How do I get teenagers in­ter­ested in investing?

Money Magazine Australia - - COVER STORY -

One of the great­est sources of pride for a par­ent is to teach their chil­dren a life­long skill. And see­ing that par­ents spend so much time, money and en­ergy pro­tect­ing their chil­dren, ed­u­cat­ing them, fer­ry­ing them to sport or dance classes, there is one blind­ingly ob­vi­ous thing I have of­ten pon­dered.

Why do par­ents spend so lit­tle time teach­ing their kids money and in­vest­ment skills?

Per­haps, and maybe this is also ob­vi­ous, the par­ents doubt their own abil­i­ties in th­ese mat­ters. In many fam­i­lies, I know, there is an in­her­ited prob­lem in that money is­sues are barely dis­cussed – not the in­come of the house­hold, the ex­penses or the net worth.

Granted, idle play­ground gos­sip is a risk you run by let­ting the kids in on too much in­for­ma­tion (a lit­tle like em­ploy­ees, where the boss’s tac­tic is never to let the staff com­pare salaries).

But surely if you want to pro­tect your chil­dren, and their as­sets, then the sooner you teach them the mer­its of com­pound re­turns, the ad­van­tages and dan­gers of debt and the need for in­vest­ments with cash flow the bet­ter off you and they will be.

Just one small ex­am­ple. Start salt­ing away around $50 a week for a kid at the age of 15 ($2500 a year). Once they start to earn, say at 20, en­cour­age them to lift it to $100 a week ($5000 a year). When they turn 30, $200 a week ($10,000 a year). It’s not a mas­sive ask.

Let’s as­sume the in­ter­est rate (or div­i­dend rate, even bet­ter) is a con­stant 4% – which you will now get from many cheap in­dex funds or ex­change­traded funds – then at age 65 the per­son will have $1.17 mil­lion.

Here I am be­ing very con­ser­va­tive, only ac­count­ing for the in­come – not the in­crease in the cap­i­tal value. If I as­sume an av­er­age 4% cap­i­tal growth as well (still con­ser­va­tive) that fig­ure would jump to $2.83 mil­lion.

Just one small ques­tion … if you waved that sort of maths un­der the nose of even a non-nu­mer­ate teenager, do you imag­ine they might lis­ten – even if for a few mo­ments?

Now take a per­son whose par­ents de­cided not to en­cour­age them to save, and who only came upon the idea them­selves later in life when their in­come picked up. Here I’m as­sum­ing they start sav­ing around $200 a week from the age of 30. Us­ing the 4% re­turn, they end up with around $776,000 – or about $394,000 less than the per­son whose sav­ings started ear­lier.

If I add 4% cap­i­tal growth to that equa­tion, the 30-year-old ends up with $1.87 mil­lion. It’s cer­tainly still worth hav­ing but the com­pound­ing ef­fect has not had as long to work. It’s close on $1 mil­lion short of the fam­ily and the kids who started salt­ing away the money much ear­lier.

The other ed­u­ca­tion I think par­ents and kids should en­gage in is to in­vest through their kids’ eyes. A younger per­son might have spot­ted Face­book as an in­vest­ment be­fore you. Or Nin­tendo (Poke­mon Go) or any one of the young fash­ion­able la­bels that emerge from the pack while you are still lis­ten­ing to mu­sic from 20 years ago. Again, it might pique their in­ter­est that there’s money to be made by spot­ting trends early.

The truth is that all in­vest­ment needs vi­sion and imag­i­na­tion, along with the fun­da­men­tals of cash flow, yield and gear­ing. And un­der­stand that the mo­tives for teach­ing th­ese con­cepts to your chil­dren are not com­pletely al­tru­is­tic. The sooner a child can fi­nan­cially stand on their own two feet, the less likely it is that they will come and tap the bank of mum and dad, like so many are do­ing to­day.

Good for you … good for them.

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