Study after study shows that most children don't know enough about money. This story isn't about those kids.
It's about kids who, at a very young age, are keener on investing their allowance than blowing it at the corner candy store. They want a savings account; even better, a mutual-fund account. Experts, and parents of these kids, say it's a joy to have a child who's more eager to save than spend. They also say that preternatural savers can present their fair share of parenting challenges -- they need to be taught how to spend, and how to give, for instance.
"I haven't met a kid who's not interested in money -- what it can do, how it can work," says Susan Beacham, CEO of Money Savvy Generation, a financial-education expert and author based in Lake Forest, Illinois. Many kids are interested in credit cards, she says, and research underlines her point: Thirteen percent of 12- to 21-year-olds have a credit card in their name, and 13 percent have access to a parent's credit card, according to TRU Youth Monitor's Consumers & Commerce 2105 study. The stats are higher for debit cards: Forty-six percent of kids ages 12 to 21 have their own debit card, according to the survey.
Clearly, the desire to spend exists. An early desire to save and invest, though, is "highly unusual," says Beacham. An aptitude for math and interest in investing are usually linked. "Some kids are intrigued by the math, by their ability to compound their savings," Beacham says.
Not without pitfalls
While most financial literacy experts and parents are thrilled when a child is naturally interested in saving, an overabundance of enthusiasm can present challenges.
Several years ago, John Loyd opened an investment account for a 12-year-old girl. That happens "hardly ever," says Loyd, owner of The Wealth Planner, a financial-planning firm in Fort Worth, Texas, who handles high-net-worth clients. Loyd sees no connection between the wealth of the parents and the investment savvy of the child. Like Beacham, he credits it to the miracle of compounding interest, which he calls "the eighth wonder of the world."
Loyd sees drawbacks in helping such young clients invest in stocks. They might, for instance, struggle with understanding swings in the market that can evaporate hard-earned allowance savings in an instant. "A few statements go down in value ... that panics them out of the market for the rest of their lives," Loyd says. "That's always a fear of mine."
Another fear: That the early saver will outgrow that hobby. "They turn 17 or 18, then say 'I'm going to go buy a $60,000 car,'" Loyd says.
Loyd's young client, Hayden Holcolmb, now 14, wanted to invest $2,500 with the idea of accumulating a certain sum by age 25. "I was really impressed with her," Loyd says. "Most people her age who have $1,000 are spending it in 40 different places." Loyd opened a custodian account for her, as 18 is the legal age for opening one's own investment account.
His client knows she's an outlier. "All my life, I haven't been one to spend money," says Hayden, an eighth-grade National Junior Honor Society student who's on the volleyball, track and basketball teams, and who dons a kangaroo suit to become her school's mascot. Hayden's pretty sure that she's the only one of her friends to have an investment account. "All my friends like to shop," she says. "I'm not one to shop ... I always have money in my wallet."
Hayden's mother, Dianne Hanson, says it's "exciting" to have a child so interested in investing. "She looks forward to getting her statements," Hanson says, adding that she marvels at the difference between Hayden and her brother, Trace, who is 12. Their grandparents gave them each $200 for back-to-school needs. Hayden still has hers, but Trace used his to buy a scooter the very next day. "If he has a dime, he'll spend it," Hanson says.
Hanson's challenge: to "continue the conversation and have investing become more second nature," she says. Hayden herself is anticipating what might be an issue when she gets to high school -- hanging out with her spend-friendly gal pals at the mall. When that happens, she plans to buy something small, "so it's not awkward, like, you're the only one not spending your money," Hayden says.
Prying young fingers from the purse strings
Another mother of an early saver says her big parenting hurdle is teaching her child that eventually, he will have to spend some of the money he saves.
Robin Giles, a financial planner at Apex Wealth Management in Katy, Texas, has an 8-year-old son who's saved money since he was 4. His sister, age 6, is the opposite, Giles says, exploding any theory that financial planners beget financial whiz kids.
Over the summer, Giles encouraged her son to spend some of his money on enjoyable things, "but he's reluctant," Giles says. The sunny side is that she believes that the saving habit will pay off in the future; that he will graduate from college without an armful of credit-card and student-loan debt. "I really think he'll be ahead of the game,' she says.
Still, she wants to counterbalance his interest in socking away his money. "It's a challenge, getting him to be charitably minded and see that not everything is based on money," she says. She worries, too, that her son will grow up believing that accomplishments are worthy only if financial gain is attached to them. "That's a fear for me," Giles says.
Every so often, her son proves he's a regular 8-year-old. For instance, he told Giles he wanted to launch a weeding business, then hire a friend to do the weeding and pay him $15 per lawn -- a sum too generous to make for a successful business, as most adults can see. "We had a discussion about labor and money," Giles says. "We always try to treat him like, 'this is a good idea, let's explore it,'" she adds.
Beacham, the financial educator, encourages such parental enthusiasm, and has more ideas for parents who want to nurture a healthy interest in their young investors. First, she says, supervise their investing activity. Not doing so "is like throwing the keys of your car to your just-turned-16-year-old and saying, 'Take it out for a spin,'" she says. "Would any of us do that? Absolutely not."
She also advises reviewing every line item on every brokerage statement with the child. If a stock or portfolio is down, try to figure out why. "Was it the correction we had? Was it something in the news? An election?" Beacham says. "Without the review of the statement, investing is gambling."
For kids who are loathe to spend, Beacham suggests an old-fashioned budget. Even savvy savers must learn to live independently, and that requires spending money wisely, Beacham says. As for charity, "lead by example," she advises. One client, a grandparent, collected charity pitch letters and distributed them to grandchildren. The grandchildren were told to research the charity (via sites such as Charitynavigator.org) and decide where to contribute. "Getting together and moving the money to a charity -- that's how you teach a child," Beacham says.
See related: What kids should know about money, at what age, 4 reasons why college kids need a credit card, Q&A: Kara McGuire cuts through financial clutter in 'Teen Money Manual'
