First, before I get started, with Amazon Prime Day (July 15) apparently upon us with great deals, I’ll ask a favor. Like many, I’m an affiliate, which means if you click on the Amazon Link to the right (way at the bottom), or the clickable link below, I get a small affiliate payment that helps to keep the lights on here. And the best part for you is you see no difference in what you pay. There are no pass through costs, which means you can get your prime deals while helping me.
With that housekeeping out of the way…
My daughter Birdsnest is turning 10 in a month. As a person who sees so much waste in acquisition of stuff that simply makes its way in the landfill or storage bins a short while later, I really struggle with Christmas and Birthdays. My wife and I don’t really exchange presents so much as we have experiences or maybe buy each other that useful item that is maybe not fully needed but fills some role in our lives. Concerts we want to see. Nice outdoor gear that will upgrade something we have. A weekend getaway somewhere. For the kids, I struggle even more. I see piles of toys and closets full of clothes and know they don’t need anything more. Despite frequent library visits, they have shelves full of books and DVDs (which truthfully get watched fairly frequently). Daily needs are taken care of, and they get a small weekly allowance ($5) to save or purchase kid incidentals (usually candy or Legos). They. need. nothing.
While I don’t want to turn this into a personal finance blog, the importance of passing on financial prudence and insight is of a high priority for me. It’s something that doesn’t get taught in many families or schools, so we have to take it upon ourselves to teach the next generation. I’ve been working to raise financially conscious kids, and thankfully my daughter, and unlike her spendypants brother LoudBoy (who’s money goes out as fast as it comes in), has taken some of the lessons to heart. She’s been saving her allowance and recently deposited $100 (all of her cash except maybe $15) into her bank savings account. She’s set up a spreadsheet with my assistance, to track her net worth across cash and savings account and to see where her money goes. [A quick aside is she nerded out when she found out we had Word and Excel on the home computer. Apparently they must be learning some stuff in school already, so in 4th grade I showed her some basic spreadsheet type stuff.] So this year I went off the grid for her upcoming birthday (which I am missing due to work travels) and bought her first shares of stock. Along with that purchase, I wrote her a letter detailing at a high level how investing and compounding work, illustrating it with a table with a $100 initial investment and theoretical 10% return.
As I’ve mentioned, we use Capital One 360 for our savings account (not the best interest rate at 0.75%, but we’ve had it for awhile, we have multiple bucket account set up, and I like the service), and I tacked on a Capital One Investing Account for this purpose (about $7 trades). I’m not an individual stock investor, nor will I ever be, but I’m using a couple hundred bucks for teaching and illustrative purposes here. And while shares of an ETF may be the better diversified choice, it doesn’t have the sizzle that the two I purchased have.
The two stocks I purchased were Berkshire Hathaway Class B Shares (BRKB) and Disney (DIS).
I’m admittedly a Warren Buffet fan, and understand his story well having spent 30 hours listening to a biography on him last year. Berkshire makes life easy at tax time since there are no dividends released (or hasn’t ever been any historically), and is like a mutual fund that doesn’t have extensive trading that incurs capital gains (it owns Geico and other insurance companies, Pampered Chef, large share of Heinz, and significant holdings in Coca Cola, Wells Fargo, IBM, American Express, Wal-Mart, and P&G among others). It is heavy into insurance, so isn’t an ideal diversified holding, but at a price/earnings (P/E) ratio (one tool to compare stocks, mature companies often have lower P/E’s than those with large growth potential, but remember, the tech boom showed that large P/E’s is potential only and could also be a speculative stock or potential bubble) of about 16 right now, it’s not a bad value as a semi-diversified starter stock to teach a 10 year old. Things may change when Warren Buffet passes on, but maybe that’s an opportunity to buy more at that point, we’ll see. Plus, owning even a single share gets us into the shareholders meeting in Omaha (if so desired, which I would love to go to while Buffet is still alive), and even can get you additional discounts at Geico (up to 8%).
Disney (DIS) was a great value back even a few years ago, but has gone gangbusters since then. It’s nearly tripled in price since 2012 where it hovered around $40 (now trading near $120). It’s P/E is also about 25, meaning it’s futures are priced into its current value to some degree. However, with its strong brands (Marvel, ESPN, ABC, Disney, Pixar, and now Star Wars), it has some huge moats over competitors which hopefully continues to print money and grow, and more importantly for me, has the street cred with the 10 year olds. And while you can buy a framed stock certificate for $50 from sites like Uniquestockgif.com or FrameAstock.com, that’s not a good value to me.
So I laid out a little homemade stock certificate with each of these, noting the name, trading symbol, a brief summary of holdings with bullets of key items. Knowing Birdsnest, she’ll be checking over time to see how these do and I’m hoping it will really catch her fancy now that she owns (part of) a company. I’m hoping that we can continue to add to these at birthdays and Christmas if we have the funds (and hope to get LoudBoy in the mix as he gets older and interested too), but if nothing else, it is a teaching tool and much better than the latest shit-gadget or toy that is used for a few weeks before the next shiny object replaces it.
For now, we have to hold these in our brokerage accounts since minors aren’t allowed to own these accounts. Our plan is to transfer these shares to their own accounts when they turn 18 or 21 or whenever we feel they are ready. If we stay under the gift tax limit ($14,000 per person in 2015) it shouldn’t be an issue. This is years away, but that is the initial plan as they are purchased for the kids.
So if you want to start your tween or teen on the right path for financial smarts, this is a gift you should consider. If you don’t have $120+ for Disney or Berkshire, maybe you look at something like Universal (UVV, ~$58 per share, P/E=15.5), or do your own research for a company that you believe in that has a fair price that your kids will identify with and have interest in. Teaching these lessons early will put them WAAAY ahead of the curve. My first college roommate was already familiar with these concepts, and had a small portfolio when I met him as a freshman. Impressive, and he leveraged it into successful beginnings of his professional and financially sound adult life.
Knowledge is power and helps to guide our choices, and our kids are no different. Teach them right.