How to teach your children about the stock market

Lockdown presents a golden educational opportunity, particularly if you work in investment.

Keeping our children learning during lockdown is tricky. Many parents optimistically planned a highly scheduled timetable of enriching activities only to find that their kids just won’t be taught by them.

Working from home with a full-time job adds to the challenge. It often feels like we’re failing at home schooling - or non-structured learning/fending for themselves, as I like to call it.

But are we underestimating the impact of our kids seeing us at work? There’s definitely more learning going on beyond the curriculum. First, they are learning about what we do for a living.

If you’re a keen investor or work in finance, this is a golden opportunity to get your children interested in what stock markets are and how they work - particularly as they’re constantly popping up on the news.

Dominic Vallier, relationship manager at the London Institute of Banking & Finance, has been discussing shares and how the stock market works with his 15-year-old daughter. 

“She asked if it would be good to buy shares in the supermarkets, figuring that they must be doing well as I can’t get a delivery slot,” he says. 

Others have found that kids have been picking things up without noticing.

Christopher Bearfoot, principal of White Horse Financial Services says:

“It was strangely gratifying to find that my son (aged 14) already had a grasp of my work as an independent financial adviser (IFA). He said the market crash could be an opportunity to purchase!”

Others report that their children are particularly interested in sustainable investment — a theme I have previously written about. 

John Ditchfield, head of responsible investment at Helm Godfrey Partners, says he has a keen sustainable investment specialist at home — his 14-year- old son Harold. 

He’s convinced that people will look to more sustainable ways of investing in future, and says: 

“I like that the stock market is influenced by lots of things going on in politics and the wider world.”

His dad is amazed that children can’t do a formal financial qualification alongside their GCSEs.

Having sparked their interest, how do we teach them more about the volatile stock markets of 2020s and beyond?

Not every teen is going to be a future Warren Buffett, but for those who show an interest, the guru’s annual letters to shareholders since 1977 are a great starting point. They are entertaining, accessible and full of jokes — and free to read on the Berkshire Hathaway website.

Alternatively, order a copy of Yummi Yoghurt: A First Taste of Stock Market Investment by fellow FT Money columnist Lord Lee of Trafford. The UK’s first ISA millionaire, the book is deliberately short to keep younger readers engaged throughout.

It starts with the background as to the reasons why a growing business may consider becoming a publicly quoted company, then introduces some young investors who buy shares in the company and the investment journey that follows, demonstrating some of the highs and lows that they may experience.

If your children have an entrepreneurial streak, check out the TeenVC programme that’s been launched by Augmentum Fintech. Throughout April, students can learn the basics of venture capital and how investment decisions are made by VCs on this free distance learning programme via teen-vc.com.

Tim Levene, Augmentum’s chief executive, says the programme will be of benefit to anyone thinking of starting their own business when they finish full-time education.

“Knowing how start-ups can pitch for and win investment is key to any successful entrepreneur.”

Teachers are also incorporating investment themes into lesson plans under lockdown. 

Russell Wareing, head of economics and business at Lancaster Royal Grammar School and a previous winner of the Personal Finance Teacher of the Year award, recommends helping students to relate their business and economics studies to their own lives.

In a recent lesson, he asked Year 13 pupils whether he should invest in Luckin Coffee (NASDAQ:LK) -  a new Chinese coffee company set up to challenge the might of Starbucks (NASDAQ:SBUX). 

One student suggested: “It might be better to invest in coffee as an industry rather than a single company, to spread your risk.” Another said:

“Coffee is a personal choice, so Luckin may not be able to sway as many customers as you think. Maybe hold off buying shares for now.”

It turned out his students had the right instincts — Luckin later had to apologise for alleged fraud after hundreds of millions of dollars of fake sales were found.

For primary school children, it makes sense to start with companies they are already familiar with. Will Rainey, founder of the Bluetree Blog which aims to train kids to be financial superheroes, has taken this approach with his own kids (the eldest is seven). 

They have shares in McDonald's (NYSE:MCD), Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) within their Junior ISAs. 

“I explained that as we invest for them, they actually own a small piece of McDonald’s,” he says. “This means when we go to McDonald’s and see people buying a burger, they actually get a very small percentage of that money.”

The same goes for the Apple store, and (in happier times) trips to Disneyland.

If investing on its own is not grasping the attention of your children, some broader money concepts may hit home. Helen Driver, founder and owner of Moneyready, an independent education platform, says:

“It’s a good opportunity now to teach all things money and finance. One tough, but important lesson they are getting in spades at the moment? Delayed gratification!”

Many kids are planning and cooking meals — so why not let them budget for them too? Other challenges could include how much their unspent lockdown pocket money might be worth at age 30 if invested with a 5% annual return?

Percentages and the compounding of growth on investments and fees are something many adults struggle with, so this is a great time to put those foundations in place.

If your child is a bookworm, try discussing financial themes in the books they are reading. I’ve previously written about how rich Harry Potter might be, but if your child isn’t potty about him, try Billionaire Boy by David Walliams. This is the story of Joe Spud, a fat, spoilt boy who has everything but friends and understands nothing about the value of what is in his possession.

Joe has been sculpted by a lazy, stupid father, whose only contribution to civilisation is the invention of a loo roll that is damp on one side and dry on the other one. Needless to say, he makes a mint — and this was long before panic buying started. 

The book is an opportunity to discuss the value and the nastiness of money. But importantly, it’s also very funny.

Moira O’Neill is head of personal finance at Interactive Investor and a former winner of the Wincott Personal Finance Journalist of the Year award. @MoiraONeill.

This article was written for the Financial Times and published there on 16 April 2020.