How I’m teaching my daughters to invest

I finally tackled one that has been on my to do list for a couple of months since reading this NY Times article stating that the majority of affluent women defer to their husbands when it comes to investing. In fact, the UBS study found that “among millennial women living with a male partner, 54 percent said they deferred to their partners for long-term financial planning rather than sharing that responsibility or taking the lead themselves, compared with 39 percent of boomer women.” The study showed the primary driver was a belief their husbands knew more than they did.

I get it.  As girls growing up, we’re often taught about budgeting, savings accounts, maybe about the risks of overspending on credit cards – if we are lucky to be taught any money lessons.  We’re rarely taught about the power of compound interest, investing, or starting early to save for retirement (and taking advantage of the first two). 
 
I am determined to change that with my daughters. 
 
When they were fortunate enough to be gifted a few hundred dollars recently, I decided now was the time.  I opened a custodial brokerage account for each of them and deposited their checks.  The fun really started with a little lockdown homeschooling maths lesson of my own. Given they are still in primary school, we had to make it quick AND interesting.  Big challenge!
 
The conversation went a bit like this…
 
1) Interest. They each have a small savings account, so we looked at up the interest they are earning on it. They quickly realized that earning 0.5% interest on £100 equates to 50p after a year – fast forward a couple of years, and the expected increase didn’t really light up their faces.
 
2) “How can we increase the interest rate?”  Well, investing could generate a higher return on average, over time.   “How much?” they asked.  We picked 5% just to make the math easy, and thanks to their amazing teachers, they worked out that would earn £5 after a year.  Leave that money, let it build, and the math got exciting for them.

3) “I want that!  How do we get it?”  We briefly talked about the stock market, how shares of companies get traded regularly there, and what type of return the stock market generates on average, over time each year.  They LOVED the idea of owning just a little piece of a company!
 
4) “What should we invest in?”  This is where it got fun for them.  They each wrote down a list of 5 companies they use regularly or think they will use even more in the future.  No surprise it was list of video game and tech companies!  (Goes to show what kind of parent I am).  We looked up each of the companies to see if it was publicly traded, analyst summaries, recent performance, and the girls each narrowed their list to 3 companies.
 
5) “Let’s do it!”  With 2 excited girls standing over me, we placed the trades.  They are now proud owners of fractions of a share of a few of their favourite brands! 
 
The lessons haven’t stopped there.  We are now having some quick but regular conversations about:

• how stocks go DOWN as well as up - particularly tech stocks of late (they are learning this the hard way at the moment)

• how we shouldn’t look EVERY day, but should periodically check in to review how we’re feeling about our choices

• this is about the long-term, not just this month or year (important when they ask if they can use the money to buy the latest toy they want)

• how important savings accounts are for holding cash we might want to access this year (for that gadget they are saving up for)

• the importance of balancing short-term & long-term savings

• over time we’ll get to diversification, tracker funds, fees, etc., but we have started simple in order to learn about the concept first

I have no idea whether they will ultimately earn any money from their investments (or indeed lose it all), but the lessons on investing and continuing conversations are INVALUABLE and worth the risk.

What lessons were you taught about money growing up?

What do you want to learn about money now?

If you’re in the mood for reading and learning, here are a few more highlights.

• On average, women in their 20s are on track to retire with £100,000 less in their pension pot, according to this recent report from Scottish Widows

• There’s no “I” in Women: Why teaming up will work to our financial advantage.This is a recent article by Ellevest founder Sally Krawcheck in Fortune magazine

If you want to learn more about saving, investing, your inherited beliefs about money or identifying your savings goals, just get in touch.  It is never too early to start!