Molly the Day Trader
Nov. 27th, 2009 08:44 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
naomikritzerSo, last year sometime I picked up a book called "The First National Bank of Dad" by David Owen. This is a book for parents about teaching kids about money. The author realized that kids often view a $5 handout as vastly more desirable than a $100 gift, because the $100 invariably gets seized by the parents and deposited into this thing called "your bank account," which is essentially a black hole into which money vanishes, never to return.
So, what Owen did was to provide an incentive system to get his kids to save; he created a Bank of Dad where his kids could earn an outrageously high interest rate (sufficient to double their investment in a year). They could withdraw the money at will, but the kids quickly started squirreling away every penny, since the interest rate on offer was sufficient to make it well worth their while.
After a few years, he decided this was boring, so he closed the bank and created a Stock Brokerage of Dad instead. I think he actually gave his kids a starter portfolio. Mind you, just as with the bank, none of these stocks were real -- essentially it was a family game with real financial stakes, backed by the parents' pocketbook. The kids could buy pretend stocks for 1/100th of the real price. So -- when the market closed, Target was trading at $47.70/share. On the stock brokerage of Dad, his kids could buy one (pretend) share for 48 cents.
Anyway, Molly saw the book, and (probably drawn in by the New Yorker cartoon on the cover) picked it up. She found it fascinating. (I loved parenting books as a child. I occasionally found nifty tips that I would pass along to my mother. I bet she LOVED this.) Molly tried to talk me into starting a Bank of Mom, which I refused to do because she is already a very good saver and calculating out the interest would be a hassle. So then she suggested I start a stock brokerage, and after she'd spent a month or two checking the stocks in the business section of the newspaper daily I finally caved and printed out a sheet of paper where she could enter the name of the company, the price at which she'd purchased, the number of shares, etc.
Her first investment was in Ford, which she'd heard me say I should've bought last year as it's WAY up since then. It was selling at something like 7.48 so she bought four shares at 7 cents a share. (Do I need to reiterate that this is entirely virtual? she is not buying anything. She gave me 28 cents and we wrote down that she had four shares of Ford stock.) A bit over a week later, Ford got good news and the stock went up. It went up only a little, but she sold at 7.58 or something like that, so that rounded to 8 cents a share. She sold. (Which is to say, I gave her 32 cents.)
Later that same day, Ford dropped back down below 7.50 so she bought another four shares for 28 cents. Later that SAME DAY it went up AGAIN and she sold for 32 cents again.
Pleased with her success, a week after that she bought TWELVE shares of Ford for 96 cents and sold them the next day for $1.08.
Unfortunately, her next buy was two shares of Target. She bought on the 17th and Target stock has not been doing well.
This is the kind of game that works best if your broker charges you no transaction fees. I have joked that I should charge her a penny per transaction but since she gets no dividend, since I have no idea how I'd figure those (especially given that the buy-and-sell game is clearly more what she's interested in -- buying and holding is for BORING GROWNUPS who don't want to check the stock listings repeatedly after getting home from school each day) I guess I can let the transaction fee slide.
I have mostly refrained from giving her advice (what do I know about picking stocks? see above about my failure to invest in Ford) but when she asked me if Blockbuster had shares you could buy I did tell her that she did NOT want that one.
So, what Owen did was to provide an incentive system to get his kids to save; he created a Bank of Dad where his kids could earn an outrageously high interest rate (sufficient to double their investment in a year). They could withdraw the money at will, but the kids quickly started squirreling away every penny, since the interest rate on offer was sufficient to make it well worth their while.
After a few years, he decided this was boring, so he closed the bank and created a Stock Brokerage of Dad instead. I think he actually gave his kids a starter portfolio. Mind you, just as with the bank, none of these stocks were real -- essentially it was a family game with real financial stakes, backed by the parents' pocketbook. The kids could buy pretend stocks for 1/100th of the real price. So -- when the market closed, Target was trading at $47.70/share. On the stock brokerage of Dad, his kids could buy one (pretend) share for 48 cents.
Anyway, Molly saw the book, and (probably drawn in by the New Yorker cartoon on the cover) picked it up. She found it fascinating. (I loved parenting books as a child. I occasionally found nifty tips that I would pass along to my mother. I bet she LOVED this.) Molly tried to talk me into starting a Bank of Mom, which I refused to do because she is already a very good saver and calculating out the interest would be a hassle. So then she suggested I start a stock brokerage, and after she'd spent a month or two checking the stocks in the business section of the newspaper daily I finally caved and printed out a sheet of paper where she could enter the name of the company, the price at which she'd purchased, the number of shares, etc.
Her first investment was in Ford, which she'd heard me say I should've bought last year as it's WAY up since then. It was selling at something like 7.48 so she bought four shares at 7 cents a share. (Do I need to reiterate that this is entirely virtual? she is not buying anything. She gave me 28 cents and we wrote down that she had four shares of Ford stock.) A bit over a week later, Ford got good news and the stock went up. It went up only a little, but she sold at 7.58 or something like that, so that rounded to 8 cents a share. She sold. (Which is to say, I gave her 32 cents.)
Later that same day, Ford dropped back down below 7.50 so she bought another four shares for 28 cents. Later that SAME DAY it went up AGAIN and she sold for 32 cents again.
Pleased with her success, a week after that she bought TWELVE shares of Ford for 96 cents and sold them the next day for $1.08.
Unfortunately, her next buy was two shares of Target. She bought on the 17th and Target stock has not been doing well.
This is the kind of game that works best if your broker charges you no transaction fees. I have joked that I should charge her a penny per transaction but since she gets no dividend, since I have no idea how I'd figure those (especially given that the buy-and-sell game is clearly more what she's interested in -- buying and holding is for BORING GROWNUPS who don't want to check the stock listings repeatedly after getting home from school each day) I guess I can let the transaction fee slide.
I have mostly refrained from giving her advice (what do I know about picking stocks? see above about my failure to invest in Ford) but when she asked me if Blockbuster had shares you could buy I did tell her that she did NOT want that one.
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no subject
Date: 2009-11-28 05:19 pm (UTC)no subject
Date: 2009-11-29 01:58 am (UTC)maybe if you took 10 dollars, gave her $1000 "trading dollars" and sold to her with no rounding. Otherwise she'll end up working for the next Enron.
no subject
Date: 2009-11-29 02:13 am (UTC)no subject
Date: 2009-11-29 02:32 am (UTC)no subject
Date: 2009-11-29 02:10 am (UTC)no subject
Date: 2009-11-29 02:12 am (UTC)no subject
Date: 2009-11-29 10:48 pm (UTC)teaching children about money
Date: 2009-11-30 04:14 pm (UTC)no subject
Date: 2009-12-01 12:25 am (UTC)no subject
Date: 2009-12-01 02:32 am (UTC)