CNN Money recently highlighted a Midwestern family’s effort to teach their kids about investing.
They did things differently than you may have heard in the past.
Rather than let the savings she and her husband had built for the kids sit and earn meager returns, Angie Ellerbroek took each child’s savings account and invested it in the stock market.
I love Angie’s proactive approach to teaching her children about money. Since this was not money that her children needed right away, she assumed (and I believe rightfully so) that it should be invested in something more than a bank account.
Kids Can’t Learn If You Don’t Teach…But Teach The Right Stuff
I felt like a cheerleader in Angie’s corner because she clearly didn’t suffer from investing fears like a number of my clients. I was cheering and routing her on–
–until I saw what she did.
She decided to take each savings account and invest it in one stock that the children knew about, so her son who likes computers she invested in Apple, the daughter who likes movies owned Disney and the other daughter who apparently got sick a lot, owned Honeywell because of the Honeywell thermometer used to take her temperature.
Oh Angie…you had me at hello and then you lost me at your diversity play or lack thereof. One stock each and not the same one? It was like Sophie’s choice but with stocks.
Fortunately over the last few years all of these accounts are up between 70 and 140% (these were the numbers quoted in the article, I am not really sure how they add up) but this story could have had a completely different ending with other stocks.
Fortunately, according to the article, Angie has further diversified her kid’s portfolios, although, it does not really go into detail so maybe now the son owns Apple and Microsoft or some other equally poor pairing.
What was more interesting than this story, though, were the comments that followed and the number of opinions people had on Angie’s decision. If you have time, I highly recommend them for entertainment purposes alone.
Where I wish Angie would have diversified the portfolios a little and maybe done the same thing for each child, overall, I am thrilled that she took this leap with her kids.
How To Teach Kids To Invest
The best way that you can actually teach your kids about investing is to invest. It’s hard for kids to understand the concept of a stock and what it means to them, let alone the power of reinvesting dividends. Believe me, I have tried this with my son using anything from Pokemon cards to marshmallows to try to explain it, and he still doesn’t get it.
If kids can actually watch a portfolio grow over time, though, they will not only gain comfort with investing, but they will become believers from an early age.
How old were you when you started investing? If you had to pick one stock for a portfolio, which stock would you pick?
Photo: Steve Depolo
Its a tough trade-off isn’t it? The mother may have been able to convince her daughter to invest in Disney and explain how the markets work through spiking her daughters interest by this things she loved. It may have been harder to get her daughter excited about the Vanguard S&P 500 ETF! 🙂
However, it may have been better for her to take the exact same approach with her children and explain that they were investing in something which would include their favourite things, and then invest in a more diversified option.
Yes, it’s tough to show diversification through an ETF with a kid. But you are right, you can always break down the S&P 500 to show that the kids own LOTS of their favorite things.
I’d just do it visually, like a tree. The fund is the base, and then the components are the branches. Visually the kids would understand.
At least she was doing SOMETHING with the money. I doubt most of the people throwing judgment her way would take that step. Glad she diversified further, though. I think teaching kids to invest is a great idea!
Totally agree, I would not throw her under the bus completely like some other people, at least she began the process.
Done by Forty
I wonder if the parent is dumb like a fox, and will end up teaching a different lesson about the lack of diversification over the long haul. The best time to learn about the perils of single stock picking is before puberty.
Ha ha…yes, it’s best to teach painful lessons before your voice starts to crack. 🙂
“So here’s how we lose all your money.. Put it one stock or multiple stocks in the same sector and prey…”
i think, Children should be given the gift of books, if your Kids Eager Invest to any market…. i think, You should have advised him and Should have said, Take the preparation, and then market to Invest…… Some days age i found a New E-book. Today i complete read the E-Book.. THE E-book presentation is good. it explain me. How to set Money generating system… This Book link http://goo.gl/gtgwsh , and collect you copy now for your kids …………..
The comments are often just as good if not better than the written post itself There’s some funny stuff that people write. You just can’t be one of those people that gets offended easily. On the above post, totally agree. She should be putting those kids money in an S&P mutual fund thru Vanguard… But at least she’s starting early.
Hi. Angie here. Just saw your post now. So sorry to be late here. Since the author was concerned that my children have a bleak investing future with their lack of diversification, I’ll just put it on the record I’m an average folk without an extensive education in finance. I also have thick skin and think people like to try to bring others down all too often. Anyway, back to my point. So the kids each have three stocks now — UPS (purchase price in the 60’s), and others. Funny thing — I purchased VFINX and am down 8% while all the stock purchases for the kids have gains. Those lucky ducks (for now anyway). And since you sincerely wanted an update, here are the stocks. Kid 1: AAPL (up 110%), NFLX (up 63%). Kid 2: DIS (up 182%), HAS (up 37%). Kid 3: HON (up 79%), HRL (up 31%). My dear hubby chose their second stocks…not sure he researched his picks as thoroughly as I had. What?!?!?! I did research? I didn’t just blindly pick Aapl, Dis, and Hon? Sorry to rock the boat here, but I gave the kids choices based on their interests and research. And, this seemed to have escaped you, but by having the kids have different stocks, it was also diversification. Some folks are hard to please. But here’s the bad thing — I’ve had such luck with the stocks that I’m sure a crash will come again. Didn’t 2000 hurt? The savings account still makes them between 0.1 to 0.2%…but I’ll gladly risk it rather than take the sure thing. Feel free to send me free financial advice if you can beat their returns…they’ve each got about $35 in their savings accounts now.