I spoke with a long-time friend who enjoys talking about investing opportunities. He is savvy about investing in real estate, oil and gas, stocks, etc. This time he was telling me about what how he trains his young grandkids with lessons in how to think about money. This is how he explained it to me:
- Priorities and budgeting.He takes them to a dollar store and allows them to buy one item – anything that they want. The store is just like life to a child, there are too many things to evaluate to buy. In life, we have too many options in things you can do, paths to go down, careers, investments, and more. They have to figure out how to narrow down the many into the few, and then down to the single one – to the exclusion of all the others. And they learn the value of a dollar. As they get older, he raised their budget from $1 to $5 and then $10, so they must keep track and learn budgeting in its most basic form.
- Stock investing. Once they reach age 12, he buys them $100 worth of a stock for Christmas. They choose the stock together and talk about the company and products. Past selections have included Nike, Apple, and Amazon. Each quarter, he goes over their portfolio and talks to them so they begin to look at the world as a potential business owner searching for sales and profits.
- Investment compounding. He took out a life insurance product on each of the kids that builds up cash value. He pays $100 per month, per child, and around age 21, the annual dividends earned on the policies will be large enough to make the payments to support the policy. This means the life insurance policy will be self-funded at that point, and continue to grow in cash value each year. He goes over the projections with the kids so that they can see how many hundreds of thousands will be available to them by age 45.
These are great financial lessons and a way to actively engage the kids. These activities are a way to turn vague financial concepts into tangible reality that a young mind can begin to understand.