Among the attendees at my recent workshop, one was an avid reader of Morningstar analyst reports. Another was thinking about investing in GE, noting this seemed an opportune time since the blue-chip company’s stock price has been cut in half over the past year. An adept point, given that the attendees were students at my sons’ middle school!
A teacher invited me to speak about money and I jumped at the chance because I’ve long believed that this is one of the most important topics typically not taught in schools. While I hope the students learned some helpful lessons in our brief time together, here are four lessons I learned.
- Kids understand more than we may assume.
My kids have shown time and again they can handle more than I think they can — more responsibility, and more teaching delivered in grown-up terms. This experience of meeting with a large group of kids taught me this lesson once again.
Their teacher had them post questions to Google Docs, starting a couple of weeks before the first session. While a few students acknowledged they didn’t know much about money, far more had questions about investing, 401(k) plans, and taxes. Several wanted to learn about cryptocurrencies.
- Kids know a lot about their parents’ finances.
After the first session, the teacher emailed me this student comment: “My parents always have credit card debt, and they always have car payments. They haven’t been able to dig out of that hole. I will have to save for and pay for my own college, and I know I will come out of college with some debt. I hate starting out behind, and want to know what to do to not end up in the cycle like my parents, but it’s hard to get ahead. I don’t get an allowance or money at birthdays like a lot of my friends.”
That note was heartbreaking, but also showed remarkable maturity. I asked the teacher to forward the student a couple of recommendations, such as reading the book, Debt-Free U, and I mentioned local employers I was aware of that provide tuition assistance.
The note was a powerful reminder that children are watching how their parents use money and listening to how they talk about it. We are our kids’ primary role models, which should motivate us to get our financial houses in order.
- The best teaching is real, not abstract.
At this school, most of the sixth graders are introduced to investing through an online game in which they have $100,000 to invest. They build a portfolio of stocks and the student who generates the highest return by the end of the school term wins.
While I’m sure the students learn some helpful investing lessons through the game, the short time-frame can’t help but teach the kids to swing for the fences instead of learning the importance of a long-term perspective.
Also, it’s far easier to take risks and accept losses with play money. I encouraged the students to start investing their own money and showed them how they could open a no-minimum custodial account at Fidelity (a Fidelity Roth IRA for kids requires no minimum amount to open; opening a taxable custodial account at Fidelity requires $2,500) or TD Ameritrade (there is no minimum for opening a "Minor Roth IRA" or taxable "UTMA/UGMA" account) and build a diversified portfolio with ETFs, investing across the entire S&P 500 for just $32 (one share of SPLG, which trades commission-free at TD Ameritrade) or holding a global stock portfolio for just $73 (one share of ACWI, which trades commission-free at both brokers). Schwab is another good choice for a custodial Roth IRA or taxable custodial account.
- Youth is entrusted to the young — and their parents.
At the beginning of the first session, I gave the students a sense of their financial potential. I showed them that if they earned $40,000 at age 21 and increased that salary with two percent annual raises, by age 70 they will have earned nearly $3.3 million. That represents an incredible opportunity.
I told them the financial habits they establish now, at a time of life when they don’t have much money, are hugely important because those habits will be magnified — for better or for worse — when they start earning a full-time salary. If they get in the habit of giving and saving/investing a portion of every dollar they receive, they will be on track toward a meaningful, successful experience with money.
But someone has to come alongside them to teach and demonstrate those habits.
An old comedian once quipped, “Youth is wasted on the young.” A better word is “entrusted.” But youth isn’t just entrusted to the young; it’s entrusted to the parents of young people and others who have influence on them. I came away from this experience all the more mindful of that, and all the more committed to helping our own kids, and perhaps their classmates, get started in the right direction.