Let's get into a topic that can feel intimidating, but doesn't need to be - INVESTING. I'll admit, when I initially think about that word I think of a white dude in a button down shirt and Patagonia vest named Chad. He works for one of the top banks and gets all excited about his bonus and giving you "that look" when you ask what exactly he does.
Now, I'm not a CPA and I'm not on the trading floor. However, I feel comfortable enough with the basics, and have figured out what investing means to me. In my mind, investing means so much more than putting your money somewhere it can grow. Sure that's a good part of it, but let's look at it from a different viewpoint. Let's strip it down and understand the fundamentals. This will allow us to teach ourselves and our kids about the concept of investing.
We'll get into the money side of investing, but let's start with an abstract example. When you invest, you are committing a resource (think money, time, etc) in the expectation of some future benefit. Let's assume you LOVE apples; apple sauce, apple pie, apple scented candles, literally all the apples. So you decide to spend the money and plant an apple tree. Well, that tree most likely isn't producing any fruit yet, so you nurture it along. You clear the area of weeds regularly, make sure it's watered and stay on top of your pruning and if you're a plant nerd like me, maybe you even talk to it. Eventually, your tree starts to produce apples! You're rewarded by the investment you made over time. You have so many apples that you decide to share the fruits of your labor (pun intended) with others who enjoy all things apples and perhaps take the seeds to plant new trees for even more apples.
But let's be honest, you're not here for "them apples," but to hear about the money side of things. Many of my friends still ask what the difference is between simply saving their money and investing it. While there are many factors, the big concept to tackle is that of interest rates. What is interest? An interest rate is a percentage point that is either charged or earned. For example, if your credit card has a 15% interest rate, then your card is charging you 15% of the total balance (money lent). That's how credit card companies make money.
Now, if that interest rate is applied to your investments...you're earning that money. Sure, the market is volatile and not every day or every year is a good one. However, we are playing the long game here (meaning at least 10 years) and hopefully making some diverse investments (ie: like an index fund vs. one big bet on a single stock).
So for comparison purposes, let's say you saved $100 in a piggy bank and invested $100 in an index fund (we are big fans of index funds here). Over a 10 year period, your piggy bank will stay at $100. BUT, your investment account will grow due to interest rates. We'll apply a 7% assumption here to show what happens if you keep what you earn in interest each year in the index fund:
Since your returns stay invested you're enjoying what is known as compounding returns.
Okay, now that you survived reading through that crash course...how do we take all that and teach it to our kids? I often reference the late Mamma Hahn in my blogs, because I'm realizing how much she (un)intentionally taught us and how much I wish I could ask more detailed questions as I reapply those learnings as an adult. A big one for her was the idea of what "investing" meant to her. For our family, it was three-fold: invest in yourself, invest in the world around you and invest in others.
Invest in yourself
This idea can take so many different approaches, but the idea here is to identify what is important to you as an individual and prioritize growing those areas. Remember, investing requires the use of a resource. So what are the resources available to you that you can use to invest in yourself?
- Time: Teaching kids that their physical and mental health is a long-term investment can help with social and school anxieties. In fact, many school districts have adopted programs that support mindfulness and emotional support programs, "whether it's kickstarting a class with movement, setting goals and intentions during yoga, or taking a few minutes in class to reset with a "brain break" or sensory experience." Investing time in yourself is different for everyone, so help your kids think about things that that brings them some sort of wellbeing, whether that's meditating or building a fort to let their imagination run wild.
- Money: For adults, this is easy. We invest our hard earned dollars for ourselves in retirement accounts for example. There are many ways to apply this to children and we're obviously big fans of saving for college. If you have a 529, talk to your child about having them contribute to their account. Check back to previous blogs for ways to earn money and how to budget their money. Explain how they are investmenting in their future and show them how it will pay off. If you don't have a 529 yet, you can sign up easily with Scholar Raise to have a state-run account in less than 5 minutes. Since a 529 is essentially an index fund, but with a ton of other benefits, you can look back at that "interest rate" chart and see how your efforts will compound into greatness over time.
Invest in the "world" around you
Our environment nurtures ourselves and those around us. Think back to that apple tree, you regularly pulled a weed here and there so that the weeds didn't overtake the whole tree. In 5th grade, a classmate was diagnosed with leukemia. He attended Camp Hope, a traditional summer camp experience that is made possible with consideration to the children's illness and needs. I realized how much this experience meant, so I raised money at school by selling drinks and snacks at our annual field day. This helped to raise awareness and some money, thus keeping it open longer & for more kids...not just my friend. Supporting the things you care about and the world around you has a long term effect on others and yourself. Not everyone needs to raise money for charity, but teaching your child to invest in the world through time with a charity is a great way to start.
Invest in others
Investing in others is similar to investing in the world around you, since people are integral to our environment. What I love about this exercise is it also helps to build confidence in your kids. Start by identifying strengths that they have and pair that with a resource. Perhaps they excel at math and could take the time to help a classmate with homework. Or maybe you have a pool in your neighborhood, your kid could share their joy of swimming with the access to water with someone else.
As you're making your way through the ways to teaching and working on this concept with your children, engage them in conversation about it. This way they can continue to understand the concept and how it relates back to their lives, instead of thinking it's just something to do.
Okay, I know this was a HUGE topic and we only skimmed the surface here. Do you have anything else you want us to dig into and find a more interesting or easy way to understand? Reach out to us on social with any questions or comments you have.
Ashley Byrne
