How did your parents teach you about investing? I'll bet that they may not have invested at all. They probably were covered by a pension plan, and left the investing for "rich people." Sure, they were probably thrifty, and saved a lot of money. They probably did well if they owned a house through the '70s and '80s, given the high appreciation on real estate. So, investing was probably not something they were concerned with.
If your parents did invest any money, they probably never talked about it with you. If you walked in the room while investments were being discussed, they probably stopped talking, and told you to leave.
Now you've been into Fooldom, and you've learned a thing or two about investing. As a good parent, you probably want your children to learn to invest too. How should you go about doing it?
First, how did those first two paragraphs sound? Kind of preachy, huh? That "you" word is a bad, bad word to use when teaching. "I" is better. I've found that people listen to me better when I relate things by my own experience. So, when I teach my sons about investing, I tell them what I am doing. We discuss why we make different investments, and what we hope to gain. I shared with my sons my early mistakes, as they were made. My older son, George, thought it was hilarious as I lost all of my investment in MORRISON KNUDSEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RTMK)") else Response.Write("(NYSE: RTMK)") end if %>. Hopefully, he learned enough not to make the same mistake.
I found it works to go over what I am investing in with my sons at a level that they can comprehend. George, who is 14, loves to talk to me about P/E ratios, expected earnings growth, and so on. He also has stock that he chose in BOEING CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> and RAYTHEON CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RTN)") else Response.Write("(NYSE: RTN)") end if %>. Both are in Dividend Reinvestment Plans (DRPs), so I hope when he starts working he'll invest some of his money himself. Watching his investments rise in value gives him an incentive to want to invest. He also has followed those companies carefully, and learned about business and the stock market.
My younger son, Jay, is a little different. He is only 10, and P/E ratios fail to interest him. He doesn't care about earnings growth, and is only able to understand such things in a limited manner. Instead of force-feeding him numbers, we bought him some stock in NORFOLK SOUTHERN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSC)") else Response.Write("(NYSE: NSC)") end if %>. Why? Because he loves trains. When the annual reports come, we hand them to Jay, and he looks at the pictures. We stress to him that he owns part of a railroad, which he is really proud of.
My wife and I also keep Jay up on the stock price movement of the company. As Jay says, "sometimes my stocks go down, but mostly they just go up." This is probably the deepest level Jay can get into investing at this time. Of course as he grows older, he'll be able to comprehend investing in greater depth. We have plenty of time, we don't need to force him to be a child investment prodigy.
I've found it is important not to try to shove investing down my sons' throats. They get preached to enough every day. After a while, they begin to resent it, and shut the preaching out. I've seen many of my friends grow up and completely reject their parents' values and lifestyle because for so many years it was forced on them. If my wife and I teach our sons to invest by example, sharing with them our thought process, they are more likely to internalize the importance of investing. Already young George is choosing other companies he wants to invest in, and talks about how he will invest his money when he finally is able to get a summer job.
Children also learn by bad examples. I find that my sons imitate all the bad things I do. They display an impatient attitude, can be hypercritical, and tend to have outbursts of temper. I wonder who they get that from? I suppose if my wife and I were careless with our finances and spent money like it was water, our sons would learn that, too.
Probably the best way to teach our children is by setting a proper example ourselves. If we are patient with them, and don't try to force their learning beyond their current level, they are more likely to remember what we teach them. I teach my children by talking to them on a personal level, not by preaching to them. That goes for investments and anything else.
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