My oldest turned 10. 10! Double digits. We have had a lot of conversations about money, saving, working and buying things based on value. But all our kids know 10 is when you get to enter the grown-up world of money in our house.

Up to this point, my kids have been earning money 3 ways.

  1. Doing small chores around the house: laundry, dusting, cleaning the bathroom, ect.
  2. A small side business: 2 years of selling extra duck eggs when we had ducks.
  3. Working with us on renovation/rentals: clean-up crew, lawn care, and construction helpers.

All three of those are critical foundational skills. Learning to do tasks for money. Learning about business. And learning skills that add value to others.

Now we enter a new stage for our oldest: The Stock Market!

This is like voodoo magic for him. You put your savings in there, and it grows. Right now he puts all his money in a makeshift piggy bank. Not once has he come back to find that the money has grown while he wasn’t looking.

He’s known that he gets to enter the game at 10. So a few nights before his birthday, he asked to start shopping stocks.

Of course, I don’t really want him to buy single stocks. I’d much prefer he opt for index funds. But apparently, the concept of index funds is a little fuzzy to almost 10-year-olds.

So this is the start of a very sporadic series I’ll call: Raising Wealthy Kids

First up….Stocks, Index Funds, and Halloween Candy

(Or if you are like some of my friends who ask me to explain this stuff to them like they are 10, you’ll love this too!)

Stocks are like a king size candy bar. You buy one stock and you get one kind of candy. If you buy a few of that stock, it’s like buying a whole bag of your favorite candy. Which seems great, because you love Smarties. But halfway through, you might also be disappointed. Because maybe that candy isn’t as great as you thought it was before you plopped down all your money on an enormous bag of Smarties. Stocks are the same. You might think you would love to own just a stock of Disney, Netflix or McDonald’s. Sometimes that works out great! But often the things that make a stock gain a lot of value are WAY outside your knowledge or ability to control (unless you’re Warren Buffet and can buy half the company!).

So I think it’s better to buy stocks Halloween style. AKA Index funds.

You still get all the candy you love. Just instead of a big box of Snickers, you get little, tiny, bite-size pieces of LOTS of kinds of candy. You still end up with a bag full of candy at the end of the night. You will just have 30-50 different varieties. Some candy might still disappoint, but others will taste even better than you expected. The magic is in the variety!

See index funds are like Halloween candy. You get a little, tiny piece of a whole bunch of different companies. So while some companies will help you earn money and others might lose a little bit, you are safer with the Halloween mix. When one stock lets you down, it’s only a tiny part of the mix. All the other stocks (pieces of candy in your bag) will help make up for it.

Because Halloween would be kind of boring if we only got one kind of candy, right?

Now, some people like to pick their own candy mix. One Snickers, 3 Tootsie Rolls, 5 Smarties, and a Butterfinger.

Other people’s job is to make a candy mix that others can buy. They come up with a custom mix and sell sample bags to others. These are called mutual funds. The problem is that it costs extra money to buy those custom candy mixes. And most of the time the custom candy mix isn’t any better than a random sample bag (but it still costs more!)

Other people will create a custom mix of stocks/candy for you. This seems ideal. And lots of people do it. Trouble is, it’s VERY expensive. After the extra cost, those custom mixes almost never earn more money than index funds.

And what does it mean if we pay more for the custom mix? LESS CANDY!!! (And all the kids cry….)

While no one is passing out index funds for Halloween (I would trick or treat ALL night in that neighboorhood!), index funds are the best way to get a great mix of stocks with super low fees.

So while you are munching on candy this week, take a few minutes to chat with your kids about stocks vs. index funds. They will thank you when they’re wealthy!


For conversation:

How do you explain stocks, index funds, mutual funds, and custom advisor plans? To your kids? Coworkers? Friends? Maybe you can chat over the candy bowl this year. =)

Side note: Smarties NEVER disappoint (as a candy)! That is my personal stash of Smarties. =)