My goal as a parent is to get my kids to say no to drugs, cigarettes and internet meme stocks.
On the latter, I am finding it difficult to type out this column with my fists pumping so hard in victory from the lessons of this last week with my kids and investing.
As a recap: Last year in March I wrote about our Gutierrez allowance process, and as my two oldest kids met and surpassed my requirement that they have $1,000 in cash in savings -- their reward was that they got to set up their first investment account that was totally theirs to manage. Lucia is not there yet, but she is keenly interested in joining her big brothers. Trust me, it won't be long.
[Video not showing up above? Click here to watch » arkansasonline.com/21save/]
Before we get into how our investing account works, I also want to remind you that we shifted our book reading from savings-centric books for children to a more sophisticated book called "Investing for Kids". All the books can be found in my December column, https://bit.ly/3KYrfGX.
In fair disclosure, "Investing for Kids" was met with great interest. They had been anticipating the moment when they would get to be REAL OWNERS, bosses even, of big companies, and that seemed to intrigue them. But the decision to save/invest didn't seem any more interesting in theory at that point than saving in a bank. For instance, from time to time I pull up their Arkansas 529 account and try to show them how much we have been putting in for the last nine years versus how much the market has grown it. They look and seem interested but quickly move on to something else.
Given their history with stocks and investing, I didn't know how these new stock accounts would go over. I researched several stock trading sites for kids and settled on Stockpile. The goal was to have the fewest bells and whistles available to keep the process simple. I don't need debit cards at this stage for them, for instance. Stockpile fit the bill with the simplest interface.
Setting up the accounts were spectacularly easy for each of them. Then each kid agreed that I would sweep all the dollars in their savings account over $1,000 into their accounts, which ended up being $300 and $100. A couple days later the money showed up in their accounts.
Funny. I showed my kids the accounts, and asked them what they thought was happening on each of their screens. It said "available cash" $300, and Marco instantly intuited that he could use the available cash to buy stocks.
That might seem obvious, but can we sidebar here? How many times have I had people in cash for years in Roth IRAs or brokerage accounts without realizing it? That's because the money was in a "settlement fund" waiting to be invested, which is the least obvious way to signal to someone that they are not invested. WHY do we use jargon for the most basic of functions? Why do we have to make it so complicated? For real, call it "CASH." Then people would understand, "Oh, I have cash in my account. That must mean I am not invested. I need to do that."
Now to the investing moment. My husband and I have spent a fair amount of time and energy attempting to explain how the stock market works. The kids get the notion of owning pieces of companies and how those investments can grow over time. We laughed when Marco declared he would buy stock in my husband's business so that he could be "Papa's boss." That was a great moment to explain the difference between a private company and a publicly traded one.
We taught them about risk/reward, reflecting on how little their money was growing in the savings account but the potential to grow their money over time in the stock market to reach their goals of buying their first car in high school. We simulated downturns, explaining that brains make people take actions around the stock market that result in them having less money over time. For instance, why do people want to pull money out of the market when the market is going down? Those are the moments when we should be salivating to buy even more. It's like going to Target to buy Pokeman cards full price one day, only to find the same pack might be on sale the next day.
I was most surprised at their excitement and understanding that we don't buy individual stocks. Instead, we buy index mutual funds or ETFs that buy everything rather than the concentrated portfolios of individual stocks that typically don't do as well.
Not to brag, but we were nailing it.
Until game time. My perception was that I would drive through the website and take orders from the kids, but the moment I got on the page that said "Max" all bets were off. My 7-year-old shoved me aside and took the keyboard and mouse. You see, when you pull up the site, Stockpile auto populates a screen of tiles representing popular stocks that were recognizable to my kids. Tesla, Target, Disney, Sony, etc. were all in these cute little boxes. He quickly learned to click on them to see their historical performance chart. It didn't take long for them to be yelling out "What if we had owned Apple back then. Look how much money we would have made!"
I reminded them of our plan to buy the VTI, or Vanguard Total Stock Market Index Fund ETF (Exchange Traded Fund) that buy all 4,156 stocks in the U.S. stock market, but I was overruled. Several clicks later, both my boys were investing $10 here and $50 there in a very tech heavy grouping of stocks. Marco even bought Kroger because, "Mom, there are HUNDREDS of people in there every time we go!"
We made the trades Wednesday January 19 and on Thursday at the end of the day the trades went through. I had to run into Kroger that afternoon and grab a few things. When I got home, Marco interrogated me about the number of people in the store. He was "concerned" about his stock.
Anyone who was paying attention to the last week knows exactly where this story is going. They came home Friday and ran breathlessly to my office computer to find out how they had done on their first day trading. It was not a great day in the market, particularly for tech. To my delight, they were only mildly disappointed. I reminded them of the "the plan," and both decided they wanted to do more around the house to earn more money. Stocks are on sale!
The next few trading days continued to be bad news when they came home from school. Yikes, at one point Marco's Roblox was down over 20%.
Alas. I am proud to report that after such an introduction to investing they still seemed to have a keen excitement in owning stocks rather than buying the "stuff" that those companies make. Their investments went down, but with the behavioral training, they understood that the market going down temporarily should be interpreted as an opportunity, not a loss. And they learned that the place to be above average is in school. The place to be average is in the market. All future purchases will be going into the VTI.
Thankfully we have Economics Arkansas enabling kids to learn about the stock market, but it's not yet mainstream. And it's too late to get this high school intro to the stock market for adults in my age group. If you find yourself mystified by the market, and you are a parent, grandparent, aunt or uncle, consider opening up a Stockpile account for young people in your life. For kids and adults alike, this could be a great chance to get more confident in investing with a stripped down, simple application. Combined with a few reminders about avoiding the temptation to time the market or buy individual stocks, such an exercise could be a fantastic family educational tool.
Disclosure: This column only intended for the best parenting what-not-to-do tips, sleep aid at night, or mild entertainment. This is not a recommendation to buy any of the stocks mentioned in this column. I sure hope you don't feel strongly about stock tips from a 7-year-old or 9-year-old. Or maybe that's your thing. Remember when the cat picked stocks better than the pros? https://bit.ly/3Hgm82w
Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book "But First, Save 10: The One Simple Money Move That Will Change Your Life," published by Et Alia Press. Contact her at sc@aptusfinancial.com.