Teaching Your Kids About Investing

{The #1 Benefit}

The other day I was meeting with some of my favorite clients.  We were discussing normal items in our check-up meeting.  Then they brought up a fun topic that I always love engaging in.  They said, “Andrew, we’d like to teach our 8th-grade daughter about investing.  She has some cash stashed away in a savings account earning nothing, what should we do?”

I love love love this conversation because it cuts to the core of why I’m in this industry.  To use my knowledge base, to teach and better others’ lives.  But, let’s continue with the conversation and what the aha moment was.  I let my clients know we should absolutely set up a separate meeting where I can talk to their daughter about setting up a little investment account for her.  For starters, she’ll have the benefit of asking a professional, not named mom or dad, about anything she wants when it comes to investing. 

This will give her an enormous edge as she gets older.  We will engrain in her a level of confidence and knowledge to an area so seldom taught in our education system.  Not only that it is arguably one of the most important subjects matters we can learn about (I would argue). 

Now all this will certainly give her a distinctive edge when it comes to personal finances.  It will also give her an invaluable relationship as she gets older.  That all said I haven’t begun to touch on the number one benefit of learning about and actually starting investing at such a young age.  You see there is one trait that this exercise will teach her, that will make her extremely lethal as she enters her adult life.  What is it already?

So glad you asked!  She’ll learn to take comfort in the uncomfortableness of investing.  Put differently – she’ll become numb in a sense.  What do I mean, you may ask?  You see the number one issue people have with investing, is actually, themselves.  They tie so much emotion into their investments that they start to let their emotions dictate their decisions.  This then leads to people making very poor emotional decisions that lead to counterproductive outcomes.

By starting to invest at such a young age, and listening/learning from a professional this little lady will build muscle memory.  I liken it to golfing in a sense.  You see I am what you call a terrible golfer.  I didn’t grow up playing, and when I go out there breaking 100 is a massive success.  What frustrates me beyond belief, is I’ll take a friend golfing who grew up playing.  They may not have played for 15 years, and be rusty beyond belief.  That said by the back 9 they are shaking off the cobb webs and getting their stroke back.  What effectively has happened is their muscle memory has kicked in from taking so many swings as a kid.  They basically find the rhythm they were looking for and can course correct.

For me, I have no muscle memory.  I don’t know how to course-correct, as I don’t have those basic foundations.  Much like my client’s daughter, she is going to be taught a muscle memory called numbness when it comes to investing.  She is going to learn from the school of hard knocks.  She’ll see her $2,000 account go up and down every day.  She’ll get statements she is less than thrilled about, and ones where she can’t believe how much money she made.  Essentially, she is going to start to get comfortable with the uncomfortable. 

Here is how I predict it plays out long term, which is the real beauty.  Over time the market swings won’t bother her anymore and she’ll “get it”.  This will be her secret weapon as she ages.  This is a skill set that will make her wise well beyond her years.  One that many people 50 years older still struggle to grasp.  She will benefit by letting the markets make her a lot of money over time because that is what they do to those that let it. 

There is an entire side of finances called behavioral finance.  It is the study of why so many of us fall into different behavioral traps when it comes to our finances and investing.  More importantly, studies have shown it is the biggest detractor to one’s investment returns, and it isn’t even close.  That is why I am so excited for my 8th-grade investor.  She is young and moldable.  By the time she has real money, she will prioritize savings, and be so much more comfortable letting her investments do their thang!

My money is on this kid being a massive success, don’t you think?  I hope you enjoyed this insight and learned the benefit of starting young.  Hopefully, she’ll keep me as her advisor for years to come and I’ll be able to give you updates on our relationship, along with her progress.  In the meantime stay wealthy, healthy, and happy.

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