Book report: "1st National Bank of Dad"

[Nords]

Hey, I read a LOT last week. "Young Dreamers" is the place for this one.

David Owen has become one of my favorite authors. I stumbled across his biography of Chester Carlson (inventor of the office copying machine) and dug up several of Owen's other books. "Bank of Dad" is the best kid's money book I've read since "If You Made A Million".

He uses his own kids as guinea pigs but they're developing financial powers of reasoning far beyond most young adults. His theme is that parents ask kids to do incredibly stupid things with their money ("Look, Junior, if you give your money to this 'bank' for 10 years, it'll earn 20 cents of 'interest'!"), and the kids see right through it. An eight-year-old has no appreciation of saving for college. In fact most kids spend their money as quickly as possible in order to enjoy it before their parents take it away from them (one way or another) to do "responsible" things to it.

Owen sets up his own home bank that pays (*gasp*) FIVE percent PER MONTH. Of course the kids quickly grasp the power of compound interest and become savers.

But he's also learning as well as teaching. He let his kids sink all their allowance money into Beanie Babies because he knew that they'd learn a lot when the collectibles market collapsed. (They weren't listening to him anyway.) "Unfortunately" for Owen's smugness, his son discovered eBay and sold two of 'em for $120. The market subsequently collapsed but the good news is that both kids are now very careful in choosing their new toys and caring for them, realizing that when they're tired of them they can resell them for 50-90% of their value. Some of their Disney videos are actually returning more profits than Disney's stock.

We already do the Bank of Dad (with CDs & 401(k)s) and our kid loves having her own checking account, but I've been casting about for a way to get her more interested in investing. She's made some money on stocks but she says that she's bored with stockpicking. (No testosterone poisoning there.) I figured that her $500 stash of years of birthday/holiday gifts would be burning a hole in her pocket, but she's reluctant to sink her money into index funds because she might lose too much for her risk profile. (She's learned a lot from watching me short KMart.)

Owen's solution to our problem is "Dad's Stock Exchange". He essentially gives his kids $250 as a portfolio of a half-dozen of their favorite stocks (McDonalds, AOL, etc). The kids are free to keep the portfolio, to sell it for other stocks, to put it into mutual funds or bonds, to put it back into the Bank of Dad (hey, 5%/month is a great deal), or even to spend it on toys. The key is that each stock is priced at 1/100th of its actual share price and, to keep things simple, there are no commissions or taxes. So the kids feel free to experiment with diversification & risk management. His son promptly started tinkering with techs. His daughter actually said that she was too busy with schoolwork to monitor her investments, so she moved into index funds.

Owen also wrote a hilarious book on home improvement called "The Walls Around Us." He's actually quite educational about paint, siding, landscaping, roofing, etc while describing his power-tool mishaps.

Jarhead, Owen is apparently an enthusiastic golfer. I'd recommend his thoughts on Tiger Woods in "The Chosen One"-- Owen claims that Woods has simultaneously destroyed & revived the game, while electric golf carts are about to destroy it again within another generation. You'd appreciate Owen's appraisal of what Woods is forcing the rest of the pros to go through, off the course as well as on it.

[Nords]

Quote:

One thing, slightly off subject, is that I am surprised that most posters on this board do not play golf. *(Not trying to recruit, but it puzzles me.) Having played and coached all the "Major Sports", I have never found anything that has held my attention that golf has.

I don't pay much attention to sports, but Tiger caught my eye when he'd won so much that his CADDY, whose share is 10% of Tiger's purses, made the top 10 list of the highest earnings. I wonder how many pros were ready to quit driving and start hauling.

My high school job was grounds maintenance. It was the only way to get on the course since I couldn't afford the $4 greens fees, let alone the $135 unlimited season membership. And of course I never had to buy balls once I had that job.

I kept golfing in between deployments but then it started to interfere with spouse & SCUBA diving. After a bad day at Fort Ord's Black course I sold the clubs.

And if golf had somehow survived until I started surfing, I would have sold the clubs all over again. Nothing has held my attention like reading the waves...

[Jarhead*]

[quote]

Nords: You really like being underwater :)
I don't know if you played the back tees (Longest ones), at the Black Course, but in any case, that layout is tough for anyone the first time playing it.

[MRGALT2U]

Hello Jarhead! I loved (love) golf. Have not played since
1975 and still like to watch it. From time to time I think about starting up again. Alas, when I was working I dropped it because I was too busy. Now, I don't play
for the same reason. Irony?

JG

[unclemick]

I still get a few twinges every winter about snow sking. No slats since 1974. Never get around to doing anything about it and the itch passes.

Still remember the babes at A basin during spring sking in halter tops and cut offs.

Just a dirty old man I guess.

[newellcr]

Hello Nords,

Thanks for the post. It's something I'll be interested in when the kids develop the math skills to handle this.

Kind Regards,

Chris

[Jarhead*]

[quote]Hello Jarhead! *I loved (love) golf. *Have not played since
1975 and still like to watch it. *From time to time I think about starting up again. *Alas, when I was working I dropped it because I was too busy. *Now, I don't play
for the same reason. *Irony?

JG[/quote

JG: I believe it's more a matter of priorities than "Irony".
The one thing that is true for all of us that retired early is that we traded more money for more time.
Right at the top of my "priority" list was more time playing tournament golf, and fly-fishing.
So the fact that you are too busy to play golf, etc. indicates more about "priorities" than anything else.
If we couldn't do what we want to with the massive amount of extra time that we now have, it would make little sense to retire. (Different strokes for different folks).
I find the expression "time is of the essence" to be especially valid at my age.

[Nords]

Quote:

Nords: You really like being underwater :)

Did I mention that spouse is an oceanographer?

Quote:

It's something I'll be interested in when the kids develop the math skills to handle this.

Owen says that's when kids start treating money as a tool instead of a food source. For our kid that began around age 5 and it steadily improved over the next couple years.

A library copy of "If You Made A Million" was an instant classic at the same age.

At age 5 our kid instantly understood that she'd get two pennies for every dollar every month. (Owen uses 5%/month.) She didn't start learning percentages until third grade. Now that she can plug Excel spreadsheets, she's having a lot of fun with compound interest. (Her "401(k)" will produce $5000 at age 16 for car expenses.) Soon we're gonna start comparing IRA contribution timing (starting now for 10 years, starting 10 years later and never catching up).

At age 12, though, math skills succumb to marketing. She recently complained that she didn't have enough $$ to see a movie. I asked how much that would take, and the answer was "Well, duh, about $20!" It turns out that "movie" actually means a matinee ticket ($6), a pre-movie Jamba Juice ($4.50 but with free vitamins!), a spam musubi ($3), and popcorn ($3). Smuggling in PriceBuster's candy was "only" $1 instead of $2.50.

Financial comprehension suddenly dawned upon her when my Socratic reasoning helped her realize that pawnshop DVDs & videos are about $5 (which you can resell on eBay). A half-gallon of ice cream is about $3 on sale at the grocery store. When she whipped up her home version of a Jamba Juice, we priced out the ingredients at about 50 cents a serving. Same math for spam musubi & popcorn.

Understandably it can't all be smuggled into the theater, yet she still sees that $18 experience as her version of "independence." I guess a couple hours away from your parents is priceless... but for everything else in life there's extra jobs for spending cash.

[eyeonFI]

Hi, I've been lurking on the forum for a couple months, enjoying reading a lot of the posts (thanks for all the interesting info). This thread struck a cord, so I finally registered to join in the conversation.

This sounds a lot like what my mom/grandma did with me. Mom took me to open a bank account at age 7 and grandma promised to double any money I saved for at least 6 months (the original deal was a year, but I negotiated down to 6 months :-)). Grandma eventually had to end the deal when I hit my early teens because I was costing her too much money (about $4000 by age 14).

They definitely accomplished the goal of instilling money-saving values: I'm 33 and aiming to be FI in about 5 years. (Thanks grandma!)

[newellcr]

Nords,

Cool. My son is a couple of months away from 3. Thanks for sharing.

Chris