fall 2011 issue of The Old Schoolhouse® Magazine, the trade magazine for homeschool families. Read the magazine free at www.TOSMagazine.com or read it on the go and download the free apps at www.TOSApps.com to read the magazine on your Kindle Fire or Apple or Android devices.

Everyone knows time is money—even kids. 

My 91-year-old father chuckles when recollecting his introduction to stocks and subsequent investment journey, which started late in life. Determined to let his grandkids in on the secret that money earns money and newly acquired money from stocks earns money too and so on and so on, he had them reading Peter Lynch’s Learn to Earn when they were in fifth grade and Mary Buffett’s Buffettology when in seventh grade. My kids understood that riches come from compounding money over time. It wasn’t long before they were scraping together their savings from birthday checks to dive into the stock market. 

At 8 years old, your kid may be cash poor, but he’s wealthy with youth. Unless you’re an oracle, there’s no way of knowing what returns will be like over the next hundred years; however, there’s reason to be optimistic about the future of the U.S. economy when one realizes that the world’s greatest investor, Warren Buffet, just completed his largest single investment ever, which he describes as “an all-in bet on the future of the American economy.” 

Kids like money. When I volunteered at my children’s elementary schools, I taught the U.S. Presidents using coins. During the first lesson, I handed each child a Lincoln penny. Then I handed each child a Jefferson nickel, a Washington quarter, and a JFK half-dollar. The money was theirs to do with as they liked. Most of them spent their money on cafeteria ice cream before the day was out—but not all! Even among the young, there are those who are imbued with a sense of thriftiness or those who like the sound of coins jingling in their pockets on the playground.

Can a sense of saving and a desire to grow money be taught the way cursive writing used to be taught or the way computer skills are taught now? If a parent makes saving fun and relative to children, the answer is “Yes!” If not, the impulse to spend that money that’s burning in their pockets may take over.

Make money matters matter. You invest in piano lessons without thinking your tot will become a virtuoso. You spend money on dance lessons but doubt your daughter will be a career ballerina. Kids need training wheels. Give them help and encouragement in fiscal matters when they’re small so that when they leave the nest, they’ll not fall flat on their faces and become statistics in the credit card usury of recent years.

Religiously, I journeyed a half-hour to the YMCA for swim lessons for each child when he/she reached age 3. As my kids got older, I wanted them to learn other nautical skills, attend swim camps, master water sports, and attain lifeguard certificates. They had no fear of water and a confidence that came from years of exposure. Kids can develop financial savoir faire just as they acquired swimming savvy. (Teens feel silly in floaties, yet they feel no shame at lacking the skill to balance a checkbook.) 

Can you impart knowledge about finances? Perhaps you have struggled to keep your books in order. You may find a discussion of money matters distasteful and not want your child to know that you don’t have a limitless supply of money. In choosing to keep your child in the dark about fiscal responsibility, you are hamstringing him for the future. Even if he earns a fortune later in life due to some windfall, inheritance, athletic prowess, movie star good looks, etc., that treasure may soon be preyed upon by predators who circle the clueless wealthy. Give your child the tools to protect himself from the Bernie Madoffs who stalk even the canyons of NYC. There are, and always will be, snake oil salesmen. Just as we instill ethics, laws, religious values, social etiquette, the birds and the bees message, and common sense in our little charges, we should cover the basics in money management in order to prevent their developing poor spending habits and sucker-type personalities. 

Last week, my daughter and I toured New York City.  A perimeter of security surrounds Wall Street. We snapped pictures of young people mounting the ferocious bull sculpture in front of Merrill Lynch. Some Hispanic youths nimbly mounted the bronze beast and demounted just as adeptly, but a Scandinavian almost impaled himself on a horn. We trekked down Stone Street, which dates back to Dutch colonization, and we watched a model for Stephen Seo pose in front of the pub Ulysses’. I asked the dark-haired male if I could snap a photo of him and my daughter. He obliged, and then the Asian photographer said with a smile, “That’ll be fifty bucks!” I replied, “You must be a New Yorker!” 

Later a young Asian man who craned his neck admiring the district’s skyscrapers asked us for directions. He was toting his luggage on wheels behind him. Between his trip to Washington, D.C. and his return to Taiwan, instead of staying at JFK airport, he had hopped a taxi to spend a couple of hours meandering the cement canyons. I asked him what he wanted to see in New York. He replied, with arms open wide: “This! Wall Street! This is my dream—to be here!” He was awed by the impressive array of historic buildings mixed in with leviathans of power.

In the small town where I raised my kids, textile factories have shut down, furniture makers have closed, and middle management jobs that were plentiful thirty years ago have gone “pouf” in this age of the Internet, consolidation, and overseas labor. In addition to wanting your kids to be affluent some day, you may want them to save and invest at an early age in case their jobs vanish in the blink of an eye. To guard against a depression, literally and figuratively, teach your child how money earns money. 

How can kids invest? They buy individual stocks as my kids did, investing in companies they recognize, such as Coca-Cola, Johnson & Johnson, and McDonald’s. Another strategy is to buy Exchange Traded Funds, called ETFs. Advantages include low-expense ratios and diversity (owning many companies). The first step is to open a brokerage account to buy ETFs. Remember that investing in stocks is for the long run. Over a couple of months, no one knows where the market’s going, especially television commentators. Even over a few years, there’s little certainty that markets will be higher. Yet, over five or ten years the market will most likely rise. Over twenty years plus, the market will certainly be higher, probably much higher . . . and you earn dividends while you wait. Remember, if you sell soon and withdraw money, some brokerages charge a withdrawal fee, but most don’t. 

If your child is under 18, you must set up a custodial account, in which you bear the responsibilities. Look for accounts that serve as savings/checking accounts and that issue debit cards. For funding, you need a checking account. You can fund it by having your child give you cash. Open a free checking account offered by many banks. Discount online brokerages are cheaper and typically easier to navigate than full-service brokers, and they now offer comparable research. Since you and they are new to investing, you want them to have telephone service as well.  

There are no guarantees in life! There’s risk in investing; there’s also risk with one’s employment. No one can forecast which jobs will last a lifetime and which ones will become antiquated. Just as it’s good for your child to be versatile in his training, it’s also wise to prepare for a rainy day. It’s important to choose stocks that pay a dividend, given that you have already chosen to invest in stocks. This spreads the risk among many companies and offers a variety of choices to allow a young investor to choose which investments he/she wants exposure to. For example, the S&P 500 Spider (symbol: SPY), will track the Standard & Poor’s Depositary 500, which consists of the five hundred largest companies in the U.S., while Vanguard Emerging Markets’ ETF (symbol: VWO) gives your little investor exposure to the rapidly growing economies of countries such as China, Brazil, and India.

Isn’t it time to teach your child some financial wisdom? Why not teach your homeschooler about investing?

Just the Facts, Ma’am!

1. Over the past one hundred years, the U.S. stock market has returned the equivalent of over 10 bucks for every 100 invested per year.* 

2. At 10% annual return, someone at 50 years of age who wants a million when retired at 65 needs to invest $240,000 immediately.

3. A third-grader who wants to be a millionaire at 65 need invest only $5,375 now.

Where in the World?

1. Take out a globe.

2. Find a resource that lists the main exports of Brazil.

3. Have your child write them down in a notebook and then help him research Brazilian companies that make those products.

4. For two weeks, keep an “alert eye” for any reference to Brazil on TV or the Internet or in newspapers. Record those mentions.

5. Do this again with China. Now show him/her the section of the newspaper that shows how a company is doing. Next, India.

6. Explain that anyone can own a wee part of a business by investing in it. 

I’d Like a Picture of Ben Franklin for My Birthday, Please! 

• Start small. Give your kid a Lincoln penny. 
• Put a thin piece of paper over it, and with a pencil, have him do a rubbing. 
• Under it, he should write out the years of Lincoln’s Presidency.
• Expand the lesson, talking about Lincoln’s stovepipe hat, log cabin, and his nickname, Honest Abe. 
• Proceed, using nickels, dimes, quarters, half-dollars, dollars, five-dollars bills, ten-dollar bills, twenties, fifties, and a hundred-dollar bill. Your child will get both a math lesson and a history lesson. 

In the four years that Erika Hoffman has been submitting her writing for publication, she has been fortunate to have sixty pieces published. Most are nonfiction narratives that find homes in national anthologies such as A Cup of Comfort, Chicken Soup for the Soul, and Patchwork Path. Erika earned her undergraduate and master’s degrees from Duke University and has taught a variety of academic subjects in several middle schools and high schools. Her four children are grown, and now her elderly father lives with her and her husband. 

Publication date: October 19, 2012