Junior Investors | Janine Cox – ASX Article 14-05-13

Getting youngsters interested in saving and investing is a real challenge and parents tell me they feel their words are falling on deaf ears. The problem is their children are constantly receiving different messages when watching TV, playing games and using Facebook on the internet, and when they are taken shopping. And let’s not forget the power of peer group pressure.

Parents are constantly competing with so many other forms of stimulation in their children’s lives, so a message about the importance of saving and investing has be fun or at least stir their curiosity if it is to have an impact. Here are some ideas to help:

1. Age is no barrier to learning

It is true that age is no barrier when it comes to learning about saving and investing. The earlier you start the better because children grow up seeing this as the norm.

Board or electronic games are great as the whole family can play. I recall playing Monopoly as a young child and was fascinated by it. Although I cannot say that my desire to own property was fuelled only by playing the game, it did have a lasting influence. These days there are so many electronic games to choose from and with a little research you might just create a situation where children can teach you how to play.

2. You can be a great influence

Often children imitate their parents, so if you tell a child to save or invest and they see you doing the opposite, you may be fighting a losing battle. Children will not only be influenced by their peers; your beliefs or views about saving and investing will have a great influence as they grow up.

One of the women I mentor in the sharemarket told me how her grandfather lost a lot of money in major sharemarket corrections and the emotions around his experience left a negative picture in her mind for years. It was not until her children reached their teens that she realised she would probably have to accept retirement on a government pension or look to invest. She made the decision to study for Wealth Within’s Diploma of Share Trading and Investment to learn how to generate an income from the sharemarket and now has the knowledge to teach her children about risk management.

The best thing you can do is educate yourself first. If you do not understand at least the most basic concepts about compounding and investing, how will you be able to help or influence your children effectively?

3. To be successful you need a plan

How effective you are in getting your message across can depend on the opportunities presented in your day-to-day life. You have to get creative: you need a plan for how, when and what the message to your children will be.

Someone once told me how they made sure the children left their iPods at home when they travelled by car to the local shopping centre. It provided the perfect opportunity to create a guessing game about saving and investing.

Reading this may help you come up with some creative ideas of your own, but the next part of getting a successful outcome is to work out how to keep children motivated. Here are other pointers:

4. It’s about the why, what’s in it for them

Knowing why you want something is the key to getting it. When a company markets a product to a child on TV it knows exactly what buttons to press. I’m not saying you need a degree in marketing for this but it sure helps if you know your child well.

One of the biggest reasons investors fail to achieve their goals is that they are not clear on why they are doing it. To keep the fire burning you need to add wood, so give your children some incentives to save that will get them excited. Reward them if they achieve certain milestones.

5. Help them understand a golden rule of saving

One of the golden rules of saving is to always pay yourself first. Find a creative way to explain how spending their money will make others rich and how, after a short time, their goods/toys will be worth much less than they paid for them. Children catch on to this concept surprisingly quickly. I took my young nephews to the local shops and explained how shopkeepers attract people into their stores and entice them to buy. They were fascinated.

A good idea passed on to me is to extend this golden rule to always save half of all money received. Children watch this money grow in their bank account and the rest they can spend on whatever they choose. This has the most effect if children see how doing so benefits them, but some parents want them to save half and then want to dictate what they can buy with the rest, which is a recipe for failure.

6. Demonstrate the law of compounding

A few dollars saved each week can compound pretty quickly. There are plenty of websites that have compound interest calculators with pretty graphs that enable you to show how compounding works. Of course, before sitting down with your children, first make sure you know how to use the calculator, then give them the parameters and let them use the calculator to determine the answer.

7. Keep the concepts simple

Avoid going into detail unless asked for more information. Here are some topics to discuss:

  • You could describe the sharemarket like a trash-and-treasure market, where people can buy something they want and sell something they don’t
  • Share prices rise as more people want to buy them
  • Share prices fall when more people want to sell
  • To make a profit from shares the idea is to buy at low prices and sell at higher prices.

8. Create a competition

Get children interested in the market with a competition. Ask them to guess the price of a share at some time in the future and determine a reward for the closest answer. You can quite easily look up a price chart for the company on the internet to give them a visual. Choose a company children can identify with: well-known Australian brands such as Myer, Flight Centre, Webjet, banks, Woolworths (Safeway) or Wesfarmers (Bunnings and Coles), or US brands Facebook, Google and Apple. You will find the prices in the daily newspapers or on company websites. The ASX website is a great place to go to find information on Australian companies.

9. Gift some shares

One of the best ways to get children interested in the sharemarket is to gift some shares to them or invest in a diversified exchange-traded fund (ETFs). Look into the tax implications of having shares in a child’s name.

Years ago someone told me an old saying that is fitting here: “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for life.” In guiding children to become financially independent you will be giving them so much more than money.

  • Alan Morgan

    I am looking at starting a share portfolio of Australian bank shares. I am uncertain of the ratio of say $50,000 should be placed in my purchase between eash banking institution.

    MAny thanks for your thoughts. The whole stock market seems t to have taken a dive to below 5000 and isit abetter time to invest now?

    I am also looking at trying to interest my daughters in “helping” me with this project to open their eyes to the sharemarket.

  • Alan Morgan

    oops I have jumped the gun I wiil wait for a reply

    • http://wealthwithin.com.au Blake

      Hi Alan,

      It’s great that your looking to invest in the market, however, I am concerned for you that you may be making this decision without the appropriate level of knowledge to safely invest. Whilst bank shares have been strong, this doesn’t mean they will continue to rise in the time frame you hope they will.

      One of my biggest beliefs is educate yourself first, I learnt quickly what can happen without the right knowledge and so I will always want to offer the right path for anyone looking to me for assistance. Always invest in yourself first so that you are prepared to manage risk over your entire investment in case the market moves against you.

      A good place to start to learn about how to build your own portfolio is Dale Gillham’s book, ‘How to Beat the Managed Funds by 20%’. It is available on the website for around $30 and will give you a really good introduction to the area of getting your own portfolio started. It will also give you examples of how to select stocks to construct a portfolio and even more important, it shows you how to manage risk.

      In answer to your questions, I would not look to create a portfolio just from bank shares, however, it is a good idea to have some banks in an overall portfolio strategy. While I like the banks their shares have already run quite hard and history shows us that timing your investments will be very important in getting returns over time. Investing safely is never just a question of buying into stocks in pursuit of great dividends, it is however always a question of how you’ll protect your capital when you invest.

      I can say that how you split the money is an important question to raise. We call this money management, and suggest that you have a minimum of 8 and up to 12 holdings, so for example, you divide the cash you intend to invest by 8 or 10 to give you the amount of cash for each share. This is all about risk management which you will read about in Dale’s book.

      Also remember to think about why the prices are falling. When the share market falls it is often either the smart money getting out or the sellers testing the resolve of the buyers, and at times both forces could be at play. Falling share prices may be a sign that the market is not willing to pay higher prices and if people in the know are selling why would someone without knowledge be buying? The novice looks at the situation in terms of the price becoming cheaper, however, with some knowledge you can turn this around.

      I think it’s awesome that you are getting your daughters involved, however, their beliefs on the share market will be founded on your experience and how they see you go about this process of investing, this to me is all the more reason to set the right example. As I mentioned in one of my articles, to get children interested they need to see what is in it for them (or their big why) before they really get interested, work this out and you have the key to opening their minds to investing.