The business of chaining up to a computer to exchange stocks – day-trading online – took a big hit after the 2001 dot-com bust. By repackaging their offerings, though, online brokerage firms have lured back even the most cautious clients to click-of-the-mouse investing.
There's no arguing the convenience factor online brokerage firms offer (delete broker, log on, make financial decision) or the number of options – from trading stocks to selecting a 401(k) plan. Now, if only you had started investing in stocks and bonds earlier! While you can't go back in time, you can spark your grandchild's interest early.
Challenge them to one of these online games, fill them in on a few tricks of the trade, or pull up a chair when you check up on the portfolio. Get your little stock-slinger to research stock-market picks with you, play the market, understand risk, and create a diversified portfolio online that may pay off later, big time.
Spike Their Money Smarts
A key step is piquing a grandchild's interest in the state of the economy and how it relates to the market. Invite your grandchild to help you scan research culled by your online brokerage firm. Get him or her subscriptions to punchy financial pubs such as BusinessWeek, Forbes, Fortune, Portfolio, SmartMoney, The Economist and identify age-appropriate articles for your grandchild to read. Tune in together to CNBC or Web sites that cover financial news and give them hints on what to listen for.
Patience is indeed a virtue for any investor; but, your grandchild also has to know when to sell, when to buy, and how to make split-second decisions that count. Following the headlines, your grandchild can start to get a feel for this and gain a leg up on financial success.
Gold-Chip Games
Introduce your grandchildren to online games that use virtual money to teach about investing. In Fraud Scene Investigator, kids catch imaginary white-collar criminals while building financial research skills. High-pressure tactics are used – prices are inflated then quickly deflated, leaving owners in the lurch – as they maneuver through a boiler-room scandal. Lesson learned? Doing solid research on stocks – or any investment – before shelling out cash can reduce risk.
Challenge them to Sid Meier's Railroads! (launching October 17). It's the most recent addition to the "tycoon" genre of computer-based strategy games that set up economic simulations (each requires a software purchase of about $40). As they build a railroad empire, players pick up the supply-and-demand concept as well as buy and sell stock for their own or for competing companies in a miniature stock market. No feat is impossible as they fight off robber barons and boldly attempt to "rule the stock market."
If you're looking to bone up on the basics with your grandchild, get out the dusty Monopoly board. Through the classic, kids learn how to manage a portfolio – in this case, property investments. As they're moving game pieces along, slip in tips on how to diversify and when to rent, buy or sell.
Have your grandchild plug in a pretend amount of loot to invest on the savings calculator at Schwabmoneywise.com and – bam – the amount of return over a given time period pops up. How's that for incentive? When the thrill fades, engage them in a round of It's Your Life, a game on the site that illustrates how every financial decision – even which after-school job to take – affects their financial future. Here, all play and no work can produce hefty rewards.
If your grandchild is a sports enthusiast, sample the investment games Wall Street Sports or SportShares where they can buy shares for a favorite MLB, NBA, NFL, NHL, or PGA athlete; even their favorite NASCAR driver. They'll need to keep the sports page handy to play these games. With each win and loss a player's team has, share values shift in value.
Age Matters
Assess and know your grandchild's limits. Besides having a grasp of basic math skills, your grandchild should understand the value his or her family puts on money and its necessity and place in their lives. Generally, the younger the grandchild, the more hand-holding you should be doing. Most experts agree that children younger than 18 should not make trades or financial decisions independently. A show-and-tell approach works better until a child is older and mentally prepared to handle financial responsibility.
Hands-On Investing
Pick a few stocks that may appeal to precocious younger grandchildren (in the fourth, fifth or sixth grade) and engage them in company research. Think: toy conglomerates and entertainment firms they'll recognize that are stable and have positive things happening – an increase in sales, a new product generating buzz. Kids are familiar with Coca-Cola (NYSE: KO), Nike (NYSE: NKE), Starbucks Corp. (NASDAQ: SBUX) and the Walt Disney Co. (NYSE:DIS). With your grandchild, check out the Web sites of public companies and scan annual reports.
Decide if you want to use real money or just follow the stock together. Err on the cautious side: Put a portion of savings in the stock market and the rest in safer investments. Decide on the type of diversified portfolio (including CDs or mutual funds) you want to build together. The idea is to teach your grandchildren to protect themselves should riskier investments – stocks, for example – tank. Remember: You're in charge and should be the one making all official transactions.
Don't Downplay the Drawbacks
Independent financial decisions made online can backfire. Make your grandchild aware of this. Information overload can dangerously inflate an investor's confidence, says Sridhar Balasubramanian, an associate professor of marketing at UNC-Chapel Hill's Kenan-Flagler Business School who has studied online investing extensively. An investor who credits himself when a purchase or sale makes money – and blames the market when money slips down the drain – is in for trouble.
"It's easy to be carried away in these kinds of environments," warns Balasubramanian. Explain to your grandchildren that if you invest all your savings in the stock market, you risk losing everything. Stock market crash of 1929, anyone?
Be Your Grandkid's Hero
As you're regaling your grandchild with stories of stock-market scores, fess up to trades that flopped, as well. They'll learn from the ups and downs you've experienced. With the resources now available online, it's easier to get your grandchild investing – early! – with your hand guiding the trades. Sure, the stocks and bonds will cost you. But, give them the leeway to experiment and gauge risk and they'll gain the skills to go to market.
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