I often hear parents lament that their kids have no interest in investing, and they ask me how might they entice them to be more engaged. With all the distractions of social media, computer games and other interests competing for their time and attention, I can see why kids might not be jumping up and down at the thought of developing an investment portfolio.
The thought of having $100 in a bank account earning $2.50 interest over 12 months is not that inspiring. Even if they had one of the high-performing international tech shares that earns 37% on $1,000, this is still only $370 annually, which if earned evenly each month would only equate to about $30.
Little wonder those Instagram feeds seem far more interesting. How can these types of investment compete with the flashing lights and hot posts of social media and in reality, isn’t regular saving or a safe investment just snoozeville for a young person with a short attention span?
I was recently speaking with a client about one of their kids’ portfolios that we look after. It holds all the traditional types of investments: cash, high-quality blue chip shares, fixed interest etc., but at the request of the client’s kid, we placed a very tiny piece of exposure – less than 1% of the portfolio value – into crypto, with the understanding it might turn out to be worthless, or it might make something. This was the great unknown.
The interesting thing is, after about six months or so the crypto position was up around 600% – and the parents remarked how their kid had suddenly become totally engaged with her investment. She regularly received updates on what was going on with the price of the investment, so in effect the flashing lights of the crypto’s rapid moves was enough to capture her attention.
I found this profound, because regardless of your thoughts on crypto as an asset class, could this possibly be a useful learning tool? I surmised that crypto could assist by focussing the kid’s attention on the experience of investing, with the magnified movements providing a heightened investing experience in a short period of time. For example, bitcoin moved 24% in the last 24 hours – in a regular investment this would take at least 12 months. On the other side of the bitcoin, it has also dropped 50% within two days, a number of times over the past 12 months. Again, to see this type of movement you might have to wait six to 10 years’ in a normal share market cycle.
Now crypto might not give your kid an understanding of share valuations or other core principles of investing, but what it can provide is an appreciation of human emotions such as greed and fear; the concept of the volatility quotient of an investment; the notion of crashes and bubbles. The potential learnings of resilience and holding your nerve during large crashes could also be valuable. I hypothesise that the exciting fluctuations of crypto could be enough to capture the imagination and interest of a young person.
I was recently in Times Square attending a notable Wall Street conference on crypto investing. One of the key speakers at the event reported 83% of crypto investors check their investment portfolio daily and interestingly, 33% of them check it every hour. This definitely shows a level of engagement by people who participate in this sector, so it’s possibly enough to cut through and grab a young person’s attention too.
Now let’s face it, crypto might be in a bubble, but even if it is there’s nothing wrong with this; the biggest, nastiest bubbles are where the most money is made quickly – and if your kid misses the exit door, it’s the quickest way to lose a lot. But gosh, they’ll learn a hell of a lot. If you think about your kid’s education; at the end, you don’t ask for your money back if you were unhappy with what they learned. It’s the same with crypto investing: if your kid places a small amount of money into crypto, they need to be prepared to lose the lot. But the lessons that they might learn could actually be valuable ones that stand them in good stead for the rest of their life.
The other thing to remember is that while crypto might be the trigger to spark your kid’s interest, like the example I gave above, over time it might be enough to engage them in other elements of their portfolio. It’s the start of the journey, not the end. Down the track, they’ll learn about ‘sensible’ investing with diversification in solid, stable stocks. The crypto might just be the carrot that gets your young bunny through the door into the world of opportunity and investing.
When it comes to crypto, your kid must be prepared to lose every dollar they invest, and understand there are minimal regulations or consumer protections, so if it all goes up in smoke, they can’t complain that nobody told them this could happen.
Like most investment decisions, it’s always important to speak with a professional financial planner before diving in head first.