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Don’t Be Like Mike, Be Like Warren

Kevin Donohue, CFP®, AIF® | February 22, 2021

When It Comes To Teaching Kids About Money — Start Early

Warren Buffett, age 90, bought his first stock when he was 11 years old and he has not stopped buying since. Arguably, the number-one reason he is the wealthiest investor of all time, which is why he is viewed as the best investor of all time, is because of TIME. I’d suggest our kids try to “be like Warren” before they try and “be like Mike,” here’s why and more importantly, here’s how.

Financially Educated Children = Financially Successful Adults

People who learned about money as children were three times as likely to have a personal annual income of $75,000 or higher than those who did not, according to a survey by Quicken, the money-management software maker.

But there’s a problem: One-third of adults surveyed said no one taught them about money when they were children. Among that group, only 13% reported a high level of financial confidence.

Thankfully, most 11-year-olds have at their disposal one of the single most impactful ingredients that has helped Warren Buffet – time. The problem? Society generally dismisses financial education as less important than most of what they teach in school.  But since almost every child in elementary school will one day have to deal with the personal finance, as well as the stress that comes along with it, I argue there may be few subjects more important than finance for children, particularly, the area of investing.

If you have children, you probably have broken up your share of silly fights.  I vividly recall overhearing an argument between my then 11-year-old vs. the 9-year-old.  One was teasing the other because his stock gave him more money throughout the year (in the form of dividends).  As only a big brother can do, he was driving the 9-year-old crazy.  But to the 9-year-old’s credit he argued that his stock was superior because it “went up” more than his big brother’s, thus providing more value.  The fight got intense and I must admit that I loved every minute of it.  My kids may not be the toughest on the block but they learned the difference between a growth and value stock at a young age.- I only wish I knew this before college — let alone fifth grade.

One’s upbringing plays a critical role in how and when we teach our children about money. Those who learned about money as children were 20% more likely to prioritize teaching their own offspring about money according to the Quicken survey. Those who said no one taught them about money as a child or young adult were twice as likely to delay having financial discussions with their own children until age 18 or older.

My children opened brokerage accounts with their First Holy Communion money–  purchasing shares of two stocks. I only provided input to keep them from buying a ridiculous penny stock. During this time they have learned about losses, trading costs, taxes and making money, and the oldest child is now seeing the power of compounding.  

The reading and research my children do on their stocks is comical. They typically have enough money to buy one new stock per year. And keeping tabs on their total returns or losses helps keep them engaged. Ultimately, they are gaining invaluable knowledge that many of us needed sooner than we got it.  

So, back to Buffett. At age 50 he was worth about $387 million. He is currently worth over $889 billion. Roughly 95% of his net worth came after age 50. Of course his skill at identifying and investing in fantastic companies is legendary but do not underestimate the value that simple ingredient of “time” has played in his success.  

‘Money Talk’ Tips

To help your family discuss finance, try these three ideas:

1. Set an Example. If you’re an example of financial responsibility, your children will likely do the same.

2. Use Tools. The right tools can make a big difference. The survey showed that 62% of those who do not use any personal finance tools also reported a lack of confidence regarding their own personal finances.

3. Talk Early and Often. An early start and frequent conversations about money can be a key to setting your children on the path to a healthy financial future. 

Helping to educate our client’s children and grandchildren is another way WE DO MORE at Legacy Planning.  Contact our office if you would like us to do the same for you.  

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Kevin Donohue is a partner at Legacy Planning Partners who specializes in helping families with complicated finances organize their affairs, document their goals and identify strategies to help them reach these goals more effectively. He combines nearly 20 years of financial services experience with cutting edge technology to deliver his clients integrated solutions to simplify their complex financial reality.

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