What I’m teaching my seven-year-old daughter about investing now.

Welcome to the ninth post of The Invested Counsel—thoughts about financial planning for young lawyers.

I have two daughters; one is seven (and about to go into third grade), and one is four (and about to go into pre-K). Every moment I’m with them is a blessing, and every moment I’m away from them, staring silently into middle distance, is a blessing too.

One of the things I’ve thought a lot about is how to make sure that they are good with money. Unsurprisingly, I think that being good with money is an important life skill.

As a result, I’ve tried to start doing some very basic educating about money. I give them some money as allowance, which is theirs; they generally keep it in a plastic Ziploc bag. They can use that money on what they want (e.g., buying a headband at the Claire’s a few blocks away). I try to have them earn it by doing some chores (e.g., load the dishwasher, take out the recycling). Occasionally, I will give them cash to pay for something and have them handle the transaction themselves (e.g., buying a book at Barnes & Noble, getting an Italian ice from a street cart).

If this all sounds very thought out and comprehensive . . . it’s not. In reality, it’s quite haphazard and unsystematic. I can’t spend too much energy teaching about money in light of the incredible effort to just get them out the door each morning. But I do the best I can, and as they get older, I’ll try to do more.

Getting my daughter into investing.

Separate from the basic sort of money education described above, I’ve decided to try to teach my seven-year-old a little about investing. As a result, I opened up an UTMA (or “Uniform Transfer to Minors Act”) account for her, put in $250 (as a lump-sum allowance), and had her invest in VT (the global equity index ETF I described in the last two posts). We don’t put any other money in the account.

I’ve done a few things to try to make investing a little more approachable for my daughter. For example, we’ve made up hand signals for VT, as shown below:

When we check her investments, we see if it went up or down during the day. If the market has gone up, we say, “go bulls!” And if the market went down, we say (in an eye-rolling tone), “the bears are at it again . . .”

What I am trying to teach.

I think there is a lot that my seven-year-old can start to absorb about investing, even at her age.

Investing is not scary. People think that investing is scary or complicated. But if you do it reasonably, it is neither. By showing her that she can do it at seven, I want to teach her that investing isn’t something to be afraid of.

You have your own money. I want her to understand that she has her own money. She owns it, and no one else does. (That’s the benefit of the money being in an UTMA account—it is legally hers.) Even if she doesn’t touch it, she knows that she’s ultimately responsible for it.

The money is invested in companies. I explained that VT owns many different companies, and we looked at the list of the companies that VT holds and found the ones that she knows. For example, since she’s seven (and thus loves K-Pop Demon Hunters), we talk about how she owns tiny bits of Netflix and Sony.

The money goes up and down in the short term. Maybe the most important lesson is for her to learn that the market goes up and down, and that you just need to deal with it. If she can get used to that at an early age, and over the long term, she’ll be better prepared to deal with volatility when she’s older (and has real money to manage).

Assuming that she’ll take over a greater share of her own finances when she graduates college at 22, she has about 15 years between now and then to learn how to handle her own money. Who knows what will happen over the next 15 years, except that the market will drop dramatically at various points over that time. If she can be at least a little bit connected to those drops over that time, she’ll be in a much better position when she’s in her 20s (or 30s or 40s).

I call this “volatility immunotherapy.” Just like doctors now recommend that babies be given very small amounts of peanuts early on to avoid developing bad peanut allergies, I am exposing her to little amounts of volatility (i.e., the ups and downs of the market), in the hope that she learns to accept volatility without overreacting.

The money goes up over the long term. I’ve decided that for now, my daughter won’t contribute any more money to this account. That’s because the purpose of this account isn’t to teach about saving money (she has her Ziploc bag money for that). This money is for teaching about how the market goes up over the long term. If she continued to put money into the account, it would become too complicated for her to know how much of the growth is due to additional contributions, and how much is due to growth in the market. If the amount is above $250, she’s up; if it’s below $250, she’s down.

Benign neglect. One of the main benefits of this approach (from a parenting perspective) is that it doesn’t require much work. There’s no set schedule by which we need to check the balance, or invest more, or do anything with her account. It can just sit there, doing its thing in the background, for as long as we want. Whenever we want to look at it, we can do it in 15 seconds, and then promptly forget about it. Thankfully, that’s generally how adults should be handling their own investments: checking them occasionally, and then ignoring them for most of the time.

We’ll see if it works.

Obviously, I don’t know how any of this will affect my daughters. Maybe it will turn them into well-rounded people with a healthy relationship with money. Or maybe they’ll become too money-focused, or too miserly, or react against it and want nothing to do with money at all. Or maybe it will influence them in ways I can’t even imagine.

Or maybe none of this is going to matter at all, and they’ll grow up to be whoever they were meant to be.

That’s all for now. Have a wonderful week.

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