My daughter has reached the age where I can no longer fake expertise in the two subjects I know almost nothing about: sex and money. So far, I've got by with a lot of prevarication, blundering and sending her to her room. But when she came home after school and asked, "How's the Dow?" I realized I was facing a so-called teachable moment. Unfortunately, as one of the three people left in this country who still has her savings in a passbook account, I have a lot to learn before I can teach my kid to play a financial instrument. I'm also worried about turning an innocent adolescent into a day-trading, stock-obsessed teenybopper.
Lynn Roney and Pat Smith are clearly dumbfounded by such cluelessness. They co-wrote the very helpful investing primer Wow the Dow (Simon & Schuster; $14), which is based on 10 years' experience guiding their two girls, Shannon and Danielle, into the stock market. It is their belief that investing is empowering, interesting and potentially profitable, and they've got spreadsheets to prove it. Kids are already expert consumers, say the authors, and so have the capacity to be successful investors.
Children should start by identifying a favorite company. Kids tend to be excellent stock pickers because they like established products and spot trends early. A 10-year-old might choose McDonald's or Disney, and a 12-year-old AOL or the Limited. Kids should then research their pick. The Internet is loaded with financial info; one good source, found at thinkquest.org is Investing for Kids, a website designed by three savvy high schoolers. You can show your kids how to decipher the stock pages in the newspaper's financial section and track a stock's progress over time.
Fortunately for parents (and the economy), it is illegal for anyone under age 18 to trade stocks on his or her own. You have to set up a custodial account, and should closely monitor any buying or selling. Wow the Dow suggests that families join the National Association of Investors Corp. for an easy, quick and low-cost introduction. Once you've got your feet wet, you and your kids can research other ways to buy stocks, such as directly from the company or through a discount broker. You should probably discourage online investing; I believe finance should be a tactile experience, at least at first. Danielle Slythe, a 15-year-old investor, tells me that kids shouldn't trade online because she feels it encourages a game-playing, day-trading mentality. That sounds like great advice.
I asked Shannon Smith, 16, a $6-an-hour baby sitter who manages a college-fund portfolio worth $43,000, how kids can cope with the inevitable swings of the market. "If you do your research and buy good companies, corrections shouldn't hit you so hard," she says.
Personally, I think that in a world already infected with affluenza, parents should be very careful about further encouraging their kids to think, talk about or play with money. Investing is a responsibility, profit taking is a privilege, and kids should be expected to set aside money for charity. They should also get the message that even if their portfolio outstrips their parents', they still have to make their beds.