My oldest turned 10. 10! Double digits. We have had a lot of conversations about money, saving, working and buying things based on value. But all our kids know 10 is when you get to enter the grown-up world of money in our house.
Up to this point, my kids have been earning money 3 ways.
- Doing small chores around the house: laundry, dusting, cleaning the bathroom, ect.
- A small side business: 2 years of selling extra duck eggs when we had ducks.
- Working with us on renovation/rentals: clean-up crew, lawn care, and construction helpers.
All three of those are critical foundational skills. Learning to do tasks for money. Learning about business. And learning skills that add value to others.
Now we enter a new stage for our oldest: The Stock Market!
This is like voodoo magic for him. You put your savings in there, and it grows. Right now he puts all his money in a makeshift piggy bank. Not once has he come back to find that the money has grown while he wasn’t looking.
He’s known that he gets to enter the game at 10. So a few nights before his birthday, he asked to start shopping stocks.
Of course, I don’t really want him to buy single stocks. I’d much prefer he opt for index funds. But apparently, the concept of index funds is a little fuzzy to almost 10-year-olds.
So this is the start of a very sporadic series I’ll call: Raising Wealthy Kids
First up….Stocks, Index Funds, and Halloween Candy
(Or if you are like some of my friends who ask me to explain this stuff to them like they are 10, you’ll love this too!)
Stocks are like a king size candy bar. You buy one stock and you get one kind of candy. If you buy a few of that stock, it’s like buying a whole bag of your favorite candy. Which seems great, because you love Smarties. But halfway through, you might also be disappointed. Because maybe that candy isn’t as great as you thought it was before you plopped down all your money on an enormous bag of Smarties. Stocks are the same. You might think you would love to own just a stock of Disney, Netflix or McDonald’s. Sometimes that works out great! But often the things that make a stock gain a lot of value are WAY outside your knowledge or ability to control (unless you’re Warren Buffet and can buy half the company!).
So I think it’s better to buy stocks Halloween style. AKA Index funds.
You still get all the candy you love. Just instead of a big box of Snickers, you get little, tiny, bite-size pieces of LOTS of kinds of candy. You still end up with a bag full of candy at the end of the night. You will just have 30-50 different varieties. Some candy might still disappoint, but others will taste even better than you expected. The magic is in the variety!
See index funds are like Halloween candy. You get a little, tiny piece of a whole bunch of different companies. So while some companies will help you earn money and others might lose a little bit, you are safer with the Halloween mix. When one stock lets you down, it’s only a tiny part of the mix. All the other stocks (pieces of candy in your bag) will help make up for it.
Because Halloween would be kind of boring if we only got one kind of candy, right?
Now, some people like to pick their own candy mix. One Snickers, 3 Tootsie Rolls, 5 Smarties, and a Butterfinger.
Other people’s job is to make a candy mix that others can buy. They come up with a custom mix and sell sample bags to others. These are called mutual funds. The problem is that it costs extra money to buy those custom candy mixes. And most of the time the custom candy mix isn’t any better than a random sample bag (but it still costs more!)
Other people will create a custom mix of stocks/candy for you. This seems ideal. And lots of people do it. Trouble is, it’s VERY expensive. After the extra cost, those custom mixes almost never earn more money than index funds.
And what does it mean if we pay more for the custom mix? LESS CANDY!!! (And all the kids cry….)
While no one is passing out index funds for Halloween (I would trick or treat ALL night in that neighboorhood!), index funds are the best way to get a great mix of stocks with super low fees.
So while you are munching on candy this week, take a few minutes to chat with your kids about stocks vs. index funds. They will thank you when they’re wealthy!
For conversation:
How do you explain stocks, index funds, mutual funds, and custom advisor plans? To your kids? Coworkers? Friends? Maybe you can chat over the candy bowl this year. =)
Side note: Smarties NEVER disappoint (as a candy)! That is my personal stash of Smarties. =)
This is genius! I am so excited for this series. With two tiny kiddos, I am going to just follow you around and pick up every tidbit of parenting/money/toy/time management wisdom you have!! 😉
At one point, I would love to do videos with my kids, because they are so funny and adorable. But right now they are like frozen zoombies on camera. “Just be normal! Smile, like you always smile! No, not that weird face. Why are you making such a weird face. Just use a normal face.” HA! It’s like Calvin and Hobbes around here. So that might take a while. =) Or I need to learn to be a video editing ninja! =) But this will work for now.
I think it’s so cool all the things we can do as parents to really get our kids ready for working/earning/saving/investing/giving. It’s really exciting to see how much of a head start we can give them.
That is such a great analogy, Gillian.
I figured that we would teach Little Bit about stocks when she gets a bit older by letting her pick individual stocks because, yeah, easier to understand ‘I own a tiny piece of Disney” than “I own a tiny piece of every decent sized publicly held company in the US.” But this makes the idea of index funds a lot more accessible.
Our oldest REALLY wanted to just buy one stock. But after I explained that he still gets a bit of Disney (Star Wars!), Nexflix and Hershey, he was totally cool with it. Plus we talked about what would happen if one stock lost 50% of its value, and how that would make him feel. I thought he might cry! But if it’s just one company out of 100, you only lose a tiny bit. And others might gain a bunch, so it evens out.
Great Angle on a difficult subject. I look forward to read your experience. Our oldest just got 7, so I can watch and learn from you…
We give a small allowance on Sunday. Might be good to add extra chores that can generate extra money..
For a long time, we keep magnets paperclips on the fridge with a task written on a little piece of paper and the money behind it. So the paper would say, “Wash a load of laundry” and there was a dollar bill behind it. Just seeing all the cash on the fridge was a good motivator. =) And a good life lesson that money is out there just waiting to be earned.
Now we can keep just a list of chores they are each able to do with the dollar amount they earn. Our 4-year-old has wiping down the table and the bathroom sink with baby wipes. Our 10-year-old has a much longer list with more challenging tasks that he was learned over the years. Our 4-year-old just started to earn real money. Before it was candy/treats or TV time. =)
Oh my goodness this is hysterical. My oldest is going to turn 10 this winter and he has been very interested in earning money. Mostly because he is interested in spending money – he’s developed a serious comic habit! I have been so remiss in even opening up a savings account for him. I am absolutely going to do this for him.
Awesome, I will do a post at some point in the series about kids earning cash! I’m very pro letting kids earn, save, spend and give money. Best way to learn the process is to do it. =)
That is a brilliant analogy! I love it
Thanks! I love all examples involving candy. I’m like Kevin from The Office: I’m awesome at math if it’s pie math! =)
Haha pie math! I am someone who wants it explained like I’m 10, so thanks for this. Now I want to go out and buy a mixes bag of candy and some index funds. Could you do a post about Roth v ira v 401k like you’re talking to a 10 year old? 🙂
I can! I’ve had that exact conversation with friends SO many times. =) I have a few more posts coming in the next few months!
Are you actually able to open index funds in his name at the age of 10 or are you just putting them in your name until he is old enough? Love the idea!!!
Yes, they can have their own account, I’m just the “custodian” of the account. I have a post coming up in a few weeks!
Sounds great, I will be looking forward to it!
I love this way of thinking! I might use this on my “adult” kids, as they are both earning money and doing little to save long term, despite my reminders. This might just be the way to get them to understand.
Funny, your Smarties are called Rockets here in Canada, and are one of my favourite things to nip from the kids Halloween bags. We have Smarties, but they are buttons of chocolate coated in different colors of candy. Yum to both 🙂
Nice! And I think Rockets are a great name. They are like rocket fuel for my brain when I’m tired. Pure sugar. My mom thinks I’m nuts because no grown woman eats candy like this. But I LOVE THEM!
I almost hope my kids choose to become accountants. After observing the lifestyle of our accountant, he and his wife have it made in the shade. Nothing beats understanding the tax code if you want to be wealthy.
In all seriousness, we gotta keep that Halloween candy under control this year. The twins have crazy sweet toothage.
We give the kids one treat a night, if no major rules were broken that day. But it’s extra fun after Halloween because the selection is off the hook! At some point in the year, the pickings are slim. Like August. Not a great candy month.
I love this idea, so easy to explain to kids.
What type of vehicle do you have your children invest in?
I’ll detail it all in an upcoming post. Probably 2-3 weeks out! =)
love love love this post! You explained it so perfectly… even a ten year old can understand?
Thanks! I think 10 is a great baseline for grown-ups who aren’t total personal finance geeks! =) 10 is my go-to number for friends who really don’t care about the numbers.
Wonderful analogy. I am going to look into the law here in NZ as to when my son can buy shares. He is 9 and has his first job..a paper run (delivers papers) officially I do the paper run under my name as kids have to be 11 so until then we’re paper-run buddies. He gets half the pay and I’ll secretly stash the other half in his Kiwisaver (pension fund he can also use towards a house deposit). Once hes flying solo he gets the full amount of pay. Thank you, you’ve given me more ideas now ie lawn and garden work on our rental. I would have loved to earn cash at his age
..and he is enjoying it. I can see his face light up and self esteem increased
There is something so powerful when kids realize the amount of agency they have to create change in their own lives. It’s awesome to watch. And once they internalize that, it’s hard to stop them. =)