Teaching Kids About Investing: Giving Shares of Stock

Recently I read 2 articles from the local Chinese on the descendants of Kapitan Yap Ah Loy. Old man Yap may had left them 140+ houses/shops, but the grandchildren left in Malaysia are living in poverty. Hence once again, the common belief of Chinesee wealth does not last for than 3 generations seems to be coming true. But I think it is the Chinese fault that the parents do not cultivate the real value of money to their youngs but instead just pass on their hard earned wealth . Thus the children usually ended up poorer than the parents. Here is an essay I read before Christmas written by a kwai lo blogger. I think Chinese parents should read this:-

Over Christmas, I got to thinking about one of the neatest gifts I ever got: When I was 8, my mom bought me some shares of Proctor & Gamble stock. She explained that I now owned a piece of the company.

Of course, as an 8-year-old, I had never heard of Proctor & Gamble. So my mom took me around the house showing me all the products we regularly bought that were made by P&G: Tide laundry detergent, Charmin toilet paper, Bounty paper towels, etc.

Then, she took me along on the next grocery run and showed me the same thing. I was amazed. Not only did this company make a nearly-unending list of famous cleaning products, they made Pringles potato chips. Every kid in my class loved Pringles potato chips!

And now I owned a portion of this company. Boy that was cool!

Focus on the Profits (not the Price)

Over the next few years, my mom made a point to maximize the educational potential of the gift.

My mom explained that, as a shareholder, I could choose between receiving money for my share of the business’s profits, or I could use that money to automatically buy more shares of the business–thereby allowing me to earn even more profits in the future. That sounded like a good plan to me!

She never even mentioned the market value of the stock. In fact, I didn’t realize until years later that the stock could be sold. The entire focus was on owning a company in order to receive a share of its profits. There was no mention whatsoever of the lottery of short-term stock price movements.

Every time there was a shareholder vote for new board members or important company policies, my mom explained everything to me so that I could choose what I thought would be best. (I distinctly remember voting against testing products on animals.)

My mom did everything she could to make the lesson as concrete as possible: When you buy a stock, you become a business owner, and you earn a share of the business’s profits for as long as the business is around. I was hooked. I wanted to know more, and I wanted to build my collection of businesses.