Teaching "investing" to the next generation ...

... we've got two home-schooled daughters who are near 18, and both have reached the point where they occasionally make a big chunk (to them) of money. We wanted to get them to the point where they are managing their money (online, investing, debit cards, etc.) themselves, and thinking of their future.

What we've done so far is the following ... please let us know if we missed anything:

1. set up online accounts for them (wells fargo, fidelity):
 - wells fargo savings acct let them deposit checks online with their phone ... money lands here first. if they have cash, we just take it, and push the same amount from our own acct into theirs.
 - fidelity money management/free investing acct ... lets them transmit money from WF into their fidelity acct; fidelity doesn't have the nifty deposit by smartphone feature (yet?), so need two accts.

2. with money landing in fidelity, the kids now work two buckets ... one for cash w/ debit card (they were excited to get this!), one for investing (stocks, funds) ... fidelity gave them all kinds of free investing training, and then I started working with them.

3. 1/3 of money stays in cash (accessible by their own debit card), 2/3 of money gets invested. 1st pass of this showed them how to split the incoming money into the buckets, and how to do a free "trade" to invest the 2/3 amount into a mutual fund (one of fidelity's dozens of funds).

4. We did this for awhile, and then moved them into "diversification" mode, where instead of just dumping money into a fund, now we split some up into the fund and into business stocks. the goal was to teach them to research businesses, decide what to invest in, and get a diversified portfolio.

The goal is that they periodically monitor their money management online (I suggested once a week), and redo the investing exercise with new incoming money.

All seems to be working well, and we even boosted their money once, to see if they were monitoring it like they should. One of them came back a few weeks later and said "something's wrong ... there's more money?" The lesson of monitoring once a week sunk in ... plus, we ran through the slice & dice to get the new money into buckets, and invested. That child, at least, is now monitoring more often. The other still hasn't come to me yet ...

So, did we miss anything? If you understand what we did, any other advice on things to investigate, or stock/fund strategies, or other strategies altogether? We've got them into mutual funds & stocks that are near or below $100/unit, as Berkshire/Hathaway is just a tad too pricey for us ... so avoiding all things that are hundreds of dollars, at this time.

I'm turning this into a home-schooling module ... we've already done it, but the writing exercise is where all the details get more fully fleshed out, and the process cleaned up. Just not sure I've covered all the bases that need to be taught ...

Please comment, if there are other things we need to get across to them!

Awareness of the different fee structures attached to investments, and the games that brokers can play with the fees. We once held a mutual fund that skimmed 5% off of every deposit, then charged an annual maintenance fee, then hid the charges on statements by "adjusting" the reported market value of the stocks.

What you're teaching your kids is really great. I wish I'd had this type of training when I was young. I've always thought of money as a tool so it never burned a hole in my pocket but I didn't have financial training to help with investment decisions and relying on advisors somehow always ends up going with a plan that makes them the most money. Go figure.

I second what Dc said about fees. There are a variety of clever ways that fees are applied to investments. Fees when you deposit, when you move investments, when you withdraw investments, yearly maintenance, when you take a breath... etc.  There is a reason that financial advisors drive expensive cars.

Somewhere down the road a discussion about tax implications with different types of investments would be useful. This is more relevant at/after retirement when different investments are cashed in but knowing about it early can help with long-term decisions.  

In my 60's I much wished someone had done this for me and my siblings....kudos on your efforts.  And also seconding the valuable additional information of DC Stewart since not all things called "Roth IRA", etc are the same....hidden fees and other things can make a big difference.  All of this in my case learned too late, so keep on with the mentoring of your daughters to the extent that they allow....

There's a game called Cashflow that might help. It teaches people how to analyze their own financial status, and how to compare different kinds of investments. I highly recommend it.

Fidelity (fidelity.com) is supposed to be "low fee", $0 trades, and so on ... however, I'll go read the fine print and see what it is that I don't know about their fee schemes.

We didn't set up any roth or other IRA for the kids, as our general philosophy is to pay taxes up front, and have no restrictions on what is done with the money afterwards.

They hate algebra and such, but they're getting into this money management stuff ...

Another thing about fidelity is their "online" presence ... money management console, research tools, etc. We put in a dollar, and we can see it immediately, and track it over time. All transactions, down to the penny, are reported in other tabs.

If fee madness or other shenanigans occurs, we'll hopefully spot it sooner than with paper statements.

The only thing I'd add at the moment is to also encourage them to think about 5 and 10 year life goals - not just "investment goals". As mentioned above, money is a tool, and knowing what project you want the tool to help with can also be valuable. That doesn't mean that life goals may not change drastically due to life getting in the way of living, both positively and negatively. Knowing you've got money in the bank so you can take advantage of unexpected opportunities as well as cope with unexpected problems is a wonderful thing.

Cashflow ... couldn't figure out where & when they want your money, and I dislike having to sign up before figuring such things out. Lots of articles on the website, though.

I'm a solid believer in free software that I can run on PC's at home, vs cloud stuff (or clown stuff, as someone else said in these forums). Definitely no subscriptions, ever ... in fact, there is a whole 'nother philosophy discussion thread on computing, waiting to burst out ...

JT,

I would emphasize two related points.  The first is the time value of money when compounded interest is figured in.  Given that your kids are young, they have lots of time for that money to grow and let the money work for them instead of them working for the money.

The second point is the rule of 72.  Take 72 and divide by the interest rate (or average rate of return if using something like a mutual fund) and you have the doubling time.  Obviously you want the money to double as many times as possible but being young gives many opportunities.

Avoid taxes legally through either an IRA or a Roth IRA (Roth IRA makes the most sense when young, especially with single, lump sum amounts of money).  A regular IRA starts making more sense as one becomes a higher earner, but this is for later.

Great that you are getting your kids off to financial security at such a young age!

Eric

JT, as this is a forum about Permaculture, I wager you already are schooling them in that other type of investing.....life skills.  My niece, in her early 20s, is doing remarkably well financially with her business and finally is getting some advice from others on financial investing.  My sister (niece's mother) *tried* to instill in her the benefits of growing her own food, producing her own fuel/heating situation, etc....like most Permies aspire to.  But niece was having none of it in her teens....it just wasn't her interest and she exhibited a fair amount of typical teen rebellion in this regard.  Fast forward to her approaching mid 20s and she's looking at buying a house..... one that could have a garden and small woodlot.  Go figure!  Sometimes the teen rebellion just has to happen before the sensibility of certain ideas comes home to roost.  Good discussion here....

We're building the oldest daughter's 1st TH now, with her doing a bunch of the work; she will be mortgage-free at the start of her adult life. I can't count how many decades it took us to get to the same point.

We've harped endlessly about mortgage-free, self-sufficiency (housing/food, off-grid, etc), and many others, so she just says "yeah, dad, I've got speech #42 committed to memory" ... she knows about PC.

Mom expected the girls to go out and get a summer job ... they'll quote PV of money at her, and say the rate of return on investments, tiny homes & such far exceed the rate of pay of a fast food chain, minus expenses and time lost, by the end of summer (or something like that).

Thanks for the tips on financial terminology (compounding, rule of 72, etc.) ... that & related will flesh out the home-schooling module!

Jt Lamb wrote:

Mom expected the girls to go out and get a summer job ... they'll quote PV of money at her, and say the rate of return on investments, tiny homes & such far exceed the rate of pay of a fast food chain, minus expenses and time lost, by the end of summer (or something like that).

So far as the typical fast-food chain, I'd tend to agree.  However, one shouldn't underestimate the value of working as a teen for someone else and with the public so far as developing the sort of interpersonal skills that future employers expect. Some people absorb that more easily than others, but if your girls aren't doing the sort of socializing that gets them exposed to a wide variety of humans, they may find it harder to cope if they end up needing a temporary job where dealing with folks from all walks of life is required.

That said, one of the skills in shortest supply in my neighborhood is the ability to be a self-starter and a problem-solver. Building a TH would require both of those!

Girls are fully socialized even though homeschooled, as Mom makes sure they see and do so much ... 4H, volunteering, community theatre, etc.  They do indeed know how to deal with idio ... er ... people from all walks of life ... much better than Dad, who, after a few decades in business, reached the point of spotting said folks a mile away, and avoiding them.

More pondering of all this, in my head ...

Unfortunately, my take on business, jobs, and wage slav ... er ... the job market, is not one that many folks can understand, but came about from the same decades in business. It's a racket, for benefit of the employers ... not much there for the cog ... er ... employee.

Most people prep for various natural disasters and apocalypse events, if they prep at all ... we prep for survival from and avoidance of the job market, which is much worse than the typical two-week snow event, or wildfire, or whatever ... and, the job market disaster has been here for decades, whereas the zombies are still MIA. As a stacked function, it works pretty well, as we have *also* survived two-week snow events & such ...

Did I say all that out loud?

Jt Lamb wrote:

....Did I say all that out loud?

Nope,...... but you wrote it in black and white!     No rebuttals or arguments here.

I suspect I join many of a certain era or walk of life whose parents grew up on fairly self-sufficient farmsteads in the 1930s or 40s, only to be pushed by their own parents to get off the farm and into the cities where the money is.  That sentiment had its advantages, but .......

This is a great gift to your children and I wish you all the best with it!

My background is in finance, so I'm particularly excited for what you're doing!
There's been so many great responses here as well. I think if I was to share some things I've learned , through life, study , experience that might be worth communicating to them , they would be:

- Think in terms of wealth, not money. The worst asset to hold is cash. The longer it's held, the less value it has and you are also losing gains.

- The difference between poor people and rich people is this: Poor people consume more than rich people.

- Your greatest investment is education

- Debt is product, that marketing people try to sell you. Sometimes it can be helpful, but anything that takes more than 5 years to pay back, needs to be re examined, especially if the investment is in something that won't create value.

- Investments are like savings accounts, but better. Savings accounts generally return little, an index fund is a safe, and better option.

- If you want to be free, and wealthy... learn to make decisions not motivated by what people think of your status.

- Money, assets, saving, investments aren't bad things, and when dealt with and understood properly are an integral part of spirituality and wellbeing.

- Money is there to serve us, not the other way around.

A bit on the abstract  side, but I truly believe that wealth creation and money management etc , to be successful is based on the philosophical paradigm by which we approach life.

One last thing, if they get a book on macroeconomics, and can get a grasp of its basic concepts, they will have understood 99% of finance.

All the best.

A few more days, and I should have the homeschooling lesson plan up on the digital marketplace ... will definitely add some of the points you mention, like the "macroeconomics" books (once I find the resources) ... thanks!

I hope the lesson plans will become "living documents" (via the marketplace), where they aren't static, but get updated with new material germane to the subject ... anyone that puchased 1.0 of it can always go back and freely download version 1.1, or 2.0 ... I think that is how it works, and if it doesn't, then I'll just send the new versions to the buyers.

We used the document once, to teach our children, but I'm hoping others will buy, build on it, or do their own thing altogether, and either teach their own kids, pass it to their friends for friend's kids, or even ... learn from it themselves, regardless of age!

Please continue to help me improve these documents! The first one is now out there on the digital marketplace, having gone through the thread creation process ... others coming up are Micro:Bit - Hardware, Investing (woohoo!), and Critical Thinking (as I had actually worried enough about this, and had done a lesson plan for the kids).

Thanks so much for these incredibly useful comments, everybody!

My family follows Dave Ramsey. The most important thing we can teach our kids is not to go into debt. Investing is great but staying out of debt is better.

So I think they should invest in themselves at that age. Stocks are great but paying cash for a car or paying cash for college is better. I'd focus on that.

More than investing as well would be teaching them to pay for things and handle expenses. I had to pay for my own contacts, my own car insurance and gas. I also bought and paid for my own phone, which back then was a tracfone only. Cell phones being less common. I didn't always do well. My bank account went in the red a few times. Had to learn not to do that.

Teach them to pay taxes, bills and NOT TO EVER GO IN DEBT and you'll set them up for a happy life.

Definitely agree with the no debt thing, which is right up there with being mortgage-free ...

Will add that in to the lesson plan, even though the kids will tell me "Yes, dad, I've got speech #51 committed to memory" (with numerous eye rolls and such). But, it's sinking in ... every once in a while, they quote this stuff to someone else!

My wife follows Dave Ramsey, so we're well aware of his debt message ... it's a good one! I'm starting to feel bad about how much I left out of this lesson plan ... it might split into many others, though!

Thanks!

Hi,  How and what a person puts into investments, ( resources, time, money, people, animals etc) can be quite different than the stock market.  As someone said, what is my world view - am I wealthy or rich. What is truly an investment for some is a waste of time for others.  Example - going to church or playing golf. Both could be investments and a waste of time depending on the world view of the person.  I have been told that in Botswana a person is rich if they have a 2 room apartment, and they are super rich if they have cattle.

I have my students do some critical thinking exercises. I also use online tools to help them find more appropriate sectors to "go to work in," as many are afraid to start their own business. (Again their world view is to ...)  There are assessment tools to match people psychologically for investing, or show them where they can improve. Also matches people psychologically to find a job sector to go into. I know, JOB = Just Over Broke.  Yet many people come back after working a job and gain more money management skills, life skills, for their world view - and to begin exploring other world views. Just remember it takes time and knowledge to gain wisdom.

Do we explore other types of investing outside of the stock market? Land, Crypto, food, wood, what people buy and do others invest in.

Hopefully my rambling has sparked ideas for someone.

Another investment is to prepare for disruptions, emergencies, disasters, and maybe a depression. There probably will be a world wide famine this year. Ukraine war and wheat, USA and poultry from bird flue, lettuce from e coli, crop failures in Mexico and China. These are what we know of.  

Monetary disruptions from inflation. The fed is printing trillions of dollars and loaning it to the major banks. Last week it printed and loaned 3 trillion to China.   Because of inflation people buy 2 items of food and can 1 item for later consumption. thereby saving the difference of the inflated price.