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My son Grey came home from school the other day with an urgent need: “Dad, I have to buy some stocks. I’m going to need a Charles Schwab account.”
Me: “Whaa?!? This is the first time I’m hearing about this.”
I acted surprised but I wasn’t really. Grey is very impulsive. He sees or hears something, and he has to have/do it. And I’m talking NOW.
I remember when Grey and his sister Pippa were little and we used to go to Target to get a present for my wife Nora for Christmas. I’d give each of them $10 and told them to get whatever they wanted for her, keeping in mind that it should be something mom – not they – would like.
We’d walk into the store and Grey would descend on the first display, having found the perfect thing within a couple minutes. Pippa? She’d walk the whole store, hemming and hawing the whole time.
Impulsiveness can be a good thing. I remember when Grey decided on a lazy Saturday that he was going to design his own baseball stadium. And then he immediately followed through, creating a detailed scale drawing of an original design, over the course of many hours. That’s the type of thing that if you think about it enough, you realize the enormity of it, and often talk yourself out of it. If you’re impulsive like Grey, there isn’t time for reflection and reversal.
Where Grey gets into trouble is that he is easily influenced by marketing and peers.
Grey (and Pippa too) have always been inordinately interested in TV commercials. When one comes on, they give it their full zombie-faced attention. The only way to break the TV-brain mind meld is to obscure their view or hit the mute button.
One day, when Grey was 8, he finished a show, then joined me in the kitchen. “Dad, did you know that Claritin works 20% better than Zyrtec?” I spin around to see if he’s smiling. Nothing. For seasonal-allergy suffering Grey, this was a serious question.
Back to present day. Grey has recently been subjected to “peer marketing” in school. A friend in 8th grade told him about a nice setup he has at home. His parents advance him $200, which he can invest in any stock he wants. When he sells the stock, his parents get the principal back, and Grey’s friend gets to keep the profit. No mention of interest on the advance, or what happens if the stock loses value.
So, naturally, Grey wants the same deal. Now.
He brings me a list of the 5 stocks he wants to invest in – I’ve never heard of any of them. “How did you pick these?”
“They are all going up,” says Grey, smiling.
“Oh dear,” I say under my breath. Time for the lecture on the Greater Fool Theory?
So I developed this 3-Step Guide for Protecting Financially-Impulsive Children from Themselves, with a 4th thrown in for free.
- Educate.The first step in a lot of things. In this case, I connected Grey with my Dad, who dabbled in securities his entire life, and loves to talk about the risks and opportunities of the stock market.
- Delay Gratification.Related to #1. One of the best ways I’ve seen to determine whether something is Grey’s flavor of the week impulse, or whether it’s connected to a deeper, more enduring passion, is to delay gratification. Talk it through over multiple days. Then drop the subject and see if he brings it up. I remember when Grey wanted to join the Boy Scouts…for a day. Two days later, he’d totally forgotten about it.
- Require Skin in the Game.Kids only learn real-life lessons if they are given real-life risks and rewards. If Grey wants to buy stocks, he has to use his money. Then he will more acutely feel the euphoria of a gain, and the wrenching despair of a loss.
- [Bonus] Keep Clear of All Casinos.A joke, sort of. Kids aren’t allowed in casinos, but it’s not too early to talk about the dangers of gambling. Especially for impulsive people like Grey.
When he does take the plunge, I hope he has a good experience, but not too good. Good enough to keep him interested in what has proven, over time, to be one of the best public access investment vehicles. But not so good that he develops unrealistic expectations about how his securities might perform in the future.