Family finance: Raising stock market kids

MANILA, Philippines – On one of the topmost floors of a posh condominium in Mandaluyong City, Edward Lee and his 28-year-old daughter, Eleanore Teo, talk about the wrong kind of wealth.

“Ang pera na hindi mo pinaghirapan, madaling itapon. (Money that you didn’t work hard for becomes easy to squander),” says the 58-year-old father of three.

“This is what I keep telling my kids. Financial education starts with understanding how that money was made. And I tell my children to not be envious of these people who recklessly spend money that was inherited or just given to them. You need to earn it. You need to work hard for it.”

Edward is the founder and chairman of COL Financial, the country’s largest online stockbroker, and Eleanore handes the company’s marketing needs. Father and daughter have inadvertently become advocates of saving and investing. And it’s a responsibility the two are more than happy to fulfill.

Saving isn’t enough

The main financial advice many of us, as children, received from our parents was simply to save. Whether it was in an empty metal milk can-turned-coin-bank, or a kiddie savings account in an actual bank years later, the basic idea was to spend less and save more in anticipation for your needs in the future. That, or the incentive of buying a new Gameboy or a video game cartridge.   

But, as American financial advisor, author and TV host Suze Orman once said, today’s is the YF&B generaiton: young, fabulous and broke. “And why are they broke?” she asks. “The advice today with money has got to be different than the advice with money 20 or 30 years ago because today we have different circumstances at hand.”

And those circumstances include high gas prices, mediocre starting salaries, and low bank interest rates. And with something as important as financial education, the best way for people to learn it is to start early and do it constantly.

This, the elder Lee points out, is the most important thing when parents try to teach their children about proper money management. “Financial literacy is important to everybody, not just kids. But the challenge is how you spend your time with them and how you should keep on reminding them that this is really important for them.”

The stock market

Right now, says Edward, saving is not enough. “You have to teach them how to invest. Because when you try to save your money by putting it in a bank, you’re only getting less than one percent in interest.”

So when you think about it, with inflation rising and interest rates going the other direction, your money in the bank actually goes down in value. “Investing is now a necessity.” And they recommend investing in the stock market through online brokers like COL Financial.

But how exactly do you explain to a 10-year-old child, for example, the concept of buying stocks? Investing in the stock market is like being part-owner of a company. Now which kid wouldn’t want to brag about that?

For example, says Eleanore, “A kid probably has a favorite fast food restaurant; let’s say it’s Jollibee. Ask them if they want to become part owner of Jollibee. If they say yes, you can tell them that they can take their savings and invest it in a good company which they love. And every time that company makes money from all the other kids who eat there – and as the company grows and earns – they will get a share of that profit.”

It’s similar to kids who set-up their own lemonade stands when they were young. But in this case, they become shareholders of a legitimate and publicly-listed company that earns billions of pesos every year.

The secret to letting your child understand, says Edward, is using every opportunity as a lesson on money and investing. “Everybody teaches their kids how to save, how to value money and how to count. But what we’re trying to share is that at a very young age, whether they can absorb it or not, it doesn’t matter. Over time, as you continue to work with your child, they will one day be able to understand it.” In this case, time spent is money invested.

“My dad didn’t just tell us once,” explains Eleanore. “It was a huge amount of time he spent with us throughout the years explaining to us how saving is important, and how investing is even more important.” He didn’t sit them down and tell them they’d talk about the stock market. It was conversation over dinner, a brief chat in the car, or a quick talk over breakfast. “It wasn’t something that we were forced to do; it was just something we constantly talked about, were constantly exposed to and became part of our regular family discussions as we were growing up.”

Saving and investing

Saving is still important. But the advice now, according to Edward, is to invest what you save and not simply let it sleep. “When we were kids, my mom would do the saving for us,” recalls Eleanore. Her mom would set gifts of cash aside and deposit it in a bank under her children’s names. “And then she just let it grow until we were 18 years old.”

And from the discussions they had with their father beforehand, learning about how to invest was the better option. “My mom gave us the choice on what to do with it: do we want to continue leaving it in the bank or put it in the stock market – which we already understood at that point.” Obviously, the Lee children chose the latter.

“It was a team effort,” Eleanore says of her parents’ guidance. “Our mom told us how to save and manage our money, and then our dad came in and explained to us how to make it grow.”

And while some people are still apprehensive about the unpredictable nature of the stock market, Edward explains that, like all financial decisions, this requires careful analysis and not haphazard decision-making.

Eleanore affirms this insight. “You still have to work for it. People don’t like long-term investments; they like short term. But what they don’t realize is that when you trade in the stock market speculatively without understanding it and try to make a jackpot immediately, that’s when you can lose a lot of money.”

And now, a parent herself of a beautiful one-year-old daughter, Eleanore confirms what her father has said to her all her life: “Surprisingly, the best advice that I received from my dad wasn’t on how to make money. It was the value of why I had to know how to make money. Good parents raise good kids. And I think that was the key. And being a parent now, it’s important for me to understand that my child will be the result of everything that I do. And the only way that you can do that is if you spend time with your child and teach her well.” – Rappler.com