ARBOR OUTLOOK: Thinking like an investor, not a consumer
"Mama may have ... Papa may have; But God bless the child that’s got his own." — from "God Bless The Child" as performed by Billie Holiday
For many of us, ours is the first generation in our family to invest in and profit from our experience with capital markets. With so many people working and learning from home, the
opportunity to introduce the investment segment of financial literacy to our children and
grandchildren has never been greater. If we want our offspring to prosper, and of course we do, teaching them about capital markets is key.
Most children receive a small allowance, or enjoy a weekly payment from parents for performing
tasks around the house. And of course, many teens work part-time jobs that provide them with
discretionary income. Approach your child or grandchild with the idea of spending a little of
their income in the stock market.
Purchasing even a few shares in a company encourages the child to follow his investment and
track the underlying business.
What companies would a child likely to be interested in buying shares in? Consider reverse
engineering the process. Ask your child or grandchild about their last big-ticket item purchase.
A video game? Okay, let’s talk about the company that makes that video game. Are they
publicly traded? Would they be a good company to invest in? A bicycle? A surfboard? Or for a
teenager, even a used car may be a big-ticket purchase. Who made the car? Is it an American
company, publicly traded, and one we’d consider purchasing stock in?
Talk to your child about your own investments, about the kind of companies you own, and why.
Pick out a few products that your child is interested in or excited by: cars, cell phones, video games, and the like. Explain that products are often made by companies which are publicly
traded. And that he or she can own not just the product itself, but shares of the company which
produces it. List the various sectors of the market he or she can purchase companies in:
technology, health care, financials, consumer discretionary, communication services, industrials, consumer staples, energy, utilities, real estate and materials. And tell your child which sector his favorite products are classified in.
The teen or child who thinks about the company that has made his big-ticket item purchase, rather than about the item itself, enjoys an advantage in understanding what makes businesses successful. Thinking about these purchases as an investor, rather than as a consumer, propels the child toward understanding and benefiting from the investment process
This is also an ideal time to discuss various investment vehicles that will eventually become
available to him or her. Talking about brokerage accounts, 401(k)'s, IRA's, Health Savings
Accounts, and even about how certain investments are taxed is extremely educational and beneficial.
Introducing this perspective to a young person allows him to see the world in a different way. He can transition from being a consumer to an investor, and see the business world through the
eyes of an investor.
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column "Arbor Outlook," is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.