Consider starting your teenager off with a Mutual Fund

[zetta]

Lots of people open children's savings accounts to help teach their kids about saving, but how many teach their kids about investing from an early age?

When I was 13, my dad made a career change to become a stockbroker. After going through his training, he decided he wanted my brother and I to each have a mutual fund. My parents contributed the minimum amount to purchase American Mutual Fund for each of us ($250 -- still the minimum today!). In the early years, he encouraged us to put money we received as presents and for good grades into the fund. When I worked as a waitress in high school, I often saved part of my tips and wages and put it in the fund (not all of it, I was a teenager after all!) By the time I graduated from high school, the fund was worth $3,970. When I graduated from college, it was worth $7,494.

Here's a summary of my contributions from age 13 to 22:
1984 250
1985 150
1986 2,036 (I think 1,000 of this was transferred from my saving acct.)
1987 614
1988 0
1989 310 -- HS graduation
1990 150
1991 200
1992 0
1993 550 -- college graduation
total: 4,260

I briefly considered cashing out some of the shares after graduation to fund a roadtrip around the US, but my parents discouraged cashing it in. Luckily I had enough cash on hand from summer jobs to take the trip.

After I got my first real job, my dad often encouraged me to contribute $50 to the fund every month. There were a couple years I was pretty good about doing this, but mostly I just got busy and forgot. I wish I'd known about setting up automatic deductions from my checking acct back in 1993!

I'm missing some of my records, but I think I contributed around 300-600 every year from 1194-1998. I don't think I've added to this particular fund since 1998, when it was worth $22,531. (I've been diversifying by contributing to other funds instead.) Today at age 36 it's worth $38,496.

In hindsight, I didn't learn much about choosing investments from this experience, but having the fund and being encouraged to contribute to it regularly went a long way in impressing the importance of saving and investing in my mind. Plus I have a big chunk of cash that I would not have had otherwise.

So I would urge all of you who have teenagers to scrounge up $250, and consider starting their investing education today.

[PrincessPerky]

I definatly plan on holding my kids hands to get them to sign up for auto deductions into 'something'. I remember getting my first job and everyone telling me I should start a retirement fund, and honestly fear of the unknown and procrastination did me in. I hope my kids at 15ish a less procrastinators, but hey they are my kids..and husband and I are both terrible! So I plan on holding the hand as much as neccessary to set up auto deductions with them.

And this is also an interesting idea, we have been kicking around what to do with the kids money now, they all have nice savings accounts, we were thinking CDs, but now we will add investment to the idea pool.

I got my first mutual funds two months after I turned 17. It hasn't grow much because I'm still at that age though. ._______." I hope to have at least 10 000$ in my mutual fund for travel, I contributed 2,500$ and 50$/month already. I'm going to find a way to contribute more in it. My second is for a house... and I also put 2,500$ in it.

[ozzy gurl]

See, this is something I wish I knew. All of my money was tied up in bonds, and I just finished cashing the rest of those in so I could graduate with no student loans. :-/

[mom-from-missouri]

My girls have had MF since they were born. We started them with the money people sent when they were born, then added birthday & Christmas money. When the girls turned about 5, they figured out the shopping thing and we let them start keeping their BD & Christmas money. Now, being 8, 8 and 10, they understand their MF and are back to wanting to put money in it again.

[Coleroo]

I wish my parents would have done that! I come from a completely different generation than they did though... I was born in 1982...Mom was born in '42, dad in '47 and their parents had been teens during the stock market crash and started families during the depression & war. Even though she was the tightest pinny pincher ever (cept with me cuz i was her favorite grandchild..hehe), my granny's (dad's mom) idea of saving money was burying it in the back yard! Mom and Dad grew up in the idealic 50s and freedom of the 60s - and never gave a thought to investing. Dad did have a whole life policy during the 70s and when i was a baby, because he had been told it built cash value, but he cashed it out when some financial troubles came along. I dont think dad has ever learned how to manage a checking account or credit (he filed bankruptcy when i was 3 - which was an eye opener for my mom who then took over our finances and taught herself how to manage the bills and cash). They dealt with strait cash all through my growing up years...I dont think mom had a bank account until 2002 when I talked her into getting one and moving into the new millenium Growing up I was always told I should be saving my money ( i got my first job at 14), but being from the "school of hard knocks" they have a parenting philosophy that i needed to learn things on my OWN.. so they never told me what to do with that money or how to do it. It took me from age 14 to age 22 to wisen up and fully shape up financially and start permanent savings accounts.

I asked my parents just a week ago WHY they didnt ever force me to save or encourage me harder to save... dad's reply was "lisa, we knew you had to learn it on your own - its your money, but until you learnt the lesson on your own and figured it out in your heart, at your own timinng, you would never truly understand the concept". Haha...Lesson learned now dad.. some $80,000 later... whew.. expensive lesson!!! one i do NOT wish to repeat (i have NOTHING to show for the money i blew as a full time working teen and college student!).

I dont have the same parenting style though as dad does - I cant WAIT to teach my kids about money.. set them up with mutual funds.. teach them accounting skills.. etc. Just my luck though I'll have a hard headed kid one day just like I was and all she'll want to do is blow her entire weekly babysitting money on an Abercrombie tshirt. LOL

[MonkeyMama]

Great post. I have said on my blog often that my parents taught me well to be frugal and save, but kind of dropped the ball on the next step. I definitely intend to do this with my kids. In fact, in a couple of years I will open mutual funds for the wee ones and start investing - will probably allocate a portion of their gifts and money to mutual funds and cash. But when they are older will encourage them to open their own mutual funds. Good Advice!

Anyway, today we trade stock advice and discuss the market - I just wish we had done this when I was younger, but they just didn't have the money then to know much themselves about investing.

My parents had me open an IRA when I was 16, but we put it in a c.d. Looking back, it had a decent interest rate, but they gave me no guidance when the market declined. On the other hand I have some mutual funds that I invested primarily in 1999 & 2000 that I have made a 30% return on in, even after investing at the PEAK. My CD IRA on the other hand made 13% in about 13 years. Now at 30 I am just figuring out how I should really invest my money, which is a shame since I had saved so much early on - I could have really made a lot more of it.

[Aleta]

I don't think that the earlier generations thought about money as we do today. Most of them thought that passbook savings accounts would supplement their retirement. Also, many of them received pensions if they stayed long enough with a company. Also, they didn't have to worry about the social security system as we do today.

Technology alone has given us alot of information instantly that we were never able to receive in a short period of time. Most parents just thought that we'd grow up to be housewives or whatever and wouldn't need as much education. They thought that was for the financial advisors. They did what they did because that's all they knew to do or teach.

Aren't we lucky to have so much knowledge available? We can teach our kids what we should have learned.

[ozzy gurl]

my parents taught me well to be frugal and save, but kind of dropped the ball on the next step.

Yes, that is like me. I have no idea about investing. They did put money in a CD for me, but again, I had to get it out to pay for college. It was really important to both my family and to me to graduate with minimum student loans/debt, so....yeah.

[HiImSeth]

Great post, thanks for sharing. When we have kids we're definitely planning on teaching them these same things and opening some sort of mutual fund account for them early.