BLOG: Turning your pre-schooler into an investor
Because of his own experiences, he’s also a great believer in teaching children about money – starting when they are in pre-school.
As a mum of pre-schooler twins and a daughter who has just started school, I have to say teaching them to wash their hands properly over the past six months has been challenging enough, without trying to teach them about money too.
But he’s right: research shows that 80% of our brain growth happens by our third birthday and children are not only able to grasp basic money concepts, but they are also developing good and bad habits that form their future behaviour towards money by the age of seven.
So, just as it’s a good idea to start investing early, it’s also a good idea to start teaching our children about money early too.
Four money lessons for children
One of my colleagues decided to give it a go over lockdown. Working from home while simultaneously trying to home school her two children wasn’t easy, and there was a collective sigh of relief in her household when schools reopened in September, but during one quieter week she added a money lesson to the timetable.
Here’s the four money lessons she shared with me:
- The tuckshop (money lesson: budgeting)
The first money lesson was making a tuckshop – putting up a poster with a list of snacks and a price against each item. The healthier the snack, the cheaper it was. Each child was given £1 each day to spend.
“On the first day, my daughter (Ana aged five) spent the whole £1 all at once – panic buying before her brother made his choices. My son (Alex aged nine) asked if he had to spend it all at once. I said no. He had two trips to the snack shop that day. By day five they had both learnt to spread the purchases out and, on rare occasions, would treat their sibling if they had cash left over.”
- Inflation and compound interest (money lesson: cost of living)
To teach them about inflation, she put up the prices in the tuckshop. “Ana was not impressed and refused to join in the lesson. But Alex sat and worked out how much more expensive each item was. For example, Mini Cheddars were 40p and rose to 60p. A satsuma was 10p and rose to 30p. He knew both had risen by 20p, but then we worked out the percentage increases and he could see the satsumas had risen the most. He described it as ‘like a balloon inflating’.”
She then tried teaching Alex about compound interest. “There was a flicker of interest when I said Albert Einstein described it as the eighth wonder of the world, but soon he was spinning on his chair, saying he was bored. He did learn enough to comment: ‘so that’s why you pay your credit card each month – so you don’t owe more money’.”
- Risk/reward dice game (money lesson: risk and reward)
In an attempt to bring some fun back into lessons, she played the risk/reward game. “But when Ana asked me: “what is risk?”, I realised I’d need to go back to basics first!”
The aim of the game was to guess the number on the dice, but you had to ‘bet’ marshmallows in order to win more. You could have multiple guesses per game, but the fewer guesses you had, the more marshmallows you could win – or lose.
“We played ten rounds. Ana was far more risk averse – she just wanted to make sure she won a few marshmallows rather than losing them. Alex took more risk, but when he was reduced to eight marshmallows, he panicked for a couple of rounds and scaled it back. At the end he went all in… and went bust – he had no marshmallows left to eat at all, while Ana had 26.”
- Bringing investments to life (money lesson: investing)
Giving Ana the day off from this lesson as she was a bit too young, she showed Alex the most recent statement from his Junior ISA. “He could see that his pot of money was worth just over £11,000 and invested in Rathbone Global Opportunities and Scottish Mortgage Investment Trust.
“He liked this. James Thomson, manager of the Rathbone fund, was holding a webinar that morning, so Alex listened with me, to better understand how James was making his money grow.
“Alex had recorded a video ‘Explaining bonds to a seven-year-old’ with M&G Global Macro Bond manager, Jim Leaviss, a couple of years before, so he knew a little about what to expect.
“One of the slides in James’ presentation was a line chart of the global stock market year to date. He noticed it went down a lot but also asked about the few bumps where it had gone up a bit too. James also talked about some companies he held that might benefit from lockdown – like Costco, Netflix and Ocado. Alex enjoyed this bit.
“I explained the earnings of a company to Alex and he described profits and reinvesting as ‘like a flower that has seeds that then grow too’.”
The power of Youtube… and a good book
For those wanting a less hands on approach, Warren Buffett has a children’s animated series on Youtube called ‘Secret Millionaires Club’, featuring himself as a mentor to a group of entrepreneurial children. Think Scooby-Doo but learning about money, investing and running a successful business, rather than solving mysteries. It’s actually quite entertaining and at least the kids are learning something while they stare at a screen.
And, for those like me who enjoy those precious moments reading to their children at bedtime, I came across this delightful book: ‘More than enough’.
Written by Christina Castle and published by Foord Asset Management in South Africa, it aims to teach children aged four to seven the basic concepts of investing, by telling the story of Anele the squirrel and her mum, as they collect the acorns they need for the winter.
They gathered enough to eat, enough to enjoy, enough to share, enough to save and enough to grow for the years and years to come. Exactly the value of money we should be teaching our children.
Juliet Schooling Latter is research director at FundCalibre