Chapter One: Raising Your Child's Interest Rate When Danielle was a toddler, she loved to go to McDonald's to eat because French fries were her favorite food. Lynn liked McDonald's, too. Eating there together was a weekly outing. She was also a longtime shareholder.
One Friday afternoon Lynn told Danielle, "I'm glad you like McDonald's so much because I'm a part owner of this restaurant."
"You are, Nana?" Danielle's eyes widened. "I want to become a part owner, too!"
So, in October 1988, Lynn purchased her granddaughter's first share of McDonald's stock.
"I purchased the stock just as a fun thing for her," Lynn says. "She owned only 1.1984 shares, and all we had to show for it was a statement with the McDonald's logo. But it didn't matter. Danielle was so happy and proud. When we took one of her friends along to eat with us, she would say, 'Nana, tell Kandyce that I am a part owner of McDonald's!'"
Ownership bestows more than pride. It gives people a reason to care, a reason to take on responsibility. Watch how a child behaves toward a beloved stuffed animal or a bike of her very own.
Lynn realized she didn't need to explain abstract concepts such as share price, dividends, interest, or even what a stock is. All she needed to do was tap into Danielle's powerful desire to own. If she owned even a piece of a company whose product made her happy, then she'd be more likely to take an interest in what happened to her piece -- her share.
Sure enough, long before she ever understood what a share meant or what it was actually worth, Danielle delighted in having a stake to protect. She wanted to keep track of it. She had watched her grandmother read the newspaper, so before she could even pronounce business section, Danielle was asking to see it at the breakfast table. "I need the business sezhion to check my stock," she'd say. Lynn showed her where to look in the newspaper -- what section, which exchange, which abbreviation -- and pointed out the number to focus on. "I told her that what she wanted to check was the price of her stock share," Lynn recalls. "She didn't understand what a stock price was, but she understood that the higher the number, the happier she should be, so she'd shout, 'Nana, it's 39! Yesterday it was only 37, and today it's 39!'"
As Danielle's interest grew and her loyalty to McDonald's remained, Lynn added additional sums to her account by selling Danielle's U.S. savings bonds. "I wanted to reinforce her learning," Lynn explains, "and I knew that by the time she became an adult, this investment would grow and compound nicely for her, whereas the savings bonds might not even keep pace with inflation."
Not only were savings bonds not saving Danielle money, but they weren't teaching her anything. They didn't involve her. They were too abstract and forgettable. In contrast, investing money -- giving Danielle ownership of a company whose franchises she could see everywhere and whose product she could experience firsthand and enjoy -- was engaging her curiosity. From that initial spark of interest, Lynn knew her young granddaughter would pick up practical skills, and by the time the investment was really worth something, she'd be able to manage it competently.
Eight months after Lynn purchased the additional shares in Danielle's name, McDonald's announced a stock split. What had been 3.053 shares (including dividends reinvested twice before the split) became 6.106 shares -- twice as many. Wow! But even more thrilling was Danielle's response.
"Danielle's excitement grew just from knowing she had twice as much McDonald's stock," says Lynn. "She may not have understood that the dollar value of her holdings remained the same, but in time I knew she'd grasp it. And we had so much time -- Danielle was only four!"
Is toddlerhood the perfect time to introduce your child to the world of investing? It was for Danielle, who was three when Lynn used the visit to McDonald's to broaden her granddaughter's financial education.
Piggy Banks and Lemonade Stands
We started our girls' financial education the way most parents do: We urged them to put their allowance in a piggy bank instead of their pocket. We even encouraged them to pick up pennies off the sidewalk. We helped them open a passbook savings account. We felt that teaching them to save their money was teaching them to manage it responsibly. Saving was such a simple, straightforward concept, after all. It's what our own parents did all their lives, and it's what they taught us to do as children.
Pat remembers how her dad used to give her his loose change at the end of the day. In a few weeks she had enough to roll into paper sleeves. "I always loved doing this," says Pat, "so I taught Shannon how to count money and put it into the stacks before putting it into roller sleeves. We did this at the kitchen table or on a blanket in front of the television." Pat would take the rolls to the bank, with Shannon in tow, and give her the cash. With this incentive, Shannon was rolling money on her own in no time. She spent some and saved some. Even now, years later, coin rolling is Shannon's favorite source of "free" money!
Lynn also used an idea from her youth: She got Danielle to open up a lemonade stand. Every summer until she was about nine, Danielle accompanied Lynn to the bank to take out money from her account to buy supplies and set up shop. After two weeks of working the stand, she had more than enough to pay herself and her assistant, and replenish her savings account. "Pay yourself first, I always told her," says Lynn. "Then put aside something for later."
Both of us wanted our kids to have some sense of money beyond what they saw come out of an ATM machine. We wanted Shannon and Danielle to know the value of a dollar and to get in the habit of putting money aside.
Our approach was very hands-on from the beginning because we knew our kids would understand only what they could touch, see, or play with. Pat let Shannon play with the savings bonds she had purchased for her since birth. They were stashed in a kitchen drawer -- "not the safest place," Pat admits -- and every once in a while Pat would get them out and have Shannon sort them into piles according to face value or maturity date. Shannon started playing this game before she could even count or read but quickly mastered it because it taught her a little of both. "It got so she started telling me how she wanted them sorted," notes Pat, "and I had to follow her directions to the letter."
Our kids learned best whenever they weren't made aware they were being taught. If they were having fun, if they were in our company, and if we didn't lecture or push, they proved themselves good learners. Lynn got Danielle reading at the age of three. Shannon could count and identify coin values before she was in school.
It wasn't long before we realized that our girls were ready to learn a whole lot more about money management than how to put money into a piggy bank or savings account. Saving was simple but not active or engaging enough to keep their attention, whereas investing wasn't all that complicated when you got right down to it. What child doesn't leap at an opportunity to own something? Presented that way, investing was something our girls could get excited about. And if they were excited, they'd ultimately learn everything they needed to know to invest competently, responsibly, and profitably. Teaching them wouldn't be a chore; it would be an adventure.
Let the Games Begin
If you're thinking, "I'll wait until my child shows an interest," before you embark on this trip, you could miss the boat entirely. Many forty-year-olds we know have no interest because no one ever introduced it in a creative way. Investing has never been considered the best material for kids' education; it is seldom taught in grade school, high school, or even college. Although there has recently been a push for schools to start teaching kids about the stock market, everyone agrees that children learn best from their parents.
That's where you come in. You don't hesitate to expose your child to music you love or books you enjoy; you do that by listening to your favorite songs or by reading aloud from your favorite book. Your child will want to know more about things that she sees you care about.
Shannon, for example, "had no more interest in the stock market than a rock," according to her mom. But that didn't stop Pat from sharing her own growing interest in investing. "The stock market was simply something I enjoyed," Pat reflects. "So, starting in second grade, when Shannon was seven, I very casually began to show her the stock page and talk to her about it. Every time I read the page, I'd read out loud. 'Oh, I think I'll check my stocks today,' I'd say on Saturday morning while she ate breakfast at the kitchen table. 'Let me check Washington Gas.' I would look at Washington Gas and then point it out to her in the paper. 'Here's the closing price. Here's the name of the company,' I'd say. I did it repetitively, with maybe four stocks. Each time I'd say, 'Here's the one I'm looking at. I'm going to look at what the closing price is.' I'd read the closing price out loud. I didn't try to explain and didn't intend for her to remember. I'd just verbalize whatever was running through my mind."
About a year later Shannon starting asking Pat to give her the newspaper first. "Tell me the stocks you want to look at," Shannon would say, and she'd highlight them for Pat in pink. Then she'd hand the paper back, and Pat would continue babbling out loud whatever she read or thought as she scanned the stock pages.
By nine, Shannon was reading the paper before handing it to her mom. Any headline with "Disney" in it caught her attention because she loved The Little Mermaid and couldn't get enough of Disney movies and products. She wouldn't give up the paper until she'd given her mom the information Pat was seeking. "Tell me the stocks you want to know about," ...
