Teaching Your Kids About Money & Investing

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barrett
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Teaching Your Kids About Money & Investing

Post by barrett » Tue Jul 10, 2018 6:54 am

I don't know how many people we have here who have kids but I just grabbed the following quote from Cortopassi in the Gold Scream Room:

"This is the kind of stuff I wish I had someone around to teach me when I was 22. Sigh."

Let's just pull that quote out of context and think about what things we might teach our own kids about money & investing.

Alas, I don't have much time to type at the moment but I think this could be an interesting topic. It's been discussed a lot on the MMM and Bogleheads forums but I thought we might get some different viewpoints here.

For the record, I have a daughter who will be 21 in November so I think about this stuff a lot.

I think, for me, the two most valuable lessons for my daughter come straight from Harry Browne, and they are (in paraphrased version):

1) Your career builds your wealth.

2) Never assume you can earn your money a 2nd time.

I'm almost 60 years old. When I turned 22 back in 1980, the US was coming off 15 years of stocks and bonds being unable to keep up with inflation (here's 1970 to 1980 data courtesy of Tyler: https://portfoliocharts.com/portfolio/classic-60-40/). At that time (my birthdate was 9/23/58, so this advice would have been passed along to me on 9/23/80) gold was just starting its descent but was still at about $2,000 per ounce in today's terms. My dad and mom were born in 1917 and 1918 respectively. Obviously they both lived through The Great Depression and WWII. So I often think of what financial advice they could have drawn from their own experience back in 1980. If they were influenced by recency bias, they would have likely recommended investing in gold and, possibly, real estate.

Have to run now but I'd be interested to hear what others have to say.


Edited to fix a couple of typos!
Last edited by barrett on Tue Jul 10, 2018 5:24 pm, edited 1 time in total.
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Kriegsspiel
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Re: Teaching Your Kids About Money & Investing

Post by Kriegsspiel » Tue Jul 10, 2018 7:33 am

My niece and nephew are both <5, but if a kid has a basic grasp of gardening and investing this little story might be useful:

In the Incan empire in South America, they loved potatoes. They had tons of different kinds of potatoes, and they'd mix them up in their gardens, all jumbled together. Every year, some kinds of potatoes got sick and they died. But the Incans, because they grew such a great variety, always had potatoes to eat, because whatever infected the potatoes only infected certain kinds, leaving the others alone (and giving them more room to grow!). When the Spanish came to South America and discovered that "¡YES! potatoes are awesome" they brought back some to Europe. The Irish planted one kind. Millions of people pretty much ate only potatoes, but only one kind. Eventually, a disease killed all those potatoes, just like in South America, but the Irish didn't have any other varieties to eat. So they resorted to cannibalism and theft and they looked like fucking ZOMBIES OMG and a shit ton came to America and that's how Grandfather met Grandmother (the IRA was also involved a little bit...) and they had my Mom and then, in a crowning achievement, I was born. Thus it is decreed, diversify your investments, you little rascals.

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Desert
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Re: Teaching Your Kids About Money & Investing

Post by Desert » Tue Jul 10, 2018 8:58 am

Barrett, this is a great topic. I have an 11 year old, and my primary message is to LBYM (live below your means), even at his age. In other words, don't spend everything you get. He's also invested in a total stock market fund, so he can live through the volatility with small amounts of money rather than learning about volatility later in life as I did.

When I look around at young people just starting out after college, it appears that they need to focus on budgeting. Investing is a distant second priority, I think, as you've pointed out in the HB statement "Your career builds your wealth."

Krieg, I enjoyed the Irish monoculture story. I probably wouldn't be here either, if not for those crazy, drunken, fightin' potato farmers messing everything up.

Oh, one memory from the 80's: CD rates in the teens! Nobody talked about stocks in my circle, probably because nobody had any money.
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Mountaineer
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Re: Teaching Your Kids About Money & Investing

Post by Mountaineer » Tue Jul 10, 2018 11:19 am

One of the most interesting, simple, strategies I remember (but I do not remember the name of the book) is EVERY pay period to:

1. Decide what percent of your income you will give to charity (forces you to realize there are always people worse off than you and it is your moral responsibility to help them) (5 to 10% minimum is a reasonable number),

2. Decide what percent of your income you will save or invest for long term needs such as retirement (suggest 15% minimum),

3. Decide what percent of your income you will save for large infrequent purchases such as vehicles, home down payment, major repairs or replacements,

4. Spend the rest on whatever you wish, but NEVER MORE THAN THAT.

5. Pay off all credit card bills when due - NEVER partially pay. The only acceptable loans are for homes and vehicles (possible exception is student loans if you are unable to work or have scholarships during college) which come out of number 4 above.
“Don’t judge each day by the harvest you reap but by the seeds that you plant.“ – Robert Louis Stevenson
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ochotona
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Re: Teaching Your Kids About Money & Investing

Post by ochotona » Tue Jul 10, 2018 12:28 pm

I think rule #1 is to establish that it's OK to talk about money in your family, and there are no dumb questions. And that goes from young to old, and from old to young.

My Father and Mother-in-Law have both been wrapped up in terrible secret-keeping and codes of silence around money. Both were been left to their own devices for decades too long, and both have monumentally screwed their retirements up. My Dad's suffering ended in 2015 when he passed away. My Mother-in-Law's continues on.

With her, I'm at this point: "T., I'm not going to try to give you financial advice any longer, because you don't take any of it ever. You're wasting my time".
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Cortopassi
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Re: Teaching Your Kids About Money & Investing

Post by Cortopassi » Tue Jul 10, 2018 1:22 pm

Great bullets for chapters in a book! Picking and choosing and adding:

The top for me:

1) Live below your means. Be frugal. This is the easiest thing to convey to younger kids. Mine at times come home from shopping and are practically jumping with excitement when they have bought something off the clearance rack with an added 20% off the clearance price to get themselves a dress that was originally $140 for $9. Happens quite a lot.

2) Your career builds your wealth. **This one I got right, but I put in a self imposed glass ceiling by staying in engineering vs. moving into management. I could be making a lot more but enjoying myself a lot less.

3) Never assume you can earn your money a 2nd time. **Diversify your holdings, with the PP as a good starting reference point. Don't get enamored with the latest high flying stock or put too much in one investment. Unless it is part of your day job, if you are looking at or worrying about your investments more than a few times a year, you need to adjust something.

4) It's OK to talk about money in your family, and there are no dumb questions. **Rarely ever spoke money with my parents, other than to hear them fight about it.

5) Decide what percent of your income you will save or invest for long term needs such as retirement (suggest 15% minimum) **Start saving at your first job if not before.

6) Decide what percent of your income you will save for large infrequent purchases such as vehicles, home down payment, major repairs or replacements. **Budget. Plan for things, don't react and be forced to put something large on a credit card. Use some sort of budgeting tool, like Mint, so you can see where money is going.

7) Spend the rest on whatever you wish, but NEVER MORE THAN THAT.

8) Pay off all credit card bills when due - NEVER partially pay. The only acceptable loans are for homes and vehicles (possible exception is student loans if you are unable to work or have scholarships during college)

Mountaineer, I respect the charity part, but I would modify it:

9) Starting out, you'll probably have more time than money. Volunteer your time to an organization whose mission you agree with. Give something back. As you get further in your career and are making more, you can add donations to your time.
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pugchief
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Re: Teaching Your Kids About Money & Investing

Post by pugchief » Tue Jul 10, 2018 2:04 pm

Cortopassi wrote:
Tue Jul 10, 2018 1:22 pm
If you are looking at or worrying about your investments more than a few times a year, you need to adjust something.
Is that a "do as I say, not as I do" piece of advice? ;D
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Cortopassi
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Re: Teaching Your Kids About Money & Investing

Post by Cortopassi » Tue Jul 10, 2018 2:12 pm

pugchief wrote:
Tue Jul 10, 2018 2:04 pm
Cortopassi wrote:
Tue Jul 10, 2018 1:22 pm
If you are looking at or worrying about your investments more than a few times a year, you need to adjust something.
Is that a "do as I say, not as I do" piece of advice? ;D
It sure is. But....cut me some slack. I am 51 and had about 25 years of nearly daily investment looking/worrying time. And MESSING with time, that is key.

I might still look, because it is a hard habit to break, but I look a lot less, and tinker not at all anymore.

I need to add a #10:

10) Don't be envious of other people's wealth and spending. There will always be people who make more than you and people who make less. Be happy with what you have. **I am usually able to keep this one in control, but there are times this bugs me.
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Re: Teaching Your Kids About Money & Investing

Post by jimmiewilliams » Mon Jul 23, 2018 2:02 am

Teach your children about the importance of money and how to invest or use money in a positive way. Teach them not to waste money by buying unnecessary things.
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