Kids Investing—Using Their Own Money

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Financial Lessons and Investing Basics for Kids

Kids Making Smart Decisions On Their Own

Christmas was over and, like many their age, after the gifts were sorted, my kids were flush with cash. This situation always leaves them scratching their heads a bit. We aren't exactly a conventional family, being that we live on a boat in the islands, so my kids don't have the usual outlets for excess cash. No mall. No Amazon deliveries. No Target. Basically, nowhere to spend money. They could blow it on candy bars and tourist trinkets, I suppose, but they're smart enough to know that parents supply candy and ice cream if they are just a little bit patient, and that a half a coconut shell with an island's name painted on it won't be all that much fun.

I also like to think that they've learned a bit from my wife and I. We don't buy things just for the sake of buying. We've always preached to them the difference between a need and a want. We've also instilled what we think is possibly the best financial lesson for anyone, which is not to buy anything until you've "wanted" it at least three times. As an adult, for example, you don't run out and buy a smoker grill until there are three independent instances where you stood in your backyard thinking, "Man, I really wish I had a smoker to cook these ribs in." Nine times out of ten, using this simple method, you'll either completely forget about that thing you wanted to buy, or you'll come to the conclusion yourself that you don't really need it. The trusty old Weber will do.

So, there it sat, a couple hundred grandparent bucks collecting dust. Then one day something miraculous happened. Sitting at the table looking through their stock portfolio, the kids asked me, "If we put our own money in, can we make money and take it back out?"

They weren't willing to completely relinquish control of their cash hoard, but at the same time, they realized that it wasn't doing them any good sitting on a shelf.

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Hmmm... I hadn't considered this possibility yet. It was a great suggestion, but there would have to be some ground rules put in place.

The number one thing that had to be understood was that this wasn't a cash machine. They couldn't put money in one day, take it out the next. They also couldn't be taking $5 out at a time. The money would have to sit there for a few weeks minimum.

They also needed to be reminded that the stock market goes both up, and down. The $200 they put in there today might only be worth $150 next month. Pulling it out on a market downdraft could be costly. Short-term trading holds that risk.

My kids have been involved in this stuff long enough to know these things, but it was worth discussing beforehand. Once everyone agreed, we picked a new stock—one that would be their "trading" stock. We chose Wal-Mart (WMT). It's not likely to go to the moon tomorrow, but at the same time it's not likely to outperform to the downside either. I agreed that I would cover their .99 cent trade cost if everyone agreed to the above terms, and then we placed our orders.

It's now been over one month. Whenever the kids see me looking at charts they ask, "How's Wal-Mart doing?" We take a quick look at the chart together, and then they continue on their way. Nobody has even mentioned the money, which is certainly not what would have happened if they had a wad of cash sitting on their shelf.

Another good lesson learned, for both kids and their parents: If you quickly invest excess cash, you won't ever miss it.

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Bumfuzzle in St. Croix

As I write this I'm anchored in Frederiksted, St. Croix. My kids are homeschooled/unschooled, but that doesn't mean they aren't constantly learning. Whether they are learning the history of the island/country we are visiting, or identifying the myriad assortment of fish we see while scuba diving together, or I'm sharing my love of finance and economics with them, there is always something new and interesting. We wander through life together, and while they might not learn the same things that their peers on land are, their minds remain wide open.

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