Money, Power, Respect

Black Enterprise, June, 2000 by Carolyn M. Brown

Teaching your children the basics of entrepreneurship and investing

SINCE THE AGE OF SIX, BRANDON CELESTINE HAS BEEN filling a personal treasure chest with stocks that include: Donna Karan, AOL, Microsoft, Sony, Rain Forest Cafe. Disney, Hasbro, Board Kids Entertainment, Viacom and Campbell Soup. Following the philosophy of financial guru Peter Lynch, Celestine invests in what he knows. "I look at trends to see what others are wearing and what products they're buying. That's how I ended up with Donna Karan; I noticed all the kids my age were wearing [the designer line]," says Celestine, who serves as research analyst for the Young Investors of America investment club in Detroit.

Today, Celestine's portfolio is worth more than $25,000 (including the value of a mutual fund to which his parents have made regular contributions over the past eight years). The 14-year-old investor plans to use the money to help foot the bill for college, although at this point, he's undecided about where to attend.

Young people like Celestine, who are exposed to the concept of saving and investing at an early age, are more inclined to stick with it when they get older. They tend to have a better understanding and appreciation of the value of money. This is why it's crucial that you adopt and adhere to principle No. 6 of our Declaration of Financial Empowerment (DOFE): to teach business and financial principles to my children.

You need to do whatever you can to give the children in your life (including nieces, nephews and grandchildren) a head start. Don't wait until they are ready to leave home and enter college, where they'll learn money management by trial and error. Nor do you want your children to learn the financial facts of life through advertising images of the good life and testimonials by celebrities, athletes and music artists sporting platinum and ice--you know, platinum crosses encrusted with diamonds--one day and crying bankrupt the next. Starting a profitable business and investing in the stock market are a more effective and more "real" means for young people to learn about money, power and respect.

There are several lessons your children need to grasp about money management. Even if you are a new saver and investor, you can learn together as a family. A family that saves together stays together. The first step in to set aside a couple of hours on a regular basis to talk to your children about budgeting, investing and entrepreneurship.

BUDGETING

* Review the family budget with your kids. Let your children see you pay monthly bills. Expose them to your investment plans and discuss how you intend to use stocks and mutual funds to finance their education or other goals, suggests Marjorie Grace, president of Grace Financial Services, an investment planning firm in Oakland, California. Teach them to save in order to buy the things they want. Of course, you will have to practice what you teach. Budgeting begins with tracking expenses every month (e.g., school supplies, CDs, movies, snacks and clothing). Have your children create a budget, says Grace, writing down everything they spend so that they have a complete picture of their spending habits.

In order for budgeting to work, children must respect money. Remember the old saying, "A penny saved is a penny earned." For most kids these days, pennies, nickels and even dimes are no longer considered real money. Children will throw a penny away without thinking twice. Have your children put loose change in a jar; the result might astound them. Their take could equal up to $40 to $50 a month. That's not chump change.

* Buy goods and services intelligently. Children need to know how to get their money's worth on the things they buy (see "Buying Power," March 2000). Teach children to plan their purchases and avoid impulse buying; have them practice comparison shopping by checking prices at different locations, advises Jeffery Fox, consulting editor of Investing For Life, a self-study course for teens, which covers saving, investing, consumer spending and other issues on managing money. Take your children shopping with you. Help them develop the art of creative purchasing--buying generic brands, in bulk or secondhand goods, adds Fox, who also serves as director of investment education at the National Association of Investors Corp., an investment education association in Madison Heights, Michigan. Also, show them how to shop for bargains and use coupons.

* Avoid the credit trap. A lot of college students are lured by special credit card offers, only to run up balances in the hundreds, if not thousands of dollars. To top it off, they're strapped with high interest rates of around 18% to 20%. To inexperienced young people, credit cards may seem like easy money; they may not realize that there are several hitches. Before they know it, a series of late payments looms and their credit rating is damaged. A tainted credit history could ruin their chances of getting a home or a car when they are older. Break the cycle early by teaching children to pay with cash. Let them see you using a bank debit card instead of a credit card to purchase online, buy airline tickets, reserve a hotel room or rent a car.