“Money can’t buy happiness, but it will certainly get you a better class of memories” – Ronald Reagan

Talking to your kids or young adults about money is important.  Getting them started with the right perspective can have a significant impact on their relationship with money.  Here is a simple outline we use to talk about investing with the next generation:

We start broad and cover time tested principles.  Avoid a detailed conversation but tie each topic to an overall goal.  Start out by asking, “What do you want to buy in the future?  My guess is that they will say a car.  That’s fine. Come up with a dollar amount and use that to help steer the conversation.

The three core principles we cover are leveraging the power of time, compound interest, and diversification.  Even if they want to buy a Tesla, keep it simple and avoid the distraction of, say, researching their request to invest in Tesla stock.

Leverage The Power of Time

Do a quick search on the internet and you can find many reference articles in seconds that help show this important principle.  Word of caution, if you do a good job of explaining the advantage of investing early, they will regularly use this against you.  Just remember to focus first on the same amount of money saved at 20 vs 40 years old.  Then tie that back to the amount from above.

Compound Interest

I referred to this once as the eighth wonder of the world, when my daughter asked me to name the other seven, I struggled for any credibility.  So do not put too much pressure on yourself to explain this topic.  Use the internet again but my recommendation would be to pull up a quick video to help explain the concept.  Then use a growth calculator to plug in various rates of return to allow the concept to take root.

Diversification

Solomon is quoted as saying “diversify yourself amongst seven or eight, for you do not know the disaster that may come upon the land.”  If the smartest, and richest man to ever live, says not to invest in more than 12.5-14.5%, then this is something to focus on in your conversation.  If you do this right, they will respond, “Oh, this is why I should in more than Tesla!”.  You can then discuss the loss of 1/7 or 1/8; and how long it would take to earn it back.

If you have covered these three topics, most would be eager to get started.  However, to set them off on the right path, give them a better goal.  If a child says they want to save for a car, remind them that cars depreciate.  Instead, challenge them to save for a first-time home purchase or a future business.  Refer to the material you used to show them the three principles to see how quickly they could achieve these goals.

Check out our other resources that may help you at www.boxfinancial.com.