“Working to help parents raise money-smart kids.”
Hello, friends!
I just got back from my first-ever trip to Kansas City, where I spoke with credit union leaders about connecting with young people. You won’t be surprised to learn that I also hammered home the importance of reaching out to parents, as we’re the ones who open initial accounts and begin equipping our kids for their money-smart journeys.
Speaking of journeys, my newest essay, “No Single Point of Failure,” helps you cover all your money-smart bases. I featured it in last week’s installment of “3 Ideas to Share & Save.” I hope you enjoy (and feel compelled to share 😉) this week’s edition as well.
— 1 —
This Is Your Brain on Money: I shared one of my favorite books, Jason Zweig’s enlightening Your Money & Your Brain, with you over a year ago.
Now I’m peppering this week’s newsletter with snippets from that quite quotable book, including:
“The portfolios of those who trade the most underperform the holdings of those who trade the least by an amazing 7.1 percentage points per year.”
Clearly, we musn’t mistake action for accomplishment.
I tend to think of heavy stock traders as those folks we all know who are always “busy” but never seem to get much done.
The obvious counterpoint to such obsessive trading is the “boring” investing approach I’ve written about in previous newsletters: here and here.
But the problem is that kids (And hey, even some adults!) think “boring” investing is exactly that — boring. After all, there’s not a movie called The Sloth of Wall Street. 🦥
So when our kids show some investing interest, we want to encourage them. My daughter’s first stock purchase was Adidas, as she was an avid soccer player at the time. Her shares did well, but so did the entire market. In fact, it felt at times as if you couldn’t lose, which is typically a sign of danger.
I recently pointed out to her that she would have made a little more money had she invested in the S&P 500 instead. But buying an individual stock kept her much more engaged.
— 2 —
Addicted to Rewards and Bullet Points: All this young investor talk reminds me of my conversation with financial psychologist Brad Klontz.
When Klontz introduced his kids to investing early (At age seven!), he was much more worried about success than failure:
It turns out that Klontz’s concern was warranted, as this snippet from Your Money & Your Brain illustrates:
“We anticipate rewards and can easily become addicted. Just two successful investments in a row — and its subsequent dopamine hits — can lead us to seek another hit.”
You know what else sparks dopamine release? A bulleted list! 📋
So below are some investing thoughts you might share with your kids. The points in quotes come directly from Zweig’s book.
- There is no sure thing.
- Be very, very wary of unsolicited advice. (I’m looking at you, TikTok!)
- The only thing we know about the market is that tomorrow will be different.
- The more confident someone is in his or her investing advice, the more you should think twice about following it.
- “Have a ‘mad money’ account for speculative investments. No more than 10% [of your total money invested].”
- “Sleep on big investment decisions. ‘Allow the reflective brain to participate in decisions.'”
- “We are very susceptible to the illusion of control. We are superstitious that our actions control random events. Even to the point that we think we can influence coin flips.”
- “The single most critical factor in the future performance of a mutual fund is that small, relatively static number: its fees and expenses.”
Now back to Klontz, who cautions of advice, “You always have to take it with a grain of salt.” I love that this guidance comes from a guy who doles out advice daily. I agree with him, and I encourage you to cherry-pick these ideas for the concepts you think will work best for your family.
Also, it’s probably a good idea to read my disclaimer at the end of this newsletter. 👇
— 3 —
Want Intentionally: Our brains fool us constantly. And when it comes to investing, we’re easily tricked because we’re always wanting more. As Zweig writes, we even fool ourselves into thinking that money is the key to a happy life:
“The truth, then, is not that money can’t buy happiness. It’s that once you have enough to meet your basic needs, more money buys much less extra happiness than you think it will.”
It’s worth taking the time to think about what we really want and to be sure we’re not coveting something simply because we see that others have it. I talked about the dangers of mimetic desire a few weeks ago if you’d like to dive into this concept a little deeper.
“If you cannot control the ancient urge to measure your success against that of your peers, your happiness will always depend less on how much money you have than on how much money they have.”
In keeping with the theme of this final idea from Zweig, I’d like to close with a short essay (which I refer to as a memo) from my book, The Art of Allowance.
Memo from the Chief Mammal: Wanting More?
“The more we associate experience
with cash value, the more we
think that money is what we need to live.”
– Rolf Potts
As Seth Godin pointed out on The Tim Ferriss Show podcast, you have to make a choice once you have provided the basics for your family (food, shelter, healthcare and clothing) — “How much more money [do I want] and what am I going to trade for it? Because we always trade something for it.”
What are you willing to trade for more money? And is that money what you really want?
As I previously noted in the memo “Beware of Stuff,” we should be wary of deluding ourselves into thinking we need more than the square feet in which we’re currently living — assuming we’re fortunate enough to have a home or an apartment.
Do we need a shiny new Tesla Model S because it’s good for the environment? Beautiful car in my opinion, but tough to make a case for it. Want, yes. Need, no. And are we willing to trade time away from our kids for work to pay for that luxury?
Perhaps doing so may make sense if you’re a car enthusiast. Just be sure you know what you’re giving up for that indulgence. More than just money might be sacrificed. Be sure you’re making fully informed, conscious decisions.
Remember those hidden choices we discussed earlier? What messages are you sending to your kids? What are you willing to trade for your wants?
Consider doing a stuff inventory reduction with your family. A good starting point is Marie Kondo’s KonMari method detailed in The Life-Changing Magic of Tidying Up. Or just complete a cutback for yourself, and show your child how much stuff you’ve eliminated and donated to charity. Have your child join you at Goodwill when you make the donation. Look for an opportunity to help with her own stuff inventory reduction.
Research strongly suggests that kids learn by observing their parents’ financial behavior. Accumulation of stuff is a financial behavior of which we need to be aware. It has an impact.
As always, enjoy the journey.
John, Chief Mammal
P.S. Please consult with a financial or investment professional before engaging in any decisions that might affect your own financial well-being.
Sources:
- “How Seth Godin Manages His Life-Rules, Principles, and Obsessions.” The Tim Ferriss Show with Tim Ferris. The Tim Ferriss Blog, February 10, 2016, https://tim.blog/2016/02/10/seth-godin/.
- Kondo, Marie. The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing. Berkeley: Ten Speed Press, 2014.
- Drever, Anita I., Elizabeth Odders-White, Charles W. Kalish, Nicole M. Else-Quest, Emily M. Hoagland, and Emory N. Nelms. “Foundations of Financial Well-Being: Insights into the Role of Executive Function, Financial Socialization, and Experience-Based Learning in Childhood and Youth.” The Journal of Consumer Affairs 49.1 (2015): 21-22. See also: Ward, Scott, Daniel Wackman, and Ellen Wartella. “The Development of Consumer Information-Processing Skills: Integrating Cognitive Development and Family Interaction Theories.” Advances in Consumer Reasearch 4 (1977): 166-171.
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