Updated: Jul 8, 2020
A good way to introduce your kids to the idea of the stock market is by talking about the businesses they see in their everyday life.
If we’re preparing our kids for the real world, we owe it to them to teach them how to handle and understand money, and also to be aware of the basics of business. If done well, you can use the conversation about money to springboard your kids towards even larger lessons about stocks.
You see, business is happening all around you, and pointing it out to your kids can pay dividends in the long run (literally). Chances are, most of the time you’re spending money there’s a business associated with it.
Some of these businesses are small, locally run operations; some are enormous corporations. At some point in the conversations, explain that some companies are available for anyone to purchase. Some companies are private – some companies are “publicly traded” – meaning you can become one of the partial owners by buying their stock. Maybe one of these companies could become a potential stock pick for them!
My wife and I began having these conversations when our kids were quite young. Once our kids started thinking about this, they would routinely ask, “Is so-and-so company publicly traded?” If I didn’t know the answer, we would do some “Googling” together to find out.
In those early years when the kids were young, the most frequent question was, “Is Lego publicly traded?” The answer we found was no, it’s not. It’s a privately-owned company called The Lego® Group based in Billund, Denmark. The company is still owned by the Kirk Kristiansen family who founded it in 1932. (Note that this is the Lego bricks side of the business. The theme parks are owned by a separate company.)
We all visit businesses (or at least we used to) as part of our everyday life, and often we do this with our kids. Use this as an opportunity to not just talk about money and how much things cost, but to talk about the business you are supporting. Whether you are at the grocery store, at a restaurant, or taking your child to spend their own money… Talk about the business. Explain how they make money. Talk about the product you are purchasing.
The more relevant to their world you can make the conversation, the more the ideas will stick. If you are standing in line at Chipotle Mexican Grill or Starbucks, talk about the company. If your kids are into computer games, talk about the companies that make the games, the computer and the computer components. Maybe you just got done binging watching a show on Netflix, Disney+ or Amazon Prime – that’s right, talk about the company.
These conversations not only lead you to discussions about stocks and the stock market, they help your child view the world from the eyes of the business owner, not just the eyes of the customer.
Talk about how a particular company makes money if you know. It doesn’t have to be complicated. If you’re at a restaurant, explain how the business tries to make a profit by spending less on food, staff, and rent than it receives from customers buying food.
If you’re at the grocery store, explain how the grocery store buys things in bulk at “wholesale” prices and sells it to us for more. We pay more because of the service the store provides: the convenience of a huge selection of products in one location. Explain that the products the grocery store or restaurant sells also represent other businesses for other companies
If you are buying veggies or milk, there’s a farmer out there working hard to make that happen. If they are paying rent, there’s a landlord that owns the building as a business.
Also teach them to be value conscious and that the same thing might have a different price depending on where you buy it. If you observe a big markup on something, where the company is undoubtedly making a lot of profit, point it out to them. Doing these things will not only help them be more prudent consumers as they grow up, it will help them recognize good businesses and therefore, good investment opportunities.
Stocks are businesses. Not every business is a good one. We’ve all had experiences with a product or service that didn’t meet expectations. The same is true with the stock market. Not every stock is worth owning.
Look for businesses that even a kid will say “man – I wish I owned THAT company.
In our family, we have a saying: If there’s a line out the door, do some research. Some of the best stocks of the last 10 years featured lines of happy paying customers out the door waiting to give them their money. Think about it… Apple, Chipotle Mexican Grill, Starbucks, Costco… Even Amazon. Amazon obviously didn’t have lines of customers waiting out their doors… but I know I had a line of Amazon boxes waiting for me at the overflowing recycle bin for years. It’s a fool-proof method, but it is a good start.
As our kids began to learn about money, and they began to spend the money they saved or were given as gifts… they became more astute consumers. One of our early experiences was with the toy store Toys R Us. When the kids were very young, they used to LOVE going to Toys R Us to see all the cool new toys. Once they began spending their own money, their opinions changed. They realized that they could stretch their dollars further by being price conscience.
It didn’t take a math whiz for them to realize that $25 at Toys R Us didn’t go as far as $25 at Wal Mart or Target. It wasn’t a shock for my children, who were not very old at the time, to discover that their old toddler stomping ground was shutting its doors.
I’m not suggesting that price is the only thing that matters. There are many locally owned stores that may not offer the best deal compared to a chain, but we shop there anyway because we want to see our local businesses survive. The point is to have the conversation with your kids so that they understand how we vote with our dollars.
I encourage you to talk to your kids about money and business as early as you can. Teach them the value of money early and often. These conversations help them learn the language of business and provides a foundation for future lessons, including how to buy stocks when they are ready.