(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.
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.
Mr. 1500’s parents weren’t quite so savvy. They frequently struggled with money, and were plagued by poor decisions (anyone want to buy a timeshare?)
In both cases, we learned valuable lessons from our parents and we want to pass them along to our 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?
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 at @mrs1500 and facebook at facebook.com/1500days.
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!