I grew up without a lot of financial awareness around me, money wasn't a topic that got discussed and when it was, most of the time it was about how there wasn't enough. My memories of money aren't great, in fact, I prefer not to think about them and the influence they had on my family. Within all the negative, there was one positive that I remembered and that was a share trading challenge we did at school, which I won. That one memory is an incredible one, and my only hope is that someone truly saw that and encouraged me to stick at it. Sadly, that wasn't the case. It was only years later that I visited the idea of shares, investing and such, and today I'm going to talk about my journey a bit, but I'm going to focus on what I'm doing with my child to turn things around and provide him with different memories. I've spent a lot of time researching this topic, and that's what I'd like to share.
I wrote an article about securing your child's retirement, this has gone on to gain thousands of views, so I felt inspired to share more on the topic of children.
My memory isn't perfect and I can't remember the first time I invested but what I can remember is that I met a gentleman who talked me through the idea of investing on a monthly basis. I remember him recommending two Allan Gray (unit trust) products, one was an Allan Gray Orbis Fund of Funds, I believe. I think the other was with Foord but I cannot recall. I filled out the paperwork, signed the documents and each month a debit order went off and money was invested. This was probably around the age of 25 and went on for a number of years. Sadly, the gentleman passed away, and I was handed over to another company that called me in for a meeting. They convinced me to move things around to another investment house and I followed their lead, I was back to investing each month and feeling confident that my retirement was secure - great!
However, the greatest thing happened along the way, this new company stopped communicating, they were hard to get hold of, and I started to wonder if things were being done correctly. I was a tiny fry in their pool, so I respected that, but I also felt I should hear from them once or twice a year, surely? I managed to secure a meeting with them and during this meeting I couldn't help but think that something wasn't right, it felt as though they had a lot of stories and clever ways of explaining things, and it simply didn't sit well with me. It was time for me to educate myself, and get a better understanding of what was happening and what realistic expectations were.
There were a few things that stood out quite quickly once I started reading and researching:
So with this new-found knowledge, it was time to research further. But first, I wanted to do some calculations to see the opportunity cost of investing the way I had over the last 5 or so years - the results made me feel sick to my stomach. I can quite literally remember that moment when it clicked for me, I had left a great deal of money on the table! I became obsessed, I thought myself almost everything one can learn about investing, funds, fees, asset classes, onshore, offshore, tax, you name it. Fast-forward a decade and I feel quite confident in where my investing currently sits, I even did the exercise of calculating how much I would have left on the table if things had never changed... SCARY.
Right, let's talk about kids for a moment. I have a child, he's 8 years old. I don't want him to start investing at 25, and I don't want him to start making mistakes at 25. Imagine he could start as a child, with decent knowledge? By the time he's 25, he could be in quite an incredible position which would change his entire life. When I realised his time horizon compared to what mine was at 30, the numbers are absolutely insane, honestly. The first lesson I taught him was the difference between these three entities:
I purchased two Console jars, one for Bank and one for Investments, and then gave him a kiddies wallet. I did open a bank account for him too, which he is aware of, but that's not crucial. I'd talk to him about the three places and every few days, I'd increase the money in the investment jar. It didn't take long for him to understand what was going on. He can now, quite comfortably, tell me the difference between the three, and when he earns some money, I remind him about putting some in his investment jar. I'm not a drill sergeant on this by any means, if I remember, I remember and earning money isn't perfectly constant as I feared I'd put him off if it felt pressured and repetitive, I simply wanted him to grasp the concepts which I believe I've done.
During the course of his life, there are many topics I've come across that would assist your child, so I'm going to dive into those next.
One of the most important things for me is for my son to see how I do things. I want him to see me making wise decisions, but also having fun with my money. I want him to see me saving and investing money, and I want him to see me reading and researching. If I'm doing all of these things, when it comes to thinking about how he sees money, one would hope that he sees it similarly to me. I'll expose him to what a share portfolio looks like, I'll expose him to tax advantages, I'll expose him to how to look at a fund fact sheet, I'll let him see me punching my numbers into a Google Sheet and so the list goes on. Nothing forced, no test, just the odd, "come look here" and hopefully I'll have a share that's gone to the moon so it's more exciting 😉 Or, perhaps one that's died so he understands the risk. Heck, Tesla would be a great example haha.
I've touched on this already, and although it's obvious, I can tell you that 95% of people I know, have not mentioned anything like this to their children. How do I know? I have literally asked. Is it a problem? Not necessarily, a child can learn when they become an adult but the advantage of teaching them when they're young is unparrelled. My article on securing your child's future, is all you need to read to quickly see what an advantage one gets by investing from young. In fact, here's a graph:
And, that's looking at people who started at 25, 35 and 45, let alone a child! Let's actually look at a child quickly:
Look at that, aged 13 versus 25 results in a difference of $320,000. If you performed the same exercise with a child of 5 investing versus 25, it would be in the millions!
Suffice to say, investing early is a massive advantage.
Where to even start here? Most adults I know don't even budget, let alone teaching a child. I think the isue for most adults is powered by fear - budgeting is scary, truly looking at what you have is scary, the concept of ignorance is bliss is far more comfortable, even if it means taking on debt. I blame this on upbringing, though, I feel that if, as a child, you learn about budgeting, be that through example or active lessons, this will stand your child in good stead when they get older. Budgeting doesn't need to be complicated, if your child earns some money, like I said earlier, get them to put X into an investment jar, which then leaves them with Y to spend. It can be a lesson as simple as that - the concept we want to get across is that when we receive money, we need to split it up accordingly and make sure we have enough. A lot of people use the envelope method, I'm not a fan personally, but I know it works really well for a lot of people, and perhaps this is a method that could be adapted.
I'd also recommend working "saving" into this topic. I was going to put saving as its own section but I think bubdgeting should include saving, and investing for that matter as they're definitely part of splitting up your money and therefore should be considered in this process.
Side note: Don't forget to look at my free expense tracker, it's useful! (",)
If you're like me, mobile phones and apps didn't exist during your childhood, but in today's day and age, apps are part and parcel of a child's daily life. I watch my son interact on a device, it's frightening how comfortable he is. Perhaps trying to teach them how to invest on a piece of paper is a boring method, maybe one needs to install an app that will allow them to interact in a way that feels more gamified and interesting. I think exposing kids to investment apps is an important step but I feel this is something for kids that are a bit older. A paper trading account with a broker could be a really fun way to have a competition with a child, you both open paper trading accounts, select a budget, select your stocks and see whose portfolio grows the most over a month, 3 months or whatever period. Attach a prize for the winner and that could be an outstanding method to encourage learning through fun.
Don't shy away from technology, technology is here to stay and having your child familiar with devices and apps, especially in the investing world would be an advantage. I'm a tech guy, I learn technology really quickly but I would have killed to have been exposed to some investing apps/software at an earlier age instead of having to figure it all out down the line.
I've tried pocket money, in a few different shapes and form. The idea's clicked with my son but he simply isn't that keen. I take full responsibility that this could be because I've spoilt him, or perhaps he's just that little too young. He also doesn't desire a lot (lucky me), but perhaps I'm looking at things incorrectly in terms of desire. He loves his iPad and loves playing Minecraft, perhaps I should be throttling his usage, explaining that data costs money and therefore he needs to do things around the house to earn money. And, then said money needs to be split into investing, sweets, data and whatever else - I might be missing a trick here *mental note and thanks to my wife for mentioning data after a talk she went to recently about something else*
A number of parents I've spoken to have discussed pocket money in all shapes and sizes. The most common one is a chart with stars, upon doing things such as making beds, picking up toys, cleaning teeth, taking dishes to the washer, etc. X stars means they earn some money. However, what's interesting is that most of the parents say it didn't work and fell away, perhaps in this day and age, pocket money needs some redefining?
Possibly, one of the best things you can do is normalise talking about money. That's not to say that every dinner is filled with discussions about money, but rather, keep the topic of money in mind and when there's an opportunity to share knowledge or try something, use it. Next time you're at the shop, get your child to add up the cost of the items, or let them swipe the card, or calculate the change. If you're discussing the costs of a holiday, be transparent about this, show your child how much some of the things are going to cost, teach them about exchange rates and so forth. There are so many opportunities to teach but if, as parents, we don't have this in our mind, we'll miss those opportunities.
Encourage your child to ask questions about money, and be prepared to offer them good answers or at least be able to point them in a direction where they can seek good answers. This might mean you having to learn a bit, that's definitely not a bad thing for you or your child!
This topic could have been squeezed into a number of the above topics but it truly deserves its own section. The power of compound interest is the most powerful investing concept available. Spend just a few minutes on a compound interest calculator, and you'll see just how important it is. I remember learning simple and compound interest at school but I remember it being a dry and boring lesson which definitely didn't peek any interest and that was a great shame. In my years, I've found that most people don't understand compound interest and therefore have no clue when it comes to investing early and investing often. Understanding compound interest is how you grow your investments in a controlled manner that isn't complex.
Obviously, teaching a young child compound interest is a big challenge but as they get older, into their teenage years, the minute you hear they're doing this at school, that is your opportunity to introduce it in a life-learning way rather than a pass a test way. Take that opportunity, you could quite honestly change the rest of their life with a single conversation about a single topic!
Check these numbers out:
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I think I could sit here and come up with another 10 points and turn this into an incredibly long post but I'm not sure that's going to help anyone so I'm going to leave the topics as is and you're more than welcome to ask me any questions you have, and I'll do my best to try and answer, or I'll see if I can point you in the right direct.
Lastly, a couple of resources:
Along the way, there are two books I've come across that I've purchased, and that I've seen great reviews from other parents whom I know:
Manage Your Money Like a Grownup by Sam Beckbessinger
https://exclusivebooks.co.za/products/9781776190324
My 3 Piggies by Gugu Sidaki
https://www.my3piggies.com/shop/