Teaching Finances To Young People

When my brothers and I were young, my grandmother gave each of us a single share of Bell Canada for birthdays and graduation gifts. We were excited to receive the telephone company’s shares, then trading in the range of $40 to $50 each.

But the importance of investing for the long-term was lost on me. If I had learned that lesson, I wouldn’t have cashed in my 25 Bell shares before I turned 25.

Here’s what I wrote about my short-sightedness in a Toronto Star article in 2011:

“The proceeds helped cover what seemed like urgent needs at the time. Don’t ask me. I don’t remember. Typical of many young people, I didn’t think ahead. I believed in the power of now. That was my first big money mistake, liquidating a long-term asset to satisfy a short-term spending need.”

So, what did my three brothers do with their grandmother’s gift? My middle brother Howard cashed in his shares when he and his wife bought their first house in Ottawa in 1986. They managed to pay off their mortgage in three years.

My brother Michael, born nine years after me, drew a blank when asked what he did with his Bell shares. He can’t remember getting any as gifts. My grandmother might have stopped buying shares for the newest arrival once we had four kids in the family.

My brother Doug, two years younger than I am, was the only one who held onto his Bell (later BCE) shares. “They have a certain sentimental value,” he said.

When we compared notes in early 2011, he had a total of 137 shares. That was a result of BCE distributing units of Bell Aliant (its operating company) to shareholders and consolidating its shares in 2006.

If Doug had sold his 25 Bell shares in 1968, as I did, he would have netted $1,125. Did he make money by holding onto them? Not when you consider the time value of money. These 25 shares would have been worth $7,250 in 2011, using inflation-adjusted dollars, about $2,000 more than the value of his BCE investment in 2011. Not an eye-popping gain over several decades.

He’d have done better reinvesting his quarterly BCE dividends and earning income on income, otherwise known as compounding. But he let the cash accumulate in a brokerage account and didn’t join Bell’s dividend reinvestment plan, launched in 1976. He didn’t want to track fractions of shares for tax purposes.

Despite my youthful indiscretion in dumping shares to quench a thirst for momentary pleasure, I grew up to be a buy-and-hold investor managing my own accounts. I’ve been teaching a course in investing for beginners at University of Toronto for almost 20 years and head up an investing club that started 15 years ago.

As a business journalist, I have a long-time interest in financial literacy. How do we as parents and educators teach young people the money management skills needed to lead a life of solvency and asset building?

Jack Rosenthal is the author of Teen Investing: The Ultimate Guide to Teenage Investing, available as a Kindle edition at Amazon.ca. You can borrow it free with a Kindle Unlimited subscription or buy it for $9.99.

The author wrote the book at age 17 during his senior year in high school. After learning to invest with his grandfather, he had organized a young investors club with more than 80 teen members who started with a minimum investment of $1,500 (USD).

“I wanted to provide a way for everyone in the club to get some investing principles for free. Once I learned that the principles I was teaching were relevant to any young investor, I listed it on Amazon,” says Rosenthal, now 20, and a finance student at Babson College, a private business college in Wellesley, Mass.

He likes to give out his email address in his books and at the Amazon site. After writing to him at jackrose1824@gmail.com, I had a reply within hours.

What Distinguishes This Investing Book From Others?

“It was written by a teenager who has had real experience investing in the markets,” he told me. “Readers often tell me they like all the definitions I give when talking about stock market investing. They also tell me they like the personal stories.”

Rosenthal published the book in 2019 and expanded it later to 127 pages (from 57 originally). There’s also a paperback version selling for $19.21 and a newer book, Teen Investing 101: 101 of the Most Important Financial Literacy Terms, also free under Kindle Unlimited or $3.73 for the e-book and $11.26 for the paperback.

“Will definitely recommend this to my daughter and she’s only seven,” a U.S. reader said about the 101 financial literacy book, “Even as an adult who is new at investing, I found this book very useful.”

“A very practical introduction,” said another U.S. reader about the original investing book. “I like that Jack Rosenthal, a teenager himself, offers realistic tips to help the reader save money to use it toward investing, such as suggesting business and job ideas that are accessible to teenagers.”

Rosenthal has a list of 15 money-making ventures that teens can start right away. Besides old favourites such as babysitting, dog walking, lawn mowing and snow blowing, he has a few innovative ideas:

• Tech repair and set up: “Tons of adults and elders have the money to buy the latest technology, but have no clue how to set it up or what to do if their technology stops working. As a teenager, you could charge up to $50 to $75 an hour for house calls.”
• Buy your own vending machine: Rosenthal did so when he was 13 years old, adding that a used vending machine costs $800 to $3,000 or so. “Think about it. A vending machine is the perfect business; It’s like running your own mini store with no employee or rent costs. You just need to find a good location before buying one.”
• Sell products for others: “A lot of people have old technology and items sitting around their house they don’t need or use. The process of listing a product on a site like eBay can be too much of a hassle for busy adults. You can offer to sell people’s own products for them on eBay and charge them anywhere from 20 to 50 per cent of the selling price if the item sells.”

I liked the motivational parts of the book, where he answers common questions. For example, how much money do you need to start investing as a teen?

“I think we can agree that earning 40 cents a year on a $10 investment is simply not worth the effort,” he says.

“For teenagers aged 13 to 18, I would generally advise you start investing with no less than $1,000. Even though the initial return on your investment may be small (you can expect between $50 to $100 a year), it’s still a great way to start learning about investing and there’s no better way to learn about investing than actually practicing it.

“However, if your goal in investing is to use the profits to pay for part of your lifestyle, I would recommend starting your investment portfolio with no less than a $5,000 initial investment. That way, the profits from your investment (expect $250 to $500 a year) are significant enough to pay for some expenses.”

While reading his book, I was conscious of the fact that the young author had little experience of extended market downturns. He used Amazon and Alphabet as examples of stocks he liked to analyze and buy at a time when both were trading about $2,000 (USD), before they lost about half their value in 2022. And he could have used an editor to avoid mistakes such as spelling Warren Buffett’s name without the second T.

For a more balanced and professionally edited book, I have a couple of suggestions:

• The Complete Guide for Investing for Teens by Warren Miller. The 132-page e-book is free with a Kindle Unlimited subscription or $9.99 otherwise, $21.82 for the paperback, at Amazon.ca.

Miller, who works as a financial intermediary in the U.S., has been investing for more than 15 years and started at 14, so he’s developed lots of experience and knowledge about the subject. He also has two kids, age 9 and 17. His book is rated 4.9 out of 5 by 223 Amazon readers worldwide.

• Investing Explained Simply: A Teenager’s Guide to Investing by Trevor Daviss. This book is 114 pages and came out on 13 November 2022, so it’s up to date. (He has a full chapter on Bitcoin and other cryptocurrencies.) Kindle Unlimited subscribers get it free, while the e-book is $6.99 and the paperback $16.99. It’s rated 5 out of 5 by 206 Amazon readers.

Bottom line: The books I reviewed tended to go overboard on technical details easily found at Wikipedia, or even better, Investopedia. I don’t think teen investors need to know about trading stock options and cryptocurrency in an introductory book. The best resource for crypto novices is GetSmarterAboutCrypto.ca, an excellent graphics site set up by the Ontario Securities Commission’s Investor Office.

When it comes to successful investing—whether as a child, teenager or adult—discipline is a huge factor. It’s not innate, but it’s learned from mentors or from personal experience. Trevor Daviss devotes a chapter to the components of discipline, such as carrying out a monthly budget, allocating part of your savings to investments and reinvesting a regular amount after contributing a lump sum for the first time.

“You don’t have to be monitoring your portfolio every single day,” he points out.

Other Lessons:

• Watch out for scammers. There’s been a big increase in the number of purported experts who tell people with no investing experience that they are millionaires who will help them become rich overnight with an incredible investment—usually some kind of Ponzi or pyramid scheme.
• Constantly evaluate the performance of your investments to see how they fit into your long-term portfolio. If you invest in stocks, there will be many times when you are simply wrong. You won’t always choose the right companies. Do not hold onto losing investments just out of pride.
• Remember to keep a diversified group of assets in your portfolio. Do not depend only on one company or on a specific industry.
• Have patience. Many young people want to invest money and get a quick windfall. Do not depend on chance. Do your research and analysis. No matter what financial asset you are investing in, you must consider that you will never be able to obtain profits immediately.

“In the future, when our friends are still working at an advanced age, we will be able to enjoy all our passive income and the money that our investments leave us, those that we analyzed so much and that produced so many positive returns for us,” says Daviss.

“If we make sure to invest correctly, we will achieve something that not many have been able to achieve, which is to receive money without the need to work.”

Ellen Roseman is a journalist, investing for beginners instructor at University of Toronto continuing studies, and a former director at FAIR Canada, an investor advocacy group. @ellenroseman on Twitter.