I was recently having a discussion with some friends about how to introduce their kid to investing in the markets. We reflected back to when we were in middle school and teachers gave an assignment where we were giving $1,000 in mock money (that was big money for middle schoolers back in the day) and we had to pick a company or two to invest that money in. We would bring the business section from the newspaper in everyday to chart on graph paper the direction of the stock prices. We would also write to the companies to get their annual reports and look for news on the companies in the newspaper or business magazines to learn more about them. This is how we were introduced to the markets and investing.
Unfortunately, schools don’t really do this type of activity with the kids today. (Honestly, we all started laughing and feeling old when were realized that most of that assignment could be done in a few minutes now due to the Internet.)
So now to the real question of how to introduce your kids to investing and following the markets. In many other cases this is when I would talk about a good mutual fund based on certain criteria. However, that is not the case I am going to make this time. The idea as an Introduction to Investing for kids, in this day of easy and fast information and technology, is to follow what they know on a daily basis. It could be to buy some shares of Apple, Facebook, McDonalds, or other company names that your kids can easily identify, probably own products from, or use their services. If they don’t have some kind of interest in the company, they will get bored with this activity pretty fast.
Another option for those kids that really don’t care about the individual companies (but you still want to give them investing exposure) is to buy an Index fund (or ETF). Everyday your kids hear about the Dow Jones Average or S&P 500 on the news. They hear that quick blub that it was a “huge day on Wall Street” or something of the sort; however they really don’t have much context to what that really means in the big picture. By putting them in an index fund, they now have skin in the game and another reason to pay a little more attention to that quick news report. If you use this route, I also recommend exposing the kids to a couple different market indices. Buy some Russell 200 to show them that not only are there super large companies, but there are also smaller companies that people invest in and this is how they move in the market. Probably more importantly in today’s global market is to expose them to an international index like the MSCI EAFE or MSCI ACWI (All Country World Index). This way they will understand that there are markets outside of the US that people invest in and they do not always act just like the US markets.
After you figure out which way is best for your kids, put an app on their computer, tablet or smart phone that will allow them to see a daily quote or the accrued value of their investment. There are free programs in Yahoo Finance or Google that let you do this in a really simple way. In many of these they will have a hyperlink of the name or ticker symbol that will take you directly to news and information about the company. Then each month help your kids enter the value on a spreadsheet so they can create a chart to follow the progress. Hopefully by exposing them to investing in a simple and easy way, it will be a little exciting for your kids and they will get something out of it. Then when you have the discussion about the importance of saving for some life event, it won’t seem like such a foreign concept!