How Do You Get A Kid Interested In Investing?

Dear Tim,

[first part redacted] how am I supposed to get my kids interested in stocks and investing generally? They just don’t care…. –Scott

Ah yes, the timeless question! Once you’ve motivated yourself to do something good, how do you get the ones you love to see the same light you’ve seen?

First off, let’s identify the obstacles: Some of it is going to be genetic. We’ve all heard the story about that legendary marshmallow test performed on two year-olds in which the ones that could delay gratification for two marshmallows later ended up demonstrating more socially desirable characteristics later in life. The article “Workers Who Neglect Their Retirement Neglect Their Health, Too” emphasizes the point that cultivating delayed gratification habits has far-reaching consequences in life, beyond just financial.

So really, when you say: “How do I get my kids interested in investing”, you are really saying, “How do I teach delayed gratification?” If it is not naturally appealing, how do you get someone to treasure $100 not for how it can be spent today, but rather, for the pennies, nickels, dimes, and quarters it can produce all on its own, for the entire rest of your life if you choose wisely?

My answer would be this: Look for a series of quick wins. The reason why retirement planning, investing, and so on gets a big yawn from most people is because it lacks tangibility. It’s all abstract, and it’s often cast in terms of giving up something very real today without receiving a benefit that seems as real.

In a way, dividend investing can work even better for someone who has trouble conceptualizing what investing is all about. If you are young enough, you could spend every dividend you ever earn throughout your life and still build a significant fortune just by the natural earnings growth of the firm.

Let’s say you’re at a point where you want to help your kid but you don’t want to create a kid who looks back on his life and says that his best years were when his parents were providing for him/her. If you bought him something like 50 shares of oil giant BP (at a current price of $50 per share, that would be a $2,500 gift) and set it up for him to collect and spend the dividends, suddenly, investing becomes real. At the current quarterly payout rate of $0.585, we are talking about $30 seemingly get deposited due to magic four times per year. That makes investing real. If you added three other stocks as well, then your kid will be receiving cash from a holding every month.

Then you can teach him, “If you save $300 from your job this month”, then you can buy six more shares of BP (or whatever the stock you choose happens to be). That makes those checks grow by $14 per year. It’s a lot easier to build something once a slight foundation has been laid; that’s why it is so difficult for those without parental support to get started (it takes a special person to realize that $5 and $10 dividend checks are just the beginning days of something great).

The real solution we are looking for is natural motivation (presumably, you’d want your kid to be self-sufficient after you are no longer able or willing to support him). If someone is less naturally motivated, I believe the solution lies in shortening the amount of time it takes delayed gratification to be realized. Sometimes that might mean attaching training wheels by giving small dividend stock gifts so your kid can see checks regularly deposited, and get regularly inspired to add to it from there (or, who knows, maybe giving him a gift could encourage an entitlement mindset in which he would expect you to buy more and more stocks for him? I don’t know. Trying to change behavior in others has a certain throwing-spaghetti-at-a-wall element to it).

Broadly speaking, you want quick wins, tangibility, and a shortening of delayed gratification requirements. Compounding calculators of what money will be worth in fifty years won’t do it because your kid won’t “get it” if he’s not already psychologically inclined towards this stuff. I would try to give him a taste of the results. A gift of a few thousand bucks can create a reaction of “hey, this is nice, I want more” that will helpfully build a savings habit. Of course, there’s people my suggestion won’t work for. But if you are in a position to make a small yet meaningful stock gift that could provide tangible gifts in the form of regular quarterly dividend payments, what could it hurt to try? At worst, it fails and you’re on to your next idea. At best, it’s a cheap tuition payment that turns your kid into a lifelong student of the art of income investing.