I was just at a back-to-school Board meeting, where I suggested that we add something to the curriculum: teaching the high school kids about the stock market.

You should have seen the looks I got. Stares. No reply for a while. And these are intelligent people, each one successful, making enough money to send their kids to private school. Then someone laughed.

“That’s all we need. To be sued when underage kids start day trading.”

I knew that most adults have a fearful, adversarial relationship with money, even if they’re successful earners. If they do invest, many trust their brokers or financial planners with all the decision making. What I didn’t predict is that they’d rather raise their kids with the same fears and anxieties, rather than risk helping them.

Now, I don’t think this is intentional. I think it’s a deep emotional disposition, conditioned by our society. So, of course I started busily outlining how the lesson plan would work, how it would fit nicely as a special, experimental curriculum addendum to either math or social studies, depending on scheduling preferences of the faculty, for the spring semester, 2010. And I volunteered to be the guest teacher.

I’m not all that good at taking no for an answer.

Here’s the approach and rationale: First, the lesson will include the fundamental of buying stocks (see Teach Teens What Stocks Are and Mutual Funds Give Teens a Feel for the Market posts.)

But then comes the really deep part of the lesson: Are you someone who should invest in the market at all? What is your investor personality?

If people wait until they’re adults to ask these questions, it’s too late. The fearful, distant, dysfunctional relationship with money has already sunk in. It’s like waiting until you’re 25 to have your first kiss. Picture the implications of that one.

The most important part of the lesson addresses the fear that surfaced immediately from that Board member: That they’ll become gamblers. So the disposition of the classroom lesson should be that despite the post-modern philosophy that everyone should be a stock investor, it’s not true. Some people should not.

Now, in most cases, this class will never be taught in high school. I’ll keep you posted about whether they actually let me do this at the very progressive school where I’m on the executive committee of the Board.
And that brings me to the point. You’re the one who has to teach your kids about investing, even if you don’t know a thing. It’s up to parents, just like explaining that butterfly in the stomach feeling after your first kiss.

You answer the teen questions about love: How did you and Dad first meet, how did you know you were in love, how many boyfriends did you have before you got married? (My husband claims I give a different answer every time.)

These are much tougher emotional questions than which companies to invest in to start a good life savings program, and how to have a healthy relationship with money and earning so you’re not broke and stressed out by the time you’re 40.

If you think about it, nothing causes more stress in adult lives than money, so why would we even trust these lessons to institutions like school? Investing money is all about what your personality is like. Do you like risk? Are you obsessive? Are you too laid back? Who knows your kid as well as you do? No one.

You must bring the “should you be a stock market investor?” lesson home. Here are some suggestions about how to find out your teen’s investor personality, after you’ve explained the fundamentals—using our previous posts, as well as the resource links below. And remember, if they don’t want to invest in stocks, the investor personality questionnaire can lead the way to you helping them decide what they should invest in, given their dispositions.

This, of course, isn’t an absolute determination, just a guideline. The important thing is to have a structure for the dialogue you’ll have with your teen. When I’ve tried this questionnaire with teens and college students, they often tell me what their investor personality is, and ask to be taught about specific investments. One teen said to me:

“I’ll obsess if I invest in individual companies. Aren’t mutual funds a bunch of companies, and less up and down in price?”

Great question, and I immediately focused on mutual funds in this teen’s area of interest: greentech.
There are some side benefits of teaching your teens about their investor personality: What they learn can help teens with a lot of other things in their lives: school, dating, jobs, depression, angst. Analyzing how to approach money in a healthy way can be a great lens into general problem solving.

The Stock Market Personality Questionnaire:

If they’re 13, they’re ready to start. Sit down with your teen and make a personality profile, answering these questions:

• How much money would you like to earn by the time you’re 25?
• Are you easily stressed?
• Are you an overachiever?
• Are you obsessive if you don’t get something right?
• Are you high strung or laid back?
• How many extracurricular activities do you participate in—none, two or less, three or more?
• Do you play sports?
• How competitive are you?
• What sort of student are you? Straight As, As and Bs, Cs?
• What is your favorite subject?
• Are you well rounded in your interests—some sports, time with friends, time doing nothing.
• What is your favorite hobby?
• How much do-nothing time do you have each day?

Do the personality profile questionnaire yourself, especially if you fear investing. Your teen will feel more comfortable answering these questions if you answer them, too. Answer the ones about high school by remembering what you were like in high school. Your teen will love this part.

Okay, when you have your answers: If your kid is high strung and overachieving—busy every waking hour, expects to make a $1 million by age 25, driving all over the continent on Saturdays to play different sports—it may be a huge miscalculation to assume he or she would be a stock investor that doesn’t get stressed. They may be very good at it, but they should be aware that it could cause them stress, especially if money is really important to them.

What’s fun is that the kinda lazy, dreamy kid of yours at home—the one snoring at noon on Saturday instead of playing on three different sports teams and belonging to six different school clubs? You may have a sleeping giant on your hands. You may worry that they will never amount to anything, but with some training these personality types are sometimes great money minds.

Being relaxed without too great a sense of urgency is a definite plus in investing. And the ones who let themselves be kids, not in too much of a hurry, tend to think long term. They tend to have patience with money matters, too—perhaps the single most elusive quality for any of us.

And guess what: long-term investing theories make for the healthiest relationship with money. In fact, long term thinker and well rounded kids are arguably the best investor profile, according to studies done by the Jump$tart Coaltion, a non-profit organization devoted to teaching kids about money.

Try to teach all teens about the soundness of long term investing, and if that doesn’t appeal to them at all, then steer those teens away from stocks altogether—bonds, mutual funds and CDs (are all good options.
Show your teens the following two profiles:

This one is of a kid who should never invest in the market: Addictive Gambling Personality: Bad Boy Cole Bartiromo.

For comparison, here’s a stellar kid personality for investing, Damon, The Golden Boy of Stock Buying.

Ask what they think of these profiles, and where they think they fall on the investor spectrum.
Once you’ve decided what sort of investor personality your teen has (and you, too!), then steer them in the right direction, get them started learning what to invest in. Here are some resources:

• Jump$tart Coalition - A non-profit organization devoted to educating kids. A great resource for parents who don’t have a savvy relationship with money.
• Sharebuilder - Custodian stock trading accounts are available here, so parents can start teens investing with a watchful eye.
• Financial Planning Association
• MoneyTrack - PBS’ website for money management shows.

The overall lesson here is to find a relationship with money that is tailored to you. If that expectation starts in teenhood, it will last a lifetime.

Stay tuned. Soon I will post profiles of teenage investors who have done quite well. We’ll see what they read, what their online sources have been, what role their parents played in their stock market education and trading process. You’ll see that many of them do not have money savvy parents, but those parents helped anyway.

Please share any stock training stories you have.

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It’s not too soon to teach your kid to plan financially, and invest in the world. In fact, if you wait until they learn it in school, or from some cold-calling financial planner, it will too late for them to have a confident relationship with making money from money.

I bought my first share of stock at age 13, compliments of my father. I tracked it for years. Never mind the economics classes I took. I learned how the stock market works because of my shares in Kaiser Cement. And I’ll get to the teen lesson about buying equities (individual stocks). But not first.

I’m going to start with how to buy Certificates of Deposit (CDs), or, as credit unions call them, Shared Certificates, for a couple of reasons. One, explaining what CDs are and how to buy them gives a primer on how financial institutions think and operate. Two, despite popular opinion, I do not believe everyone is cut out for buying stocks. I will address that in the Buying Stocks post. CDs, on the other hand, are a great starter investment for anyone.

And there’s never been a better time, because in this economy, they’re safe and sound. And now you can buy in for as little as $5. Check out this credit union offering a $5 Shared Certificate, designed especially for students. Financial institutions want Generation Y investors.

How to teach your teen to buy a CD:
1. First, give them a definition. A CD, or Shared Certificate, is a fixed-income investment issued by banks and credit unions, and is insured up to $100,000 ($250,000 on retirement accounts). Here’s what fixed income means and how it works: You give the financial institution a fixed amount of money for a set period of time—6 months, 1 year, 2 years etc. You may not use the money during this time.

In return, when that time is up, the financial institution gives you back the principal (your initial investment), plus a fixed amount of interest that is set at the time you buy in. That interest rate is going to be higher than a checking, savings, or money market account, which is why people like CDs. You make money on your money by tying it up. And that’s the key concept: If you withdraw your money before the set time is up, you get penalized by losing interest and in some cases, some of your original investment.

2. How to buy one: The simplest way is to go into the financial institution where you do your banking and ask them to sell you one. But, teach your teen to comparison shop. They can go online and Google CD rates, and see who has the best offer. Also, because their initial investment may be seriously limited, so may the offers.

Also have them look at potential types of CD—some have flexible withdrawal periods, some allow you to get the benefit of a better interest rate even if you’re in the middle of your locked in time period. But there aren’t a lot of options at low buy in rates. Still, no harm in asking. Have your kids write down questions to ask the financial institution once they find a good rate.

Comparison shopping is a key lesson here because they’ll learn an overarching investment principle: The more money you invest, the better deal you get. Period. People who dump $5,000 into a CD will get a better interest rate than someone investing $50.

3. Call the financial institution. Once they’ve chosen the deal that suits their needs, they simply call the financial institution, fill out the paperwork, and pay for it. (They may be bummed that they don’t receive an actual certificate in the mail, only a bank statement. I know I still am.)

4. Make sure to be clear about what happens for early withdrawal: Each financial institution is different. Some levy interest penalties, but some cut into your principal as well. Tell your kid to get the facts before they sign anything. For instance, don’t let them tie up money for 2 years instead of 1 because they didn’t realize if they changed their mind they’d have to pay for it.

5. Make sure they write down the CD maturity date and then call the financial institution to cash out before that date. Most CDs roll over (are reinvested) automatically if you don’t actively cash out. Legally, the financial institution has to notify you 30 days prior to a CD maturing, but don’t let them rely on that. Who wants to get embroiled in the paperwork of arguing who was right. You’ll win if they forget to notify you, but no one needs that headache. And they’re only required to send something out in regular mail, so all they have to do is prove they mailed it, not prove you got it.

This is a great lesson for kids in personal responsibility. Don’t stand on ceremony and blame others if things go wrong. Take the reins and make sure nothing goes wrong.

It’s like that old driver’s ed saying: Most accidents can be avoided with alert, defensive driving. Same is true for money.

What age do you think is appropriate to buy CDs? Please share your thoughts.

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My father, a very successful entrepreneur, had a saying about finding business partners as a brand new business: Before you approach people that don’t know you from Adam, check out the people who demonstrate an interest in you, or the type of person you are. Make yourself a going concern, then widen your circle bit by bit.

He had another saying: The people who can get their hands on money easiest are always those who need it least.

When it came to paying for college for my brother and me, my father borrowed against the equity in his house, put that money to work in a vibrant stock market, earned more than the loan finance charge, paid for school, paid the loan back, and took a cut.

This is not the time for that.

It is the time to find the institution that finds your kid attractive. Hard to imagine, I know, but my father assured me that there’s always someone out there who is interested in you. So, after being asked by my college students to write a post about finding student loans, I sat down to do some extensive research. I know why my students asked. They wanted a secret weapon, something other than the standard advice about going to their college admissions office and applying for all the financial aid and student loans available. That’s common knowledge.

They wanted more than me telling them to apply for an unsubsidized federal student loan, which, depending on the school year you’re entering, could make you eligible for $5,500 (freshmen) to $7,500 (seniors). Not all students are eligible for the full amount, but all students can apply regardless of financial status. Nope. None of the standard advice seemed good enough for this economy, when promises for more student money are still outpacing the actual writing of loan checks. Even with the unsubsidized federal loans, you can’t cover the cost of many tuitions, public or private.

Then I found it: the marketing campaign that proves Dad’s law of attraction. Credit Unions, it turns out, are now actively looking to establish lifelong relationships with Generation Y. It’s a perfect time of course, in the wake of TARP, because disillusionment with banks is at an all time high, and even my students have tuned in to the news.

What do you need to offer to win over Generation Y and their budding financial lives? You got it. Student loans.

There is an initiative of 60 credit unions participating in a program called Credit Union Student Choice. Check out this site, explore this option. Make sure to look at the full list of participating credit unions, but don’t be daunted if your state isn’t listed. Some of the participating credit unions are offering members these loans based on where they live, work, or go to school, so the residency options are fairly wide.

I think even my Dad would have liked this.

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Okay, here’s one I didn’t see coming from my college students: A Depression survivor’s mentality on hiding money like a squirrel storing nuts.

I walk around in life working off the general assumption that my students are bored into rigor mortis when I start talking about the economy, and what to do with their money. I’m not being insecure. This is what they look like when I start talking about financial matters:

First, the Pavlovian response of eyes going immediately half-mast. Next, fingers inching toward either the open Doritos bag next to them, or the keyboard in front of them (as if I will magically not notice they’re checking email in class).

So you can imagine my surprise when I overheard students discussing not trusting their banks and wanting to take their money out, because they’re not earning any interest anyway. Unable not to sound eager, I jumped in and asked how they expected to establish credit, save money, invest, and function in the society. They weren’t against the idea, just angry that banks had gotten so much bailout money and from what they could tell, weren’t helping people with mortgage foreclosures, and were still firing employees.

I almost cried. And not because I’m a good person and they touched me with their concern for their fellow man. It was better than that—they had actually been listening in class and digested what we discussed about the economy. I’m sorry for sounding callous, but for any teachers out there, you understand these gratifying moments are all we have. You know it’s not the enormous paycheck.

Anyway, their vehemence led us, in our final days before summer, to a discussion about how to choose a financial institution. We made a list of 3 criteria that makes a good financial institution:

1. It must offer all the products: Debit cards, credit cards, mortgages, other loans, investment vehicles.

2. It must be local. I was pleasantly surprised by this. It was so citizen oriented. They compared it to buying produce from local farms sold at a nearby farmer’s market. If they know where the food comes from, and the farm is visible, the farmers and grocers couldn’t really do anything awful, like use killer chemicals, without people knowing.

In the same vein, a local financial institution, without a big national name, means they can walk into a branch and get personal service, get someone to answer questions and have a human being take responsibility if something goes wrong.

One more key reason they wanted local: They grasp that financial institutions invest in real estate, so they want the investments to be local. When I asked if they meant like in It’s a Wonderful Life, their eyes opened. I do believe I saw their synapses making connections. The Building & Loan, minus Jimmy Stewart’s drunk uncle who lost the deposit—that’s what they wanted.

This age group, probably thanks in large part to the blogosphere, does not trust an institution that isn’t authentic and accessible. Besides, they claim that bankers treat them like second-class citizens.

3. Proof that the financial institution isn’t run by crooks. You can’t march into a national bank and demand to see how things are run.

After we made the list, they sat back, collective arms folded, challenging me to present them with such an institution, knowing nothing of the kind exists.

Then I asked if they knew the difference between a credit union and a bank. Not one of them did. (Actually, two professors I stopped later that day had a vague idea, but didn’t really ring the bell either.)

A general definition to tell your kids: Credit unions are not-for-profit financial coops that conduct business for the mutual benefit and welfare of member-owners. Only members can bank at a credit union, and every member has an equal vote. Banks are for-profit financial corporations that conduct business to maximize the profit for its stockholders. Those with more stock have greater say.

Here’s how credit unions and banks each rank for the students’ 3 criteria.

1. Must offer all the products. Credit unions and banks are generally the same. They both offer everything. But only members of a credit union can do business there. Anyone can open a bank account at a bank; you don’t have to be a stockholder. There are certain tradeoffs:

In some cases, banks have slightly better interest rates, but credit unions generally have more reasonable lending rates and non-punitive lending policies.

The news is full of stories about banks slapping higher interest rates on someone’s account for just one late payment, among other things. They’re also imposing fees for being over the limit, charging higher fees for cash advances and ATM surcharges, and reducing credit limits, to make up for their previous poor lending decisions.

Also, credit unions have lower fees for certain services. The FDIC and NCUA, which is the credit union insurer, are both government insurance for deposits up to $250,000.

2. It must be local. Credit unions, by nature, are local entities. Banks aren’t, with the exception of community banks, which can still have board members that aren’t local because majority stockholders elect bank Board members, which are paid. The Board of Directors at a credit union must be members, which means they’re local, and it’s a volunteer job. Board members are elected by other members.(The kids loved that they’d get to vote for the people who run their financial institution.) All investments a credit union makes are local. Not true for even community banks.

3. Proof that they aren’t crooks. Now, there’s no way to prove that a bank Board member is more likely to be a crook than a credit union Board member, or vice versa. But credit unions, with the egalitarian voting system, got the nod from my students. They cited the following, while tears of joy glistened in my eyes, because they used this phrase correctly in a sentence: Credit unions have a check and balance system.

So, they agreed to find a credit union and check it out. I’d love to hear what the kids in your life think about the comparison.

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