Head start - good financial habits should start in childhood

Black Enterprise, Oct, 1999 by Carolyn M. Brown

THE SPRINGTIME OF LIFE MARKS GROWTH--mental, physical and social. It is a time when everyone between the ages of three and 19 ought to be learning basic money concepts and the fundamentals of investing. The reason is simple, say experts: young people need to have an appreciation of the American economic system and an understanding of how capitalism works in order to get a head start in the world of investments.

Most African Americans don't get that financial knowledge when they are young, however. By the time they are older, barriers are built between them and their money. They tend to put their cash in low-interest checking and savings accounts.

And teenagers are definitely consumers. According to Teenage Research Unlimited, h market research firm based in Northbrook, Illinois, by the end of 1998 teens had pumped approximately $141 billion into the economy through purchases that included soft drinks, CDs, fast food, clothes, computer games, movies and athletic footwear.

But don't think that all teens are merely big spenders, throwing away wads of cash on a variety of consumer goods. A growing number of adolescents are expending as much effort investing their money.

More parents and financial advisors are teaching kids the ABCs of money--how it is spent and accumulated. This financial education process often begins by age five, although even preschoolers know a quarter equals 25 cents. By age 10, though, a child ought to understand comparison shopping and the value of merchandise, as well as have a savings account and understand the principles of banking, say financial planners. By age 12, young people should be able to conduct their own transactions, and save, invest and budget their money. Once a teen starts working, they are ready for goal-oriented financial planning. Just like adults, young people need to define their financial goals: Am I looking to buy a car? Help pay for school?

Aside from their youthful exuberance for the market, young investors tend to hook into one of the key tenets of wealth accumulation: invest in companies whose products you use. Most are shareholders of the very same businesses of which they are big consumers, including fast-food giants like McDonald's (NYSE: MCD), footwear makers like Nike (NYSE: NKE), soft drink companies such as Coca-Cola (NYSE: KO)and high-tech companies like Microsoft (Nasdaq: MSFT).

One day, these young investors may find themselves working in corporate America, trading on Wall Street or running their own companies. But for now they are learning the benefits of owning a piece of America.

LESSONS FOR GENERATION NET

"Generation Net" is the latest label assigned to today's teens, presumably because they are lost souls in the technological world of the Internet and high-tech computer games. Ask Amadi Anene and his friends, and they will tell you they are part of an up-and-coming generation--underage investors. The Detroit native is cofounder and vice president of the Young Investors Club. The three-year-old club has 11 members ranging in age from 12 to 15, and has amassed about $500 in holdings in three companies, Walt Disney (NYSE: DIS), wireless communications firm Datalink (Nasdaq: NETD) and fashion powerhouse Donna Karan International (NYSE: DK).

Like most of his peers, 13-year-old Amadi spends his allowance and cash gifts on PlayStation video games and sports apparel. The young athlete plays power forward on his junior high school's basketball team. But he also diligently sets aside at least 25% of his $15 allowance every two weeks to invest in the stock market.

Amadi, who's following in the footsteps of his mother, Janice, co-founder of Mainstream Investment Club, says he wants to learn as much as he can about investing so that he can build a solid financial foundation for the long term. That could mean saving money to help buy a car down the road or help his parents send him to college.

"I like investing and buying different stocks, because it's a good way to [accumulate wealth] and to put moneyback into your own pockets when you purchase shares in companies whose products you buy all the time," says Amadi. Members of the Young Investors Club take what they do very seriously. Dues are $7 a month, and anyone who fails to come up with his share of the pot gets hit with a $2 late fee.

Each month the members meet and report on their stock of choice. Amadi was eyeing Wendy's International (NYSE: WEN), Sara Lee (NYSE: SLE) and Coca-Cola. After examining the stocks' fundamentals--their price and earnings histories--he settled on Coke, but not for the club's portfolio. Instead, he decided to purchase shares in the soft drink maker through his parents' broker for his personal portfolio.

"I have been following Coke for a while," the junior high school student explains. "We buy a lot of Coke for the house. The company also puts out a lot of other products that we buy. So I felt it was a good stock to buy."

Amadi and his fellow club members are putting into practice many of the principles outlined in past issues of BLACK ENTERPRISE For Teens and Kidpreneurs News [TM] sister publications of BE. These include tips on how to invest, start your own investment club and how to manage your finances.