Teaching teens to invest... ideas?

[GandK]

If you had roughly 3 months to teach two curious but occasionally goofy teenage boys about investments, how would you go about doing it?

G and I have two teenage boys (ages 14 and 15) who are beginning to scrape money together from odd jobs and are starting to ask us how to invest it. They’re also asking questions like "how much money do I need to live on?" and "how much do you need to retire?" Which is really cool... our older ones didn’t ask this stuff until after they left home.

It occurred to me that we might want to get these two paper trading for the summer... give them a set amount weekly to "spend" on investments, maybe even have a contest to see who makes the most money with their fake portfolio, and the winner gets real cash. Then I wondered whether that was too narrow a focus.

Realistically, I think this will be the last year that we have them both around for the whole summer, and that this may be our best shot to really focus on this topic and pass on this information.

[Chad]

That's tough. 3 months isn't a lot of time. The one negative to your plan is it teaches/encourages them to be traders and not investors. Not that trading is necessarily bad, but it's harder and requires a lot more work. Without a real strong natural interest in finance, trading probably isn't a great option for the majority of people.

Maybe help them set up a standard portfolio of ETF's/low-cost mutual funds and give them info on how markets work. Then work through how compounding interest works on their investments. This would give them a basic understanding of the market and the basic portfolio strategy, while giving them an idea of what they have to look forward too (compounding interest) and what that could do for them.

Sorry to give your plan a critique and not provide a better suggestion, but this is a difficult problem. Do they like to read at all? This would make it easier.

I'm trying to do this with my nephews, but over a much bigger time frame (10 years or more) using various strategies. One of them is that from about 4-5 years old on I have only given them monetary gifts and I always ask them what they are going to do with it. I always suggest (make them if I had too) they save half of it. Now they don't even seem disappointed when I ask what they are going to do with it and they have to say they will save half.

I showed the 12 year old a very rudimentary compounding interest chart in excel last Christmas to just put the idea in his head.

[Dragline]

Yes, I agree its not a lot of time and may just teach trading over investing. But you have to start somewhere -- don't let the perfect be the enemy of the good!

This site is geared towards the internet generation and has practice portfolios/paper trading, contests and other fun stuff they might find appealing: https://landing.kapitall.com/home/

What would be interesting at the end of the summer is to take their practice portfolios and see how they might have done in different years.

Somehow, you would want to teach them about all the different things one could invest in and the plusses or minuses of each. Haven't figured out how to make that appealing yet. And I confess that I've had little success in getting my older kids jazzed about this stuff (yet).

[frommi]

Give them "The Intelligent Investor" from B.Graham. I would be a multimillionaire by now if i had that book at the age of 15.

[Chad]

Yes, I agree its not a lot of time and may just teach trading over investing. But you have to start somewhere -- don't let the perfect be the enemy of the good!

Again, even though I gave your initial plan a little bit of a negative critique, I completely agree with Dragline here.

No matter what strategy you choose it will be better than nothing and there is no way in telling what flicks that lever in their brains.

[jennypenny]

For me, it's all about developing the right mindset. I think it’s teaching them to see very high savings and very low expenses as normal. I urge saving 50% of their income as a minimum starting point. I’ve also explained living off of ROI, and how it’s possible to keep simple, safe investments for that purpose if expenses are kept extremely low.

When I explain investments, I don’t lay them out on a table as if they’re equal. I show how some have lower returns (CD’s, I Bonds), but are easy peasy and low risk. Then I work up the ladder showing that the higher the ROI, the more energy they have to spend learning about the investment and babysitting it afterward. I use that to drive home the point that [at their age] they can pick easy investments and still hit their targets as long as they have a high savings rate and low expenses.

I could see a once-a-week dinner where you talk about one kind of financial vehicle, just to get the basics across. I would want to make sure they understood the different investment account options (savings, brokerage, 401K, IRA, Treasury Direct). I would also explain about taxes and compound returns. Beyond that, I might explain the different types of stocks and bonds and how higher yields usually mean higher risk. I would also discuss the plethora of debt vehicles available and the pitfalls of all of them.

By then, the summer would be long over.

If the reason for the stock picking is to make it fun for them, maybe you could spend a few minutes during the financial talk dinner each week asking them what they would invest in. What trends do they see? What new tech do they like? Get them thinking like investors instead of just number crunchers. If they say they would invest in Apple, explain how that would have been a great idea 10 years ago, and then ask them what they think the new Apple might be. Get them thinking ahead of the curve. Ask them to bring an idea to the table each week.

[GandK]

@Chad: Neither of them are readers. In addition, the older one has ADHD. Really need the adrenaline factor to get him to digest anything complex.

You guys are right about the trading vs investing issue... just really need to make this fun and hands-on rather than an abstraction.

I like the idea of involving them in the monthly expenses and meal planning.

[Tyler9000]

For a rookie, it's easy to get lost in the numerical returns and forget what an investment is. For stocks, maybe you can have them choose a small business to invest in for a few months. Perhaps someone on Lending Club, or even better someone they know and can talk to. Can one teen invest in an idea of the other? That would also be a lesson in entrepreneurship. For bonds, have them loan the money to you, and pay them weekly interest while returning the principal at the end of the summer. My goal would be to make the choices tangible rather than simply numbers on a spreadsheet.

And don't be afraid to mix in some friendly competition.

[George the original one]

Pose it as a question/challenge... how are you going to get from A (income above savings) to B (retirement income)? What changes do you need to make to alter the outcome?

[Familjen Fri]

I have to agree with jennypenny. Show them whats possible with saving. Explain the savings ratio. Dumb this down a little: http://earlyretirementextreme.com/what- ... ate-b.html

When the savings behavior has been established you could use the bogleheads wiki (read: index investing) with it's short films to explain investing and what compounding interest does. http://www.bogleheads.org/wiki/Getting_started

I would not try to set up a competition between them, this will probably only reward the person who is taking to much stupid risk. Maybe offer a ten-twenty percent match instead and let them use their real money?

[rube]

Many of the above and I would teach them investinging is about a goal, a plan, research, execution (becoming a *business* owner) and.....patience.

[JohnnyH]

For the sake of the simulation take the role of adult institutions. You will be the: employer, IRS, brokerage.

Not readers? Pay, or reward, them to read some of these basic books. I'd recommend 'Richest Man in Babylon' as very easy and entertaining entry to a well rounded financial education.

Basically I'd use real life examples of incentives to get them to know the right choices. Some ideas:
* This week is training, you have to read and discuss book A. Successful completion will be rewarded with 25% bonus of weekly wages.
* All money goes into their "retirement" account, which is theirs to withdrawal at any time! But withdrawals will be penalized for early withdrawal AND taxed as income...
* Earnings put into retirement/bank account will get employer matching.
* Have an investment opportunity come up a few months in (say you need to borrow $500 for a week and you will pay them $600 back)... Those without a bankroll will learn.
* Withdrawals are penalty and tax free for business expenses.
* Working on their own business gets them various rewards (out of chores maybe).
* "Invest" in their entrepreneurial plans if you think they'll work.

It would be like an exaggerated but true to life monopoly, with real money. If they play it right they might end up with a nice 4 figure account at the end of summer.

I'd introduce them to some different allocations and investments, not just stocks... It might be depressing if this summer plays out with a big correction.
Find them something that pays a nice fat monthly dividend and watch the lightbulbs. I'd also recommend Kapital as a great tool to get an brokerage intro.

[JamesR]

How about keep the investing simple, indexes, maybe PP, etc.

They're better served by focusing on saving aggressively, 90% since their living expenses are non-existent.

I'd also focus on helping them identify strengths & skills that they can develop and make good money with. They surely can get $20/hr+ work within a couple years by developing the right skills and developing a portfolio or other proof of experience.

They could hit FI/ERE by 22 and then go to university afterwards.

[jacob]

It's kinda hard to answer. For example, by investing, do you mean
1) The very idea that it's possible to spend money in order to make more money.
2) DCA'ing into Vanguard on autopilot.
3) Evaluating an actual investment and making a prediction based on ...

In particular, are we talking "investment proper" or is it more about teaching personal finance and setting up a plan, etc. Proper investment, that is, people having an opinion and taking responsibility for it(*) is vastly different from option 2 for example and there's no way you can teach this in 3 months, even with examples. As mentioned above, things change a lot when there's real money (in particular their money) on the line. Short term papertrading contests are mostly won by people buying penny stocks and getting lucky. Even with "sensible" blue chips or index funds, the winner will be determined whether said company beats estimated earnings at the next quarter or whether some central bank decides on more or less stimulus at the next meeting, respectively.

(*) In other words, teaching investing is a bit like teaching "wisdom". It's non-trivial and typically depends more on the student than the teacher... and it takes a long time. We're talking years and decades.

I suggest just focusing on the practical, that is, the personal finance side. Show some spreadsheets using future forecasts in different scenarios, e.g. savings rate 0% ... not saving before age 40. Having 100k student loan load. Etc. Whatever you do ... please please, don't assume some ridiculously optimistic ROI based on historic returns.

For practical lessons, open a _real_ account with a broker and buy and perhaps sell a few positions. For real! Expect to lose money on this. Call it educational costs. One way to do it would be to give them $1000 (of less if that's too much). Tell them they have to place at least 4 trades. And whatever is left at the end of the period, they can keep. At the very least, you will learn about their personality (risk-adverse, reckless, stymied, ... ) and can advice accordingly.

[JamesR]

I thought this was pretty neat:

http://nomoreharvarddebt.com/2014/01/29 ... year-olds/

[Sclass]

For a rookie, it's easy to get lost in the numerical returns and forget what an investment is. For stocks, maybe you can have them choose a small business to invest in for a few months. Perhaps someone on Lending Club, or even better someone they know and can talk to. Can one teen invest in an idea of the other? That would also be a lesson in entrepreneurship. For bonds, have them loan the money to you, and pay them weekly interest while returning the principal at the end of the summer. My goal would be to make the choices tangible rather than simply numbers on a spreadsheet.

And don't be afraid to mix in some friendly competition.

I agree. I've been given the same responsibility with some young relatives. I want to try using eBay to teach them the nature of markets before getting them staring at spreadsheets and tickers.

Somehow I feel (and I could be wrong) that buying and selling in an open air swap meet, farmers market or even eBay would teach the kids a lot about how markets work. You can see your competition, supply dry up and participant apathy all under your nose. The whole project is on hold till I can find the medium we are going to do this in. The problem is (and I've spoken about this in my shoe thread) is I need to find a market that we have some advantage in...and sadly I cannot think of a kid friendly one that I know enough about to make profit in that a kid will understand.

Pez dispensers? But I don't know where to buy cheap ones and I have no feeling for value. Just an example.

This came up because another faction of youngsters in the family got trading accounts and these kids and parents got jealous and wanted me to teach them. I refused the trading accounts because I noticed the group using them had either lost money or demanded withdrawal of any profits to buy gum and comics. Some learning they've done!

The saving capital advice here is good. The particular brats I'm dealing with seem to have licked that. I think their parents taught them because they have decent amounts I their piggy banks to deploy. In my case I need to teach them investing (actually speculating because we don't have much time...I don't want to hold a five year long class).
Anyhow I'll keep you posted on what I come up with.

[Stahlmann]

@Sclass, so... what are results?

[Lucky C]

I would teach them what not to do to steer them away from making rookie mistakes / jumping on the bandwagon of copying what other teenagers are doing on social media. Show them why jumping into hot tech stocks at this point in time is a bad idea with a history lesson on the 2000 dot com boom and bust, for example. Make them realize that long term profitability requires hard work and patience, like with any other skill.

[Sclass]

@Sclass, so... what are results?

We never got started. People talk about wanting to do things. Getting started is another thing. We drifted apart and now the kids are young adults and no longer interested in “boomers”. Incidentally this is comical because I identify with being Generation X.

[basuragomi]

My parents ordered boxes and boxes of annual reports and had us kindergarten-age kids sort through them and report all the key metrics so they could research, this was before everything was widely available online. Later on they started proxy broker accounts for us where we could buy and sell stocks using gift/birthday money. It was certainly informative, but mostly just taught me to dissociate value from cash-in-hand - not really a bad thing.

In terms of interesting kids in investing, it was empirically mostly ineffective. I think we were more interested in making origami with the glossy report paper.