Investments in the Christmas stocking
The Christmas decorations have gone up and Santa Claus is coming to town (or at least shopping malls are going to town with the tune).
It is the time of year when starry-eyed children g their hands on the latest gadget or toy.
While adding an investment to a Christmas stocking may (literally!) not have the same ring to it, it can be a great way to teach children about money, and get them interested in the investment process.
Warren Wheatley, chief investment officer at TSS Capital, says it is an exceptionally good idea to give investments as gifts.
In investing, the earlier you start the better, because of the benefits of compound interest, he says.
“Besides the ‘obvious’ financial benefits, the mechanism of the gift allows for recurring gifts over the years and can facilitate the pooling of family resources. Friends and family can jointly contribute to a single investment structure at every gifting occasion,” he adds.
Lynette Wilkinson, Certified Financial Planner® and retirement specialist at Chartered Wealth Solutions, echoes his sentiment.
"There are numerous investing principles that can be explained, depending on the age of the child."
“[An investment] is a gift that lasts and grandparents can participate in teaching their grandchildren the value of saving.”
Investments generally have a longer useful value than most toys would. As children grow older and see the value of their investment increasing annually, the excitement will grow, adds Martin de Kock, Certified Financial Planner® and director of Ascor Independent Wealth Managers.
“It’s also a great learning opportunity to teach children from a young age what saving and investing is all about. Generally there is a big shortage of financial skills among young children and even teenagers, because parents don’t spend enough time discussing financial issues and basics with their children.”
De Kock says grandparents find joy in children’s reaction when they receive and open a gift.
“To still experience this joy it may be practical to buy a small and cheap gift along with the investment certificate.”
Parents and grandparents should take time to explain the long-term benefits of the investment and can consider using a maize seed as an example, De Kock says.
“You can grind the maize seed now and eat it as porridge, or you can plant the seed and harvest numerous maize seeds in a year’s time, giving you maize to eat and more to plant for a later harvest. There are numerous investing principles that can be explained, depending on the age of the child. An important principle is that of delayed gratification and saving for something bigger in the future,” he adds.
Wilkinson says she generally recommends a balanced diversified fund on a unit trust platform, that can also accommodate other funds if they want to have some money market exposure for shorter-term saving objectives.
In her experience, getting children excited and involved in money and investment affairs will depend on the adults’ involvement in the investments. If they are interested they will pass that on to the children and be able to discuss it.
Buying a tracker fund like Satrix or Coronation’s Top 20 fund, allows the adult to discuss the companies owned by the fund. As an investor, one can then point out where their offices are and what they do as part of an everyday experience.
Wheatley says his son is a typical 11-year old who loves video games and is allowed limited access to social media.
Since he constantly looks things up on the internet and watches YouTube videos all the time, it was easy to peak his interest in investments by looking directly at shares like YouTube’s parent company, Google, as well as Amazon and Facebook.
“In short, we built a share portfolio made up almost exclusively of companies whose products and services he uses or wants to use. It also provides a mechanism to start teaching the basics of fundamental analysis by comparing the various companies.”
Even if you prefer to go the traditional gift route, there are some interesting apps that could assist in teaching children about money and investments without necessarily having to invest. Standard Bank recently launched Kidz Banking, an educational app aimed at children between the ages of six and 11.
In the investment space, SatrixNOW offers investors the option of buying a voucher as a gift. The minimum is set at R50.
The depreciation of the rand has created significant interest in offshore investments, but although they are an integral part of a diversified portfolio and can offer access to sectors not represented in the local market, the decision should not be informed by short-term currency weakness.
Equity markets are generally quite expensive and sudden rand strength may impact returns in the short term. This should be a long-term decision.
CoreShares recently launched two exchange-traded funds (ETFs) that offer global exposure by tracking the S&P 500 and the S&P Global Property 40 indices.