When my cousin, David, told me his kids choose stock over toys for their birthdays, I just shook my head in disbelief. His kids, Sarah and Daniel, who are nine and ten years old, started picking stocks when they were four?
Maybe I shouldn’t be surprised. After all, they are Dave’s kids.
Dave wasn’t a typical teenager. At the age of 13, he was already thinking about investing. At 17, he started attending retirement seminars. When he was a college sophomore, he competed with his friends to see who could take out the most credit cards. With over 40 cards and $600,000 in available credit, he won. This was back in the days of zero-interest cash advances. He borrowed $100,000 against his credit cards and put it in a money market fund, which yielded a 4 to 5% annual return.
I shouldn’t be surprised that he passed his interest in money on to his kids. However, as I recently learned, it’s not all in the DNA. When Sarah was four, Dave stooped to bribery when she refused to try a new vegetable. “Sarah, I’ll give you a dollar if you just taste it.” She looked at him, rolled her eyes and shook her head. “No, Tata, that’s not enough.” (Dave’s wife, Barbara, speaks Polish with the kids.)
Dave employed the same tactic with Daniel on his birthday, this time with greater success. “You can have $30 for toys or a company stock.” Daniel didn’t have a clear idea of what a stock is, but he did know Disney, which had just released Cars under the Pixar label. He kind of understood that he had a choice. He could have a brand new toy car or a piece of the company that made the movie about cars. Of course, he chose the car.
Pushing his son to make “the right choice,” Dave upped the ante. “$30 dollars for toys or $50 for stock?” Again, Daniel chose the car. At $100 and $150, Daniel still chose the car. But Dave was determined, so he continued negotiating with his then four-year-old son. At $200 and $250 Daniel still wanted the car. While Dave was wondering how much higher he’d have to go, Daniel was probably thinking, “Tata really wants me to take the stock. Maybe stocks are good for me?” At $300 he gave in.
Daniel already had plenty of toy cars, so Dave didn’t feel bad about depriving him of another one. Today, at 10 years old, Daniel understands he made the right choice. He appreciates that his initial $300 investment, which Dave used to seed his college fund, is now worth $1,150.
Dave no longer needs to bribe his kids to choose between stocks and toys. They understand that money spent on toys is money gone, while the money they invest in their college funds continues to work for them and grow.
Looking back at his kids’ early years, Dave compiled a list of the most influential companies during the first five years of their lives. While Disney is the most obvious to the kids, most parents know the others.
In approximate order of increasing age influence, these companies are:
- Kimberly Clark (KMB) – Huggies
- Proctor and Gamble (PG) – Pampers
- Abbott (ABT) – Baby Formula
- Mattel (MAT) – Fisher Price and many other toy brands
- Johnson & Johnson (JNJ) – Pharmaceuticals and care products
- Unilever (UL) – Food, beverages, cleaning agents, and personal care products
- Kraft Foods (KRFT) – Packaged food
- Newell-Rubbermaid (NWL) – Sippy cups, car seats, containers
- Hasbro (HAS) – Toys
- Disney (DIS) – Toys, games, movies, amusement parks
- Yum! Brands (YUM) – KFC, Pizza Hut, Taco Bell
- Apple (AAPL) – Computers, tablets, phones
- Amazon (AMZN) – Books, videos, games, toys
- Target Stores (TGT) – Clothing, school supplies, toys
- Nike (NKE) – Shoes, Athletic equipment
- Electronic Arts (EA) – Video games
With Dave’s help, Daniel and Sarah built their “growing up portfolio” by investing in a few of these companies. The Kramer family currently owns shares of Mattel, Hasbro, Disney, Apple, Amazon, Target, and Electronic Arts.
Just for fun, Dave and I ran some numbers. Let’s say that he and Barb bought just one share of each of these companies over the first five years of their kids’ life at the rate of two to three a year. At the end of five years they would have spent a grand total of $707 for all 16 stocks. Today, ten years after their hypothetical first stock purchase, the value of their portfolio plus dividends would be over $2,000. This represents an annual yield of about 15%.
Assuming the same yield over the next eight years, the Kramer family college fund would be worth another $6,500 (without additional investment) when Daniel leaves for college,
While you may not fully endorse Dave’s tactics, you can’t argue with his math. With some strategic planning, the companies that helped your kids through the first few years of life could help pay their way through college.