Our thirteen year old recently asked me for some good books about investing. His savings account has recently reached a point where it makes sense for him to start learning about investing, and he’s obviously interested in doing so.
I started by giving him a copy of Stanley and Danko’s The Millionaire Next Door, which is an interesting and enjoyable read that emphasizes the importance of education, hard work, discipline, and frugality in financial success. He started the book last week and really seems to be enjoying it.
Over the weekend, I ran across a copy of Eric Tyson’s Investing for Dummies at the library, and it looks quite good. I’m not normally a fan of the “Dummies” series, but this book appears to provide a nice nuts and bolts overview of how different types of investments work, etc.
While I’m not looking to overwhelm him with reading, I’m curious if any of you have other recommendations of good financial books for a fairly mature, albeit still young teenager. Please leave your recommendations in the comments section for all to see.
I agree with Travis that the Richest Man in Babylon is a wonderful story that provides a good grounding in Personal Finance. Another book I’ve enjoyed is The Wealthy Barber by David Chilton. It uses a more modern day story format to encourage building your savings, increasing your earning power, and taking responsibility for your finances.
Less about investing and more about personal finances would be Clason’s The Richest Man in Babylon. It’s a good book, with basic yet helpful topics and principles. Perhaps best of all, it’s a quick-read set in a historical, real-life type of story telling setting. I enjoy it and often re-read it every other year or so for a refresher.
Perhaps having him own a phantom portfolio might be a better option. He can learn without actually losing cash. My dad told me losing money in the stock market was a good “learning experience”. I didn’t quite buy that excuse.
Ok, my experience. I asked my dad how to take my cash out of the stock market when I lost about 20%. He encouraged me to ride it out so I rode it down to the bottom (grudgingly). I didn’t start investing again until I earned enough from my internships and part time jobs to fully fund my emergency fund. I started investing again at the bottom (March 2009) so I was able to make up for the losses I made. However I was fully aware that I was very lucky to be investing at that time. I was also ready to pull out as soon as the market decided to dip again.
Mike: That’s the whole point of doing this. To help him learn about risk tolerance, how markets work, etc. In my opinion, it’s best to start making mistakes and learning your limits when you’re young and the stakes are low.
The reason I’m asking for book recommendations is that I want him to learn about these things before he starts investing. If he’s still interested in doing it after reading and learning, then I’ll help him get started (albeit slowly).
I’m curious about your mutual fund experience… Did you stay the course and ride the market back up (perhaps investing along the way)?
Oh, and I absolutely agree on the Roth IRA idea, too. Once he has some earned income, we’ll encourage him to go that route.
I’m not so much concerned with how much he has to invest as I am about his knowledge and tolerance. I hope he realizes that he should only invest whatever he is willing to lose. I don’t know how I’d feel if I was 13 and I lost 10% of my investments in a week. I know I felt absolutely awful when I lost 50% during the crash on an index fund my father encouraged me to invest in. I was 20 years old when I started investing and I was really annoyed with the fact that I lost half of my hard earned money on stocks. If your kids are really dead set on this, perhaps some of the no-trade etfs that Fidelity or Schwab offers might be a good option (I’d suggest low beta bond or index funds). At the very least they won’t be charged trading fees or mutual fund holding fees. On another note, for kids his age, it might be a good idea to have them learn about Roth IRA’s. It might encourage him to want to work earlier and he can take his direct contributions out whenever he wants.
Mike: It doesn’t really take that much money to get started. For example, you can start investing in Schwab index funds with as little as $100. And at Vanguard, the STAR fund has a $1000 minimum. I’ve talked about our kids allowances here in the past, and I don’t think that they’re overly generous. We do, however, require a portion of it be set aside for the future. Our kids also receive periodic gifts from grandparents that are intended to be saved for the future. And y wife and I put $50 into their savings account each year on Christmas and their birthday. These sorts of things – $20 here, $50 there – really add up over 13 years.
This is a great idea for a post, though… How to get started investing when you don’t have much money.
I’m not quite sure how a 13 year old would have enough cash to be thinking about investing. His parents must be very generous with his allowance.
Our oldest has a savings account – and now our middle child has put in for one. He wants to save up for a water slide for this summer. (Wife and I were recently talking about saving for a newer car… Both older kids went to their piggy banks an came back w/ $5 a piece – and told us they wanted to help!) I too would love to read recommendations from your readers.
-NCN