In part 1 of my blog, I spoke about how I got 5th graders excited about finance, the difference between debit cards and credit cards and needs vs wants. In part 2, I will cover how I got 5th graders excited about saving and investing.
I am serious! This is how I did it…
Two Magic Pennies: The Power of Compounding
When it comes to understanding how to save and invest you do not have to be Jim Cramer from Mad Money…
To illustrate to the fifth graders the importance of saving and compound interest I showed them two pennies and asked them to choose either 1 million dollars right now or two pennies that will double everyday for 30 days. Of course, all but one fifth grader screamed 1 million dollars! And when I asked him why, he said because it will double and be worth more in one month. (Smart kid!)
How many of us are trying to make that quick buck in the markets instead of allowing compound interest to work to our favor? How many of us are like the majority who raised their hands for the quick million instead of being patient?
C’mon… tell the truth. Because you know what? I am also guilty of this!
Now your savings account may not be the ideal place to park your money for the best returns, however it is a great place to start for an emergency fund. Financially savvy people know the importance of paying themselves first. Setting aside a certain amount of money for savings each month is more important than buying things you may want now. And a great guideline to pay yourself first is to save 10% of your paycheck.
Here are 8 Simple Ways to Save Money
After I taught the kids the importance of saving and compound interest and that after 30 days those two pennies will multiply to be $10,737,418, I then taught them the importance of investing.
Now I did not expect these kids to know much about investing. So to get the conversation going I asked the kids to name companies and products that they liked. Many of them yelled out brands such as Nike, KFC, and Pizza Hut. I then asked them how will you like to have some kind of ownership in these companies and earn money as a result. At this point they were jumping out there seats, excited to own a piece of McDonalds or Apple! I remember one student asked, “you mean I can be the boss of Nike or Adidas?” And I told him yes! If you own enough shares you can. Which was a perfect gateway to explain to them that a share or stock is a portion of ownership that you have in the company. So, the more shares you own, the greater your piece of the pie.
Invest in Companies You Already Know
My question to you, the reader is: what common products or services do you use every day? When you wake up what type of toothpaste do you use? When you shower, what company made your bath tub or shower head? What car do you drive to your favorite restaurant? What phone do you use to message your friend on your favorite social media platform? Where do you work? What gym do you go to after work to get in shape? What music platform do you use to get motivated while working out? And when the day is over what mattress do you sleep on that knocks you right to sleep?
Within 24 hours there are a vast number of companies that provide a variety of goods and services that we enjoy and use every day, that are publicly traded.
If you are ever stuck in figuring out what company or companies to invest in, begin by paying attention to the products and services you use every day, that you know are not going anywhere and you love and enjoy using. Once you’ve identified these companies, do some homework on them and go sit down with a financial planner and work out a financial plan.
At the end of the day, just know that investing is not an art, but a science and can be learned if you invest some time and education into it. And make sure to work with a financial adviser that has your best interest in mind and is willing to educate and point you to the right resources for you to become a sophisticated investor.
What you can do?
The best way to start investing is to use fake money (I personally took this approach and started with play money to understand the concepts).
You can do this by checking out Investopedia’s stock simulator. The prices of the stocks are almost real time and it keeps up with current market trends. They are also rolling out an Academy Course that teaches you how to become a trader. This may require investment on your part if you’re ready for that.
Then once you understand the concepts, you can use your real money and sign up with an online stock broker. And you don’t need $10,000 to get started, you can get started with $100.
I also recommend that you check out where you stand right now on your retirement on Smart Asset’s Retirement Calculator. It takes you through a quick questionnaire that asks you for your income, how much you have saved and other information and outputs a financial overview of where you currently stand for retirement. It is awesome!
For more information on why you should invest, check out WalletGyde’s previous blog post on Why Investing Today Will Make You A Millionaire Tomorrow.
Also, make sure to sign-up for this blog and keep a look out for WalletGyde’s launch!