Investing Lessons from a Toddler

The inspiration for today’s post.

There’s no reason investing can’t be fun and there is no such thing as too young to invest.  I saw this video pop up in my feed the other day and immediately knew it had to be a blog post. So, I thought it out and said what can I learn from my daughter here and it hit me. We have to ensure we are productively utilizing our resources. I decided that I needed to put myself in the shoes of a two-year-old in this situation and it took surprisingly less work than I thought it would.

Thing 1 as I will refer to her for the duration of the blog walked into our bedroom and saw a container with change in it. Now she might have seen it before, maybe not, but to her it was the moment that it dawned on her that Mommy and Daddy were not using this money. That is an important realization, that if we just put money somewhere that it is not working for us, we are missing an opportunity. She realized there was an opportunity and with the usual speedy decision making of a toddler acted upon it. We saw her on the second trip after hearing some unidentifiable sounds and caught her running back and forth, it led us to investigate where we saw her grabbing change from the container and running to her room to put it in the piggy bank, which just happened to be a pig.

Now, the question is, how does a toddler make money work for them? They look at it in terms of where do I know that money goes? In this case Thing 1 had the AHA! moment, money goes in the piggy bank! To small children the piggy bank is the place where money goes and it’s almost sacred. It that is the place where you magically draw money out later to spend. Now what if we found a way to recreate that feeling, not of terror about inflation killing our savings account, or investment managers that may or may not make good returns but take a cut of our money anyway? What if we could be the toddler who is identifying money not being utilized to the utmost and had a place to put it where we consider it to be safe and where it can actually grow.

Not having had the time to requisitely poll toddlers, I will have to make some inferences here. I imagine that two-year-olds think that money put in the piggy bank is the safest place in the world and while they don’t understand interest, I have endeavored to help them with this concept by creating the Bank of Dad. First let me say, that idea was not mine originally but came from a good friend who explained his system to me and I have adopted and adapted it to my families ability and needs. So, at our house, Thing 1 and Thing 2 have their own piggy banks that they have stored money in. Now that we are at a time where they can understand more complicated concepts, I set up a deal with them about their money. They have the option to invest their money in the Bank of Dad, who pays a very generous 5% return monthly on the investment every month. This means if they want to earn money, they can’t spend it, and at the end of the month they make their return. They don’t have an allowance, instead they are rewarded for completing their daily chore chart and other various chores. This money can be invested at any time prior to the last day of the month for their returns. If they want to spend it and take it out prior to the last day of the month that money is not counted toward returns. The broad point being that they have a system that encourages investment with no risk on their part.

We can achieve a similar situation in our own financial lives by investing our money intelligently in companies that are undervalued by the market. Thus, we are making our money work for us by earning returns on the market as it belatedly realizes that they undervalued this company, or get payed dividends on our positions, or the company realizing they are undervalued buy back their own stock. We have to remain invested to achieve these results, and we gain security of our money working for us by how and who we invest with. We know that we can always access that cash relatively quickly by selling out of positions (which I would hope would be a measure of last resort) and we answer to no one but ourselves. We have taken on the responsibility Thing 1 took on of ensuring we are making the best possible use of the money that is just sitting there doing not a whole lot right now.

Let us try to emulate Thing 1 who put the money in the correct place and not Mommy and Daddy who just let it sit on the night table doing nothing. She had it figured out as a small child and has the best understanding of how to achieve returns in the house besides yours truly. I am a little scared honestly and proud. Scared because she can be frugal and calculating it out, by the time she graduates college which is the life cycle of the Bank of Dad ends, she could have quite the nest egg. I am proud of how she waits for the things she wants until someone gifts them to her to not spend her own funds. I don’t have a good read on Thing 2 yet, but I see less investing mindset and patience in her, but we will have to see as her personality continues to develop. The flip side is she could be the next Gordon Gecko just as easily, she scares me for a different reason sometimes, but that’s another post.

I hope this post will help you to think like a two-year-old and desire to put your money to work in a secure manner in intelligent investments. This can be the equivalent of your new sacred space for your money in the way that it is for me and Thing 1. I recently let her choose an industry to buy a share of an ETF in and with simplified explanations of what each does, she wanted to invest in something which is about helping people (medical). I like her choice and even though my exposure is limited in this realm is limited because of my lack of understanding of the companies, I found a nice middle ground with her and chose an ETF. I love that she invests with her heart as well as her head. She may not be ready for individual companies, but she knew it helped people and that they are busy right now. We also have to understand opportunity in crisis to invest intelligently, so I encourage you to look for crisis and figure out where the opportunity is for an investor.

Time to go chase some prey from the refrigerator for breakfast!

Daddicus Rex

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