Halloween is just a few days away. This is the time of year for witches, ghosts, candy, and kid money lessons. Wait, kid money lessons?
Yep.
We all know how Halloween night is supposed to go. Kids get dressed up in costumes, and they go door-to-door ringing bells, saying “Trick or Treat,” and get some free, delicious Halloween candy.
What if, instead of just giving candy, the response was “cash or candy?”
If you cheated and didn’t go read the article, then:
Shame on you
I’ll give you a little summary
Jaffe has played games with kids where they either forgo candy or trade candy they already have. In return, they can have a guaranteed cash prize and/or a chance at a bigger cash prize.
The idea is simple… get kids thinking about value.
Almost all the kids took the money when the offer was simply cash. That makes sense; they can get candy from every other house. Over the years, the kids visiting Jaffe’s home seem to know that he’s “the money house.” The kids almost always take that option, even when it’s just a gamble. And why wouldn’t they? It’s fun.
What if kids were given big candy bars? Everyone knows that the houses that give out the big bars are rare. They’re more valuable.
Experiment: Would Kids Choose Cash or Big Candy
I found this YouTube video about how one house offered kids a $2.50 giant bar or a dollar bill. Clearly, the giant bar of candy has more value. However, kids can still get candy from everyone else, and cash is rare. It turns out that about 25% took the dollar bill. There are a few other interesting things that the person learned. I don’t want to give it all away, so watch it below:
Final Thoughts
I’d love to try out some of this stuff at Halloween myself. However, we only get two or three groups of trick-or-treaters every year. I’m not sure I’d learn too much or increase the financial literacy of too many kids.
One of the more interesting side effects of Cash or Candy is that kids walk away with less candy. That’s less sugar, cavities, and obesity.
Finally, if Cash or Candy isn’t your thing and you find yourself with too much candy, you can always try “Cash FOR Candy.” This program run by HeathyWage will give you cash for sending your candy to overseas troops. They have limited cash to give, so you need to act fast.
I had been meaning to pick up a copy of Investing for Kids for some time. It first caught my attention due to the incredible number of Amazon reviews. Check it out: over 2100 reviews as of mid-October 2022. More importantly, the reviews are excellent.
I finally took the plunge when I saw the author, Dylin Redling, at a financial conference selling the book. My kids now have an autographed copy, much like The Golden Quest and M is for Money. I hope that will make them want to read it more. I don’t want to give them too many money books. The next one that I want them to read is Grandpa’s Fortune Fables. The good news is that while this book says it’s for ages 8-12, I think it’s a better fit for 10-14.
Let’s get started!
First Impressions of Investing for Kids
Investing for Kids is 120 pages long, which may seem slightly intimidating for an eight-year-old. However, there are a lot of illustrations which helps make it a quick read. The illustrations aren’t fluff; there are graphs, work pages, and infographics. With seven chapters, a kid could reasonably do one chapter each night. More advanced readers could do a couple of chapters daily and finish it in a few days.
The chapters are:
Money 101
Save Your Money
Introduction to Investing
Low Risk/Low Reward
High Risk/High Reward
Diversify Your Investments
Grow Your Money
A section at the end includes a brief glossary, a resource list, and an index.
Here’s a little bit about each chapter and what your child will learn:
Chapter Guide
1. Money 101
Money 101 starts with a history of money and its physical appearance. I always find this boring, so I was happy to see that this was short. The book explains how to earn money, how interest works, and was debt is within the first ten pages. Before the first fifteen pages are over, there’s a concise description of the Federal Deposit Insurance Corporation (FDIC), certificate of deposits (CDs), internet banks, credit unions, and brokerages. It ends with a great story about entrepreneur Debbie Fields and her famous cookies.
My favorite part of this chapter is the section on earning money, which asks two specific questions: “What do you like to do?” and “What are you good at?”
2. Save Your Money
This chapter stresses the importance of budgeting and savings accounts so that they can earn interest. It explains what principal is along with simple and compound interest. I’ve seen compound interest taught a lot, but never simple interest.
The part of budgeting dedicates significant space to charity. There’s a brief introduction to passive income, the Federal Reserve Bank, Warren Buffett, and the Rule of 72. I love a page that will inspire you to go on a field trip to different banks to ask them about the interest rates they have on their products.
Unfortunately, this book makes the classic mistake of crediting Albert Einstein as saying that compound interest is the eighth wonder of the world. He most likely DID NOT say any such thing. That doesn’t make it any less great.
3. Introduction to Investing
This introduction to investing section was interesting because it didn’t go into various types of investing. Instead, it mentioned the value of investing early. It covers risk and reward and Return on Investment (ROI). It teaches kids to think about whether they should be risky or safe investors in a way that makes it about their own risk tolerance.
This chapter also covers liquidity, which is something that I often overlook myself. In Bank of Dad, we learned that kids might understand a lot about liquidity because their parents whisk their birthday money away to a savings bank where they can’t easily access it.
My favorite part of the chapter is the short section on evaluating a company’s main attributes: earnings, growth, competition, consistency, and management. This is a terrific way to evaluate individual stocks.
Another notable part of the chapter got a book the top negative review on Amazon. Three pages are devoted to investing in companies that “Make the World a Better Place.” It’s mostly about investing in a company that does good. As part of this, there’s a concise section, about a page, on ESG investing. The vast majority of this section is about the environmental aspect of companies. The review (unfairly, in my opinion) described this section as “woke ‘virtuals’ and ‘morals.'” Many kids are very concerned about the environment, and they should be. They are looking at eighty years of climate disasters, and reversing the damage that has been done can’t come soon enough for them.
This chapter included a page about the Great Recession of 2008. That’s a complicated historical note. It’s one example of why I think this book is better suited for older kids.
Low Risk/Low Reward
This chapter is where the reader learns about specific types of investments. The lower-risk investments covered in this chapter include treasury bills, certificates of deposits (CDs), highly-rated corporate bonds, and high-yield bonds.
This chapter covers corporate credit ratings, bond yield, and expense ratios. I would typically associate an expense ratio with a mutual fund or exchange-traded funds (ETFs), but it does have a place when investing in bond funds.
High Risk/High Reward
The high risk/high reward chapter starts with investing in the stock market. It includes information about individual stocks, mutual funds, and ETFs. It has concepts of avoiding gambling and lotteries as well as understanding bears, bulls, and black swans.
This chapter also includes information on how to open an investment account with online brokerages such as Vanguard, Fidelity, Charles Schwab, or Robinhood. It walks you through buying your first stock, including placing a market or limit order. There’s a section on dividends. Finally, the ultimate mantra is covered, “Buy low, sell high.”
This chapter includes three other types of high risk/high reward investments: private equity, venture capital, and angel investing. I don’t know many kids who can use these investment options. Not many adults have these in their investment portfolios. There are some fun mentions, such as Pets.com’s failure.
There’s one page that mentions investments in “real estate, art, and collectibles.” I think giving real estate investing only part of one page is a big disservice. It’s worse that it is grouped with art and collectible investing. Imagine grouping owning an apartment building in Manhattan with having a few Beanie Babies.
Diversify Your Investments
Diversifying all the investments mentioned in the previous two chapters is essential. This chapter goes into asset allocation in detail. There’s more about exchange-traded funds, investing in funds with low fees, and dollar cost averaging.
This short chapter (10 pages) also includes a short mention of Financial Independence, Retire Early (FIRE), and the rule of 25. The section is about two-thirds of a page. I would have liked to see this be at least a few pages.
Grow Your Money
This final chapter brings it all together by starting with entrepreneurism. There are a few more pages on FIRE. I’m not sure why there was the short section in the previous chapter when it’s covered more here.
Finally, there’s some coverage on adult topics like having a retirement account. There’s more coverage of 401ks than kid Roth IRAs. There’s a brief mention of taxes, which is fine. Kids probably don’t need to get into long-term capital gain taxes.
Final Thoughts on Investing for Kids
The lack of real estate investing information is disappointing. I think it deserves its own chapter in any general investing book. One way to supplement this omission is by watching Teen Titans Go!’s episode of Finally a Lesson
Despite that minor nit-pick, Investing for Kids is a great book for a tween or teen learning how to invest. I’ve read quite a few books for children, and this is the best one on the singular topic of investing.
The other day my 10-year-old said to me, “I can’t wait to work at Mcdonald’s in four years.” You don’t usually hear people excited to work in fast food, but he was generally excited. He had seen a sign that Mcdonald’s is hiring 14-year-olds at $16/hour.
I had to double-check it, and he’s right. Of course, I thought back to my first non-paper route job. I had just turned 16 and I was making $4.65 at a local pizza place. After six months, I got a raise to $4.75. After a year, I got $4.85. My next job, as a pharmacy technician paid a whopping $6.41. That was a great job for a kid in the early 90s.
A kid can make nearly $100 after school and still get homework done. That’s amazing to me. In my area of Rhode Island, I bet a kid could make $20/hr with a little looking. There’s such a shortage of workers. At a minimum, there’s never been a better time to find a job.
What’s even better is that the stock market is now more than 25% off its highs. A kid investing now will likely see his/her money jump by 30% in a few years.
There are only a couple of downsides in these awesome economic times for teenagers. First, inflation is high. That means that they’ll have to pay more at the mall. Well, that is if kids still went to the mall. Second, college seems more competitive than ever. I don’t know how great fast food chef looks on the college application, but it’s probably not as good as the chess club president.
I’m curious if my son will still be excited to work in fast food in four years. Maybe he won’t be interested in working at all. I’m not in any rush to find out though. I’m going to enjoy this time as much as I can.
P.S.
I hope some of you caught the song reference in the title. I know I’m old, but I figured that it’s popular enough to work.
Teaching kids about credit is crucial to their financial education. An excellent credit score can save you hundreds of thousands of dollars. Good credit will help keep lower interest rates with mortgages, student loans, and car loans.
Typically credit is a lesson best learned when they are teenagers. That’s when they may start to apply for credit cards for themselves. However, before we get to the teens, let’s cover a few credit thoughts for younger kids.
Credit for Tweens
My kids are now eight and ten years old. They’ve had a credit card to build a credit history for several years. They don’t know about it, but each is an authorized user on my Amazon Prime credit card. Sometimes credit card companies need kids to be a minimum age, but I didn’t run into this problem with the Amazon Prime card. I keep the physical cards in a desk drawer. Perhaps I should use them to make sure they are building credit. Maybe I should even look at my kids’ credit reports. There are some horror stories about identity theft of kids’ information. At this point, I’m just trying to get them a headstart. I’m probably the weird parent who is nutty enough to think of this stuff when they are so young.
Secondly, I have recently gotten them FamZoo debit cards. These will get them used to using a card instead of cash. I’ll post a FamZoo review soon, but I want to learn more about how it works. I explained the difference between debit vs. credit cards. The FamZoo debit card seems like a credit card if you are a kid, though. It’s physically the same thing. Perhaps more importantly, I like the FamZoo solution because it automates giving an allowance and kids can start making money mistakes. Too often, kids think that money is “locked” in a bank.
Credit for Teens
Young adults in high school should start using their first credit card. Don’t let their first credit card experience be in college. Teaching kids good money habits are impossible when they are on their own. They’ll be swamped in college, and it will be tough to avoid late payments. You’ll want a couple of years to review credit card bills together and ensure they are paid in full each month to avoid fees.
One way to get kids to move from a debit card to a credit card is by introducing them to rewards cards. When I was a teen, I got interested in credit cards because I could earn points on Sony stuff. If credit cards didn’t offer me generous reward perks, I’d probably just use a debit card.
Credit card companies probably won’t give your kids a very high credit limit – lenders don’t want to take a big risk. That’s what you want – teens shouldn’t be making many purchases. Building credit can be done slowly.
Parents should explain the risks of credit. It’s not just about the late fees but how compound interest works against you. Before you teach kids about credit, they should be taught compound interest. When teaching them the risks, give them examples of how 15% interest grows over time. You might want first to show off how great earning 15% interest would be. We’ve all seen charts showing how 7-8% interest grows over many years. Chances are that seeing 15% grow will get them excited. Then you can pull the rug out from under them and say that they’ll be PAYING all that money for nothing if they don’t pay off their card every month. Maybe they’ll want to become a loan shark.
Final Thoughts
When parents think about financial literacy, they rarely think about teaching kids credit. Instead, they focus on saving money. Saving money is very important, but there’s a lot more for kids to learn to round out their financial education. Take some time to give your kids an understanding of how credit works.
