Kids Are So Much Smarter Today

01 Oct 2013 11:10

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My 11 year old son approached me last week asking about stocks and if he can invest. At first I was taken back by the comment but after seeing how serious he was about the subject my mood changed from surprised to pride.

I sat with him and explained the risks of investing and he just soaked it all in. After explaining market basics we then went over the differences between stock price gains/loss and income (i.e. dividends) and how this was different from his savings account.

It did not take long for him to grasp the value aspect of dividend investing so we next talked about how much money he was willing to invest. He decided to cash out his life savings ($317) and I promised him that I would match him dollar for dollar. This brought his total up to $634. Our next task was to find brokerage for a custodial account, we ended up at as there was no minimum balance required and they would credit him $50 after his first trade.

Next was to show him a list of dividend paying stocks and after a few days he came back with three selections. McDonalds, Proctor & Gamble and an electric company PPL. When asked of my opinion I gave him approval and of course asked him why those three. His response was, "I love McDonalds, almost everything around our house has P&G on the label, and everyone uses electricity." He also said when he gets more money he wants to buy a water company because everyone drinks water. Not a bad response from an 11 year old and it showed me just how aware of his surroundings he is. At that age I couldn't get past baseball, comic books, & fishing. When the heck did kids get so darn smart?

The bank transfer should clear in a week so I'll sit with him and guide him through his first buy. Once he buys his first stock he plans on sharing with his math teacher so they can go over the stock & dividend yield. This should be a great life lesson for applying math concepts like calculating & using percentages and ratios.

As he gets older I'll start teaching him how to tear apart a financial statement but I'm probably getting ahead of myself :)

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