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One of our core goals at The Motley Fool is to help people become great investors, and the earlier a person starts on that path, the better his or her long-term results are likely to be. That's why we consider it a smart move to get your children -- or any younger relatives -- involved in stock picking while they're still children.
To that end, in this Rule Breaker Investing podcast, David Gardner has gathered a whole panel of Fools to discuss the best ways for folks to get started. David, along with Naima Barnes, Daniel Messeca, Robert Brokamp, and Jason Moser, will offer up tips, advice, and a host of personal anecdotes about how they guided their kids into the world of Wall Street, and how they were led into it themselves.
In this segment, they consider the best ways to introduce kids to investing, with discussions of stock picking dos and don'ts, coping with the disappointment of share price declines, hedging their bets, and turning investing into a game they love.
A full transcript follows the video.
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This video was recorded on Jan. 2, 2019.
David Gardner: Chapter 2 is the child who is 8, 10, 12. He or she can recognize, now, what you're doing. They're starting to learn about the world. How do we talk about investing money -- maybe even business -- with kids? Daniel Messeca, we were chatting by Slack, which is, by the way, not sponsoring this podcast. This podcast is not brought to you by Slack, because nobody would pay us for this podcast this go-round.
But we were chatting briefly on Slack before this episode, and you were mentioning a story of how you got started at the age of 8 by your grandmother.
Daniel Messeca: Yes, my first memory of investing was when I was 8 years old and my grandmother asked me a question. She said, "If you could own any business in the world, which one would it be?" And being 8 years old and I wanted to rule everything, I thought of the largest business I could think of and that was Coca-Cola, a product I saw everywhere, every day.
So she bought shares of Coca-Cola for me and taught me what it meant to be a business owner and let me know that I was now actually a part owner of that company. I was very proud of that and learned how to look up the ticker symbol in the newspaper. I'd track what was going on, much like a kid would do with baseball statistics, and went about my life feeling vested in that company.
Gardner: That's incredible! What a great gift from Grandma!
Messeca: It really was. I think it was really important to her that I understand what owning shares of stock meant. She did the same for my brother. He picked McDonald's. Both turned out to be really good choices, by the way. I was an investor ever since in an UGMA account. I invested money that eventually helped pay for my wedding and my house. I even remember as a kid going to Atlanta to the Coca-Cola factory and thought it would be very important for them to know that I was a shareholder and I would get some special treatment.
Gardner: Love it!
Messeca: But I think that really set me on the right trajectory and because of that I knew what it meant to be an investor.
Gardner: Let's be analytical in a way that's almost unfair to a lovely story from one's childhood full of nostalgia and prosperity. Let's be a little analytical getting underneath that. What one, two, or three things was she doing that I can hear and then put into play in conversations I might have with an 8-year-old?
Messeca: Pride of ownership, so know what a stock is, because a stock is a very conceptual thing unless you know you're owning a company. At its core that's what you're buying. The second issue is building passion. She made sure I picked something that I was excited about. Thankfully it was publicly traded and she could buy shares. And then she got me engaged. So learning how to look it up, which is easier these days, was something I could continually do that made it a part of my life and made it a habit.
Gardner: Did anybody have a similar experience as a child, themselves, or a highly contrasting experience?
Robert Brokamp: I was not quite a child -- I was more of a recent college grad -- but I had a very similar experience, at least related to Coke. Just hearing someone tell me, "You can buy that Coke, drink it, throw it away, and then you have nothing to show for it. Or you can buy part of the company and five, 10, or 15 years down the road it will be worth more than you spent."
Messeca: So along that same vein, a few years ago a much younger brother-in-law had a ton of video games. It was his birthday, and, for better or worse, I really didn't want to buy him another video game but felt it would be meaningful to buy him shares of Activision...
Messeca: ...and thought let's get him down the same track that I was. I thought he probably wouldn't care about it at all, but he was actually very excited to see that he owned shares of Activision, which was putting out a lot of the games he was playing. I think it was the same thing. He could have a game, or he could be a part owner of this thing on which he spends a lot of money and hopefully build some wealth.
Gardner: And I see a lot of heads nodding around this table because we all feel that, I think. There's no better feeling, really, than feeling like every dollar you're throwing at a company you're actually going to make even more than that back by owning its stock. That's true of some of the great consumer companies of our time and we just named some of them.
Jason Moser: I've got a pantry full of McCormick, and it seems like every dinner has some McCormick product involved.
Gardner: Jason, do you sometimes open the cabinet and just gaze?
Moser: I look at it and I just beam with pride.
Gardner: And you won't say this to anybody else in your family, but quietly.
Moser: One of my favorite businesses in the world. Listeners to the Market Foolery and Motley Fool Money know I'll talk about that company all day if I get the chance.
Gardner: It's been a great performer for Stock Advisor, among other companies.
Moser: A wonderful business.
Gardner: So it is that experience of the product or service for a lot of middle-school-aged children. I think it's a very appropriate time to talk with kids about that. They know the world well enough, and so really what you're doing is you're hooking in this entire financial component to the world that they're otherwise seeing and you're letting them know, switching them on, that you can be making money at this thing that you love, as well.
One part of it might be showing them where that stock was 10 years ago, whether it's Disney, or Coca-Cola, or McDonald's, or Activision Blizzard. Another part of it is just making them more active observers of that company going forward. Beyond just the pride that Daniel mentioned, you also talked about your grandmother giving you an awareness and an interest.
In fact, you pushed it further, Daniel. You said that she taught you something about business. Was she an entrepreneur herself? That's such an important thing for us here at the Fool -- that it's not just about the markets. It's as much about the businesses themselves and connecting those things.
Messeca: Yes. She is an entrepreneur. She ran an antique gallery back in South Africa, where she's from. She runs a real estate practice now, and I think that probably imparted some entrepreneurial spirit in me that I still have today -- getting involved at such a young age with that kind of understanding and excitement.
Gardner: Just to stick with the chronology that we've been shaping -- the narrative of the newborn to the middle child -- one thing we hope our listeners are inspired to do is to start that account early. And that's kind of the nuts and bolts. That's blocking out the time. Having the conversation with the financial representative. Getting the account funded. But really from that point on, it's as much about the conversations we have and the culture that you raise that child in, and I want to talk briefly about that.
Certainly, one thing that we all love here at The Motley Fool -- you're not required to feel this way to be hired here, but I bet you often do it automatically -- is that you love business. You think it's amazing that we have these trades. You're good at this and I'm good at this, so I'll buy from you and you buy from me, and it's a much better world when I'm getting your best, and you're getting my best, and we're trading back and forth.
So there's a lot of positivity to that. There's a lot of optimism to thinking that the world will get better. I think that it has in so many ways. Of course, never perfectly and sometimes worse in different contexts. But for the most part, look at a graph of the Dow Jones Industrial Average over the last century. It starts in the lower left and it goes to the upper right and that's our expectation over the next century.
Given that, I feel like we're talking a lot about the dos -- do this, do that. Does anybody have a "don't" that's on their mind? Something that didn't work for you either as a young person growing up or with young people that you're associated with?
Brokamp: I have, anecdotally, heard stories of people saying, "My kid loved this company, so I bought that one stock and that one stock didn't do well, so therefore..."
Gardner: GoPro! GoPro! They loved the GoPro!
Brokamp: Exactly. Pets.com. "Oh, my kids love pets. We'll get Pets.com." It didn't work out, and that's the wrong way. I mean, every kid should learn that stocks do go down and some do go out of business.
So what's we've done for my kids is they've been allowed to choose stocks, but we have also had index funds, both U.S. S&P 500 and international, so that they understand the ups and downs. It's just the overall stock market as well as understanding the ups and downs of individual companies.
Naima Barnes: And with an index fund you're able to get exposure to a bit more than maybe one share of Amazon if you can swing that, so not all of your eggs are in one basket. You have some exposure to maybe 500 companies if you're in an S&P index.
Gardner: I have to admit. There is a strong bias -- not even an unconscious one on this podcast -- about owning stocks and loving stocks, but certainly I know, Naima and Daniel, you both, in particular, are probably every day fielding questions and having conversations that are far more often about funds than about stocks themselves.
Messeca: That's true. And earlier you asked about amounts, and I think that speaks directly to your goal for helping someone get started. If you are trying to teach a child about investing, you probably wouldn't want to give them access to everybody you've been saving and tell them to invest it. So maybe putting a smaller amount in the individual stocks they're passionate about and the rest in something like an index fund or a more widely diversified pool of stocks may make a lot of sense.
Moser: And I think framing it up from the very beginning that expectations are realistic. We have brokerage accounts for each daughter, as well, where they are able to add individual stocks.
Gardner: I was wondering about that, Jason, because you've mentioned picking stocks with them, but then you were saying 529, so I was thinking...
Moser: They do have both, actually.
Gardner: Yes, that's great.
Moser: Perhaps we can get into that story as well, but my main point being in framing the expectations from the very get-go and saying, "Look, you're going to have this account. You're going to have this portfolio. You're going to own shares of 12 different companies. They're not all going to be winners. As a matter of fact, probably four of them are going to be losers, and that's just the name of the game."
It's not about batting a thousand. It's about finding some great businesses -- investing in a lot of different businesses -- and chances are that the math will work out where you get some good winners, and when you get some really good winners, they can just keep going up and up when really the down side is capped at zero for virtually any individual investment. I think framing the expectations appropriately from the beginning helps particularly when they're kids in understanding what they're actually trying to do.
Barnes: And this helps to teach them to be long-term investors, because they may see that one of their stocks went down so they want to get out. Or had those conversations of, "Let's wait and see how it does over this period of time."
Moser: Definitely. I think starting at that age, there is this added benefit where they're only so interested in it until they want to actually go play a video game or talk with their friends. It's not like we're sitting at the dinner table, every night, talking about their portfolios.
We'll probably check in maybe once a quarter and say, "Hey, look, there's your Apple stock. You've owned that since 2013. It's up 150%. But oh, look. You've got TripAdvisor there, too, and that one's still down. But you've got this big portfolio of 12 stocks now, and it looks like you're doing OK." Then they want to go off and do something else.
The benefit there is that at that age they're only so interested in it. They don't want to talk about it all the time. And when it's not something that's at the top of their minds, they're certainly not saying, "Oh, man, I really ought to sell that TripAdvisor position, because it's obviously a loser." And as time goes on, they do see the benefit of ignoring it and letting it take its course, as some of those losers can turn out to be winners after all.
Gardner: Certainly one of the recurring themes of this podcast is a love of games. I'm curious if anybody else had the experience I did, which is I first got excited by the stock market not by my parents, but by a fourth grade contest that Mr. Hoskinson at St. Albans School in Washington, D.C., ran for us, where we each were supposed to pick 10 stocks. We typed them in and kept up. It wasn't even that we typed them into a computer, because this is quite a long time ago, so it was more like a typewriter. Maybe handwritten.
But as much of the game was about looking in the newspaper for the stock quotes and writing them down and doing some math, so it was as much about math. But I did something that I think a lot of my fellow classmates did. I went home, let my parents pick my stocks for me, and as it turns out, my dad, in particular, distinguished himself and I won the contest about three months later which, by the way, we all know three months doesn't tell a lot. And that was incredibly lucky that as a reward I got this oversized -- I can still see it -- Hershey bar. I think it might have been with almonds.
You know how you have $25,000 checks that are bigger than four people? Well, that's how that candy bar looks to me today, years later. So I think for kids who enjoy games, at least that was true for me, gaming it up. Making it a little bit of a competition. Maybe a family competition or just the math of it could also speak to some kids.
Moser: If you recall, speaking of gamifying it and combining the gamifying and the media part of it, my daughters, not all that long ago, were part of a Supernova exploration...
Gardner: Ah, yes, Jason...
Moser: ... and they helped participate in whittling down the four companies to one eventual winner. I believe that winner was Hasbro. My daughters were thrilled. They own shares themselves...
Moser: ... and that really, I think, lit the fire in them. Even now they are telling me that they want to intern, here, when they're old enough and then they want to get a job here. So thank you, David! You've offered some financial security for generations to come.
Gardner: I think you're doing a little bit more than I am, for them, in that regard, but thank you, Jason! Thank you for that reminder! So yes, not everybody's going to have the opportunity the Moser girls have hanging out at Fool HQ, but anybody can make it fun for a child. Anybody can game it up.
Not everybody loves games, but if your kids do, then yes, there's things like fantasy football. There are fun mobile app games. But the stock market and following stocks -- and maybe having a competition with the cousins or the parents, or a family thing -- we're here at the start of a new year. In a sense every day is the start of the next 365 days. So you could kick off a little competition and that might speak to a child.
Before we go to Chapter 3, which is going to be twisting the arm of a high school or college grad to get them started, I wanted to ask just a little bit more about money. I think when a lot of people think about money and kids and middle school, they're not really thinking about the stock market or a 529 plan. They're thinking about allowances or how to do money right or better with kids.
Any opinions from my talented panel about things that aren't investing but are money for middle school kids?
Barnes: I'm just going to say a disclaimer. I do not have children, but one of the things I remember as a child, in terms of allowance, is I had a really good friend whose parents provided a monthly base allowance and then they would get different dollar increments depending on the chore. You would get your $10 a week, but if you decided that you wanted to mow the law or shovel the snow off their long driveway and the stairs, then you got an extra $20. If she babysat her younger siblings, she would get an extra $5.
So however that played out, it would teach the value of save, share, and spend. Utilizing that where it's automatic, and every time I receive an allowance, a portion of it, whether it's $1 or $2 is going toward saving, going toward spending, and then also going toward sharing if you want to teach them to be philanthropic.
Gardner: When I think about allowances, I think of just how incredibly lame I was as a parent...
Brokamp: I'm with you!
Gardner: ...and how inconsistent... Robert? You, too?
Gardner: We were so not best practice on allowances for kids. We did it sometimes and not others. There was no earned component, which I think Naima spoke very well to. I still feel OK with how our kids have turned out, so I'm not sure it's all about having the right way to do allowances, but I'll say this, Robert. You can be pretty bad at it and not do, I hope, permanent damage to children.
Brokamp: I will say I'm pretty confident that the evidence is clear that whether a kid got an allowance or not did not have a huge impact on whether they were financially successful later in life. Because I looked that up. Chores are a different thing. It is good for kids to do chores, but the allowance was not as important, which made me feel good because I was horrible at doing it. Mostly being the kids would say, "It's time for my allowance and I didn't have the cash." That was the problem.
Gardner: We also weren't great at tooth fairy, for the record. When it came to, "Mom! Dad! The fairy didn't come!" I'd say, "Oh wait! No, no! No, honey, honey, honey! Look back underneath. Oh, it fell! Over here on the floor underneath the pillow!"
Brokamp: It fell in my pocket!
Moser: You're playing a game. Part of it is to try to find it!
Gardner: I also want to say something before we move to chapter three, our final chapter, about matching, because while I never did this, we have had some great stories. We've told them in some of our Motley Fool books of the past true stories about usually kids with a lot of initiative who realized, just like we talked about, the power of corporate matching like your company matching your 401(k) donation.
Let's say your child saves a dollar. You could say, "For every dollar, honey, that you save, your mother and I will give you one extra dollar." But some kids have an extra dose of initiative and so the stories that we've told through our books are kids who said, "You know, beyond just Mom and Dad, I have aunts and uncles who love me. I have grandparents who love me. I have mentors that might be proud of me if I got an A."
And so there are stories of kids who, for every dollar they save, all of a sudden twelve additional dollars are being triggered through conversations with family members. For every "A" that was earned. And then you can have huge amounts of money sometimes -- well more than you would expect -- if you have a culture surrounding you that wants you to succeed at saving or doing well in school.
So before we move on, I want to talk briefly about the power of matching. You hope your company or workplace does it for you as a professional. Darn it, you can do it. I would encourage us all to do that. For younger people in our lives, if they do something well, give them an extra buck match.
Moser: I agree. I'll say that while we, in concept, have matched, we didn't really apply a formula or any sort of consistent philosophy to it. It was more I'm kind of lazy and I don't really want to keep track of all the numbers.
Gardner: Yes, the Brokamp/Gardner approach to allowance. It was kind of lame. Lazy, but well meaning.
Moser: Tooth fairy money or birthday money -- part of that would be you may have that to spend, but part of that we want to put into your brokerage account so that you can contribute to your investments and have some ownership, there. And then my wife and I would help top that account off so they could buy a few shares of a given company, so we really didn't apply the formula dollar for dollar, but the concept, I think, still works.
Gardner: In the story that I was thinking of, Jason, it was as much the child. She was just on fire when she had this matching and then started to realize in the most enterprising way that she could get all kinds of people; maybe like the mailman. Everyone's contributing matching what she was doing.
Some of these stories or ideas are going to make sense to some of us and not others. We're just trying to paint as much of the canvas as we can, knowing, in the end, that it's each person's individual, unique portrait.