FOOL'S EYE VIEW
Are Your Children Little Fools?

By Nigel Roberts
February 16, 2001

Chippenham, Wiltshire – The average Foolish reader is male and in his mid-thirties. Whether you fit this profile or not, Fools are not average people. The fact that you are here at all means you have made a positive decision about your life: you have decided that you can and should take control of your own financial destiny.

People are living longer. I recently turned 40 (yes, I know that makes me one of the oldest TMF staffers – but thankfully not the oldest), I don't smoke and only drink in moderation – and so, according to the death clock, I can look forward to living until I am 73.

Why do we invest?

At the top of most Fools' lists of why they invest is probably to provide for the time when they will stop working. Also near the top would be to help our children lead better lives. Your money can do a lot for your children. It can provide a secure home, pay for their education, holidays, books, a computer, and much, much more.

Giving money to children is great, but we believe that it is much better, and more important, to teach your children the value of money, and to get them started in making their own investments as early as possible. You may not have 70 or 80 years ahead of you to watch your savings build up those compound returns that are so vital to Foolish investors, but a child now under ten can probably expect to have over 70 years of investing life ahead of them.

If you were to invest £500 for 70 years, and you achieved the historical average market return of 12%, it would become £1,394,000 by the time your ten-year-old child becomes 80. OK, it is not realistic to invest £500 today, and never expect to touch it for 70 years; what would be the point of that? Money is to be invested to give you a better life: if you never spend it, how much better would your life actually be?

Teach your children to be Foolish

One of the most important things that you can teach your children is to persuade them not to waste their money on the national lottery, or on one-armed bandits -- even if they don't have one arm any more. Teach them not to run up credit card debt, especially during those vital first few years away from home when they are at university or starting their first job. Teach them the risk of taking out a big loan to buy a car that will only depreciate in value, and which they may well still be paying for long after the car has been consigned to the great scrapyard in the sky.

The easiest way to teach your children about finance is to get them involved. Teach them the miracle of compound growth. Teach them how money invested Foolishly will grow, and how, when the growth is added in, that will also start to grow. When I have spoken to my friends about teaching their children about managing their own finances I am often told that it is not worth it as they won't understand. Sadly, it is usually because the parents see it as a complicated subject because they were never taught it themselves. Children are amazing in their capacity to absorb and learn.

Teach your children to save money. Open a building society account for them, and get them to pay the money in themselves; instil in them the importance of saving. Introduce the idea of buying shares in companies, especially in ones that they will have heard of: your child who is Manchester United mad is going to become as much interested in the financial performance of the company as the football results if they have a stake in the business. Investing for children should be fun, and they should be involved in making the decisions.

Try to get them interested in the financial news about the companies that they follow. Children love making scrapbooks; how about encouraging them to keep a scrapbook of newspaper articles about their favourite companies as well as their favourite pop groups? OK it may be a bit far-fetched, but who knows -- it might work for your children!

Set a good example

The most important way that you can teach your children to be Fools is by setting a good example for them. Get your own finances in order, don't run up credit card debts, invest for the long term, and make sure that this Foolish attitude rubs off on them. Make your children into little Fools!

While investing on behalf of your children is a popular subject here at the Fool, teaching your children about money and how to manage it themselves should also be at the top of all Foolish parents' priority lists. It will be one of the most important lessons they will ever learn, and remember it is never to early, or too late, to start.

Where Next?

Fool's Guide to Investing for Children 
Investing for Children discussion board 
Family Fools discussion board 
Fool Book – Make your Child a Millionaire