[Note: The following is a guest article from the "Ask Anne Blog." It is published here as a courtesy. The opinions expressed here are the opinions of the "Ask Anne Blog", and are not necessarily those of The Skilled Investor. The Skilled Investor received no compensation for the publication of this courtesy article.]
Coming of Age with the Stock Market: Teach Kids to Find Their Investor Personality Avoid Bad Money Habits That Can Stress Them Out as Adults
—Some people should never invest in the stock market. Better to know this when you’re investing paper route money, instead of gambling and losing your retirement money, and maybe your house.—
If your teen already has a driver’s license but doesn’t yet know what kind of an investor they are, they could be running behind, and it may come back to haunt them.
Imagine being 25 years old before your first kiss. Who’d wait that long for such an important right of passage?
Well, waiting to learn about money, and which investments are the best fit for you, is just as fundamental in our society, yet we don’t teach our kids anything about it. The schools won’t teach it, so it is up to parents, just like explaining that butterfly in the stomach feeling after your first kiss. You answer the teen questions about love: How did you and Dad first meet, how did you know you were in love, how many boyfriends did you have before you got married?
These are much tougher emotional questions than which companies to invest in to start a good life savings program, and how to have a healthy relationship with money and earning so you’re not broke and stressed out by the time you’re 40.
Investing money is all about what your personality is like. Do you like risk? Are you obsessive? Are you too laid back? Who knows your kid as well as you do? No one.
Bring the investing lesson home. And if you don’t know about mechanics of investing yourself, learn it with the kids. There are many resources to do this, many teachers available. For example, you can bring in a financial planner. Teens will like that you’re learning something together, that you’re not a know-it-all.
But before you bring in a planner, or start investing, it’s much more important to help your teens understand their investor personality.
What age is the right age and what personality makes the best investor?
You can’t start too early. But let’s just say by the time they’re 13, they’re ready. Seriously, if they’re studying algebra and geometry, they have the skills to understand the stock market. And you know who they are by then, and can help them use their strengths to their advantage, and be aware of their personality traits that may get them into trouble as investors.
If you think about it, setting up home investing lessons can help kids with a lot of other things in their lives: school, dating, jobs, depression, angst. Just opening up the discussion can lead to general problem solving approaches.
“There’s a reason money is the number one stress in adult lives: It’s the resource we all need to survive and thrive, and we tend to have an adversarial relationship with it,” said Pam Krueger, official spokesperson for Jump$tart Coalition, a non-profit organization devoted to researching money management. Krueger is also the creator and co-host of the PBS series MoneyTrack and author of The MoneyTrack Method: A Real Person’s Guide to Successful Investing.
Which personality type will be a relaxed stock market investor?
First things first for discovering your investor personality: Different personalities can do well in the market, so this is just a guideline. But looking at either end of the spectrum–unemotional, long-term investor v. day trading gambler—can help shape approach.
And there are misconceptions about which personality types are calm and unemotional.
For example, it may be a miscalculation that the math whiz, or exceptionally bright, over-achieving student is the best or only able investor. In fact, perfectionists, and overly studious personalities might end up suffering a lot of stress when the market fluctuates. They also may act rashly under stress, and sell stocks that should be held long term, just because there’s market turmoil.
“A well rounded kid is very important because they don’t get emotional, or alarmed, and they tend to make investments for the long term,” Krueger said. “They also think maturely and will invest in what they believe in and know.”
The ability to understand the value of the long term, invest in what you believe in, and not be an adrenaline junky gambler of an investor, are the key traits of a good, solid adult investor.
That kinda lazy, dreamy kid of yours at home—the one snoring at noon on Saturday instead of playing on three different sports teams and belonging to six different school clubs? You may have a sleeping giant on your hands. You may worry that they will never amount to anything, but with some training these personality types can make great money minds.
Being relaxed without too great a sense of urgency is a definite plus in investing. And the ones who let themselves be kids, not in too much of a hurry, tend to think long term. They tend to have patience with money matters, too—perhaps the single most elusive quality for any of us. Again, long-term investing theories make for the healthiest relationship with money.
There’s another plus: The sort of teen who has a paper route side job, likes sports but isn’t a fanatic, does well enough in school, has friends and likes to goof off too, has hobbies—this kid can get a real confidence boost from investing. There’s nothing like learning something new, and learning to trust your own thoughts about it, feeling great at it.
There’s yet another great benefit to starting out as an investor when you’re a teen: You’re still pure enough to invest in what you know, what interests you, what you believe in. Most adults don’t have any idea how the banking system works, yet look how many people lost their life savings investing in bank stocks over the last couple of years because they figured bankers know how to earn.
Teens don’t like things they’re not knowledgeable about, or good at, and they don’t trust adults. This is great! They’ll be the first to say they don’t know, or want to know, a thing about banks, and go with their instinct to stay away from what they don’t know, and not invest.
Smart smart smart. If you’re going to own a piece of a company, which is what you do when you buy stock, better that it’s a company selling a product you know, understand, and like. It’s arguable that this should be the number one lesson for adults.
Here are some teen investor favorite stocks and stock sectors:
“The first thing I bought was two shares of Walmart, both at $48.49 and I still have them today,” said Nathan Hodgens, age 16, who began investing in the stock market this summer. “I specifically chose Walmart because not only is it a company that will grow over time, but a company that is socially responsible because of its urge to go green.”
Hodgens explained that Walmart is in the process of making a label similar to the nutrition label on food, which lets buyers know how the environment was affected by the manufacturing of a product. The company is using compact fluorescent bulbs and putting doors on their refrigerated areas.
It looks like Hodgens has done his homework.
“Doing things like this makes me want to invest in them,” Hodgens said, adding that eventually he wants to invest in other green companies, and characterizing himself as a long-term investor. “Solar, ocean energy, wind, as well as companies that I believe are making a difference, like Walmart.”
Ryan Hodgens, Nathan’s brother, is 14 and has been buying stocks for a year, longer than his older brother. (These are parents not afraid to get their kids involved.)
“I first bought into Chipotle,” Ryan Hodgens said. “I have always loved Chipotle’s food, so I did a lot of research on it, and decided to buy into it.” He researched using Motley Fool’s Guide to Investing for Teens. Today, Ryan owns Chipotle, five shares of Costco, and five shares of Netflix.
Both boys bought stocks with money they earned from side jobs.
(Please visit Ask Anne to see full interviews and profiles of these savvy young investors, and many others. You can see patterns of behaviors in healthy teen investors.)
The minute you read these teens’ stock picks, it makes perfect sense. Netflix for the TV addicted society. Why didn’t I think of that? Adults should ask themselves, while working with their teens, what their stock picks would be if they went with what they know. How many of those picks are actually in your portfolio now?
So, well roundedness, investing for the long term, investing in what you know make the good investor. But what do you do for your adrenaline junky, overachiever kid?
Big Dangers for Teens
You know the kid that wants Lotto tickets, who can’t watch a sporting event without wanting to bet, who swears by the time they’re 25 they’ll have a million dollars? That kid should be strongly advised about taking a different attitude toward the stock market, or investing in other things. Knowing whether investing feels like gambling helps us avoid dangerous behaviors for our lives. Before investing with real money, take a gambling personality to virtualstockexchange.com, start a pretend custodian account for them, see if it stresses them out to trade, or if they feel it’s too addictive.
A big problem are message boards. “Message boards are so dangerous for teen investors,” Krueger said. “The wrong personality quickly gets addicted, and they are specifically filled with misleading, unreliable information. No one should use message boards to invest in the stock market.”
On a message board, any single person can pretend to be 20 people who are all supposedly buying and pumping up a stock no one’s heard of, ones that aren’t traded on the American stock exchanges.
If your kid is going straight for this kind of information, sit down and have a money talk with him or her like you would sit down and have a talk about drugs. Think about how great it will be if you can use investing and the behavior lessons you’ll learn to talk to kids about other issues.
Tell them it’s okay to buy bonds instead of stocks if stocks stress them out, or to invest in CDs. Not everyone should invest in the stock market and our post modern sensibility that everyone should is a fallacy. Maybe they should just say no, or at least see if they can learn to take a long-term, reliable approach.
Check out this profile of a kid who should never invest in the market: Addictive Gambling Personality: Bad Boy Cole Bartiromo. (Cut and paste this URL into your browser:)
For comparison, here’s a stellar kid personality for investing, Damon, The Golden Boy of stock buying. (Cut and paste this URL into your browser:)
Wherever your teens fall in the trading spectrum, or if you’re a college student trying to figure out where you fit in the investment world, be true to your investment personality. There are a lot of other investments besides stocks. Teens can invest in those, too. Learn more about other investments for teens at Ask Anne.
Resources for Getting Started Learning Teens Investment Personality
GiveMe20’s Ask Anne Blog: Helping parents teach kids about money.
GiveMe20’s Credit Union Database: Find a credit union in your area.
Jump$tart Coalition or Personal Financial Literacy: A non-profit organization promoting personal finance education for kids.
Virtual Stock Exchange: Custodian stock trading accounts are available here, so parents can start teens investing with a watchful eye.
Financial Planning Association – Find a financial planner in your area.
MoneyTrack: PBS’ award-winning television series about investing for people of all ages.
One other thing kids need to get started: A good financial institution to set up bank accounts with. Pam Krueger suggests credit unions instead of banks for teens and college students because fees are less, they are marketing to Gen Y, and there will be more available to them at less cost. Also, it’s easier for this age group to build credit at credit unions.
The overall lesson here is to find a relationship with money that is tailored to you. If that expectation starts in teenhood, it will last a lifetime.