I can remember when I discovered stocks like it was yesterday. The year was 1996, I was in the seventh grade, and I had suddenly gained interest in stocks. I can’t recall what piqued my interest, only that I studied stocks for weeks. At the time, investors had to get the newspaper to look up stocks for the previous day and see their open and close prices. I had saved up enough money to buy a few shares, and I even knew what broker I wanted to use. My mother had no clue I was working on this, and when I approached her for a ride to the broker, a reputable one, she told me no. I was devastated. I remember crying and being so disappointed and angry. I eventually got over the hurt, but the worst part was that I let go of my interest in stocks. I didn’t get back into them until my midtwenties; we’re talking ten-plus years later. Just think of what could have been if my mother had entertained me and took me to that broker.
Years later, I learned that she told me no out of fear. She was fearful of it being a scam. She was afraid of not knowing enough to help me see it through. Her own ignorance stunted my growth. As a father of two now, I have learned several lessons from that situation. First, I learned not to be afraid to seek help when you want to learn something new but don’t know where to start. Second, I concluded that as long as your child’s interest doesn’t pose a threat to themselves or anyone else, you should nourish it.
When it came time for me to introduce stocks to my son, I started off with a conversation, as I do with most topics. I ease him into my teachings. I’ve found that doing so minimizes the blow for him and his resistance toward the information. I basically told him that I wanted to start teaching him about stocks and that in the coming days, we would begin exploring the subject. Determining profit and loss with stocks is simple math, so I was confident he could grasp the mathematical part. I briefly told him what stocks were and how someone can potentially make money off them by investing in companies. His introduction to stocks ended there. I didn’t bombard him with information. I simply informed him I would begin teaching him about stocks soon, and I gave him an overview of what stocks were. In our next conversation, I asked him if he had thought of any companies he wanted to invest in. Not surprisingly, he said no. So I asked him about his interests. If you can align their interests with their initial stock picks or, more broadly, their financial lessons, you’ll probably get more buy-in from your child. We settled on Apple, Nike, and Epic. Epic is a company that makes games. More importantly, at least for my son, Epic is the parent company that owns Fortnite. Listen—my kids love Fortnite!
I was pleased that he was able to find stocks to follow that he had some interest in, and I was even happier to see how stoked he was about keeping up with Epic’s performance. In our next conversation, we discussed stock terms: company and how it relates to a ticker symbol, shares, fifty-two-week high/low, open price, and close price. I gave him a blank calendar that I modified to record his stocks’ performance at closing Monday through Friday. He quickly learned what a ticker was, and that it’s used to look up publicly traded companies. Like most kids, he had a cell phone. We simply pulled up the stock app that comes with the phone and plugged in the three stocks he was going to follow. The idea here is to get them to understand how stock market fluctuation works. We did this for about three months straight. Week by week, I would check in with him and ask if he recorded his stocks. He missed a few days in the beginning, and because he is a kid, I anticipated he would do so. So instead of helping him, I had him research on his own the days he missed. While he initially doubted he would find the historical closing data, he was successful within a few minutes. A quick search on the internet can produce a world of information.
Once I felt he was ready, we took it up a notch. We looked at the historical data he had collected and noted how it fluctuated day by day. I asked him, if he had bought ten shares at the fifty-two-week low price he’d recorded, what would his total cost have been? I allowed him to use a calculator to ease the stress. Remember, we don’t want this to feel like a quiz; we’re exposing them to financial literacy and planting seeds. Besides, most adults can’t compute 10 x $129.71 quickly—I know I can’t, so pass me the calculator. Once he got his total, I had him calculate the total for ten shares at the price he last recorded. I asked him which total was greater, the first one or the second one. Obviously, if the second total is more, that means your stock has gone up in value. My only intent with this specific lesson was to
show him how profit was generated out of thin air without requiring much of his time or physical labor. I took it further and had him compute the difference to see what his actual profit was:
o Current value of stock: $127.12 x 10 = $1,271.20
o Cost of the original purchase price of ten shares at the fifty-two-week low:
$60 x 10 = $600
o Subtract the original purchase price from the current value: $1,271.20 – $600
= $671.20 in profit
If the numbers work out to show a loss, I think it is crucial to point out my favorite quote from Warren Buffet: “You don’t actually take a loss until you sell.” This means although your stock has dropped in price compared to its original purchase price, you only take a loss if you sell your stock. In most cases, the best option is to hold your stock because history shows it will eventually go back up.
Unfortunately, you have to be eighteen or older to actually buy stock. However, when you and your child are ready, you can do things like open a trading account on their behalf so they can graduate to investing with real money. UGMA (Universal Gifts to Minors Act) accounts and custodial IRA accounts are useful tools to achieve this. However, be sure to consult with a tax professional to understand what tax liability there will be for your child when they take ownership of the account and how it can impact financial aid. There are also apps out there that assist with money management. You can give your kids allowances for chores; reward them with cash for good grades; and set spending limits for leisure, savings, investing, and giving. Some apps even allow them to purchase stock under your name