Christmas Playtime is Over

A few years ago at Christmas I had a nifty idea for “alternative” gifts for my kids: Rather than adding to the mound of plastic or electronic “stuff” that they typically get, stuff that wears out or is outgrown and in either case soon forgotten, I would instead give them something more valuable, enduring, and educational. I would buy them stocks! The idea was to open them each a custodial account and, for every gift-giving occasion thence I would add a new stock to their portfolio.

We’re not rich, so we wouldn’t be buying thousands of dollars worth of stock for them every year, just $50 to $100 each, whatever we could afford at the time. Basically what you could easily spend on a couple of video games. I should mention that this is entirely separate from their college savings accounts–They each got 529s practically at birth, and Grandma has been helping to build those nicely.

The problem with small stock purchases, of course, is that the transaction fees wind up being a huge percentage of the investments, so these purchases were horribly inefficient. I figured the educational value would offset the cost, however, since I could get them to actually look at these portfolios over time and see how factors like “cost per share” worked out over the long term.

It was not a terrible idea, but this year I’m changing course, for several reasons.

The first reason is that, after just a few short years, each kid now has approximately $700 in her/his account. Given their respective time horizons (they’re 12 and 14), that’s a substantial beginning to a nest egg. In fact, if we add some of the cash we’ve collected in the Bank of Dad over the years from birthday and Christmas cards, each now has more than $1000 with which to “play.” But $1,000 is not play money.

This year, I bought each kid a copy of “The Simple Path to Wealth,” by JL Collins. This is a book about money for people who do not want to spend their lives thinking about money. It is a book of advice from a guy who has had his ups and downs, dabbled in stock-picking and landlording and other things I’ve tried, and eventually decided to chuck all that in favor of some pretty simple principles that can, if taken to heart, provide any reasonably responsible, hard-working person with a good shot at early financial independence.

Now, most of the “early retirement” gurus out there have a couple of things in common: The authors spent their brief earning careers as Dual-Income, No-Kids couples in some sort of high-paying STEM field where each brought down six figures. All these people had to do was to be a little smarter than their colleagues about what they did with all that mad cash they were earning, avoid lifestyle creep, et voila!

That’s great inspiration for young people with bright, shiny futures in STEM careers, but at this, admittedly early stage, my kids don’t appear to be heading in that direction. At the moment, both of them basically live for music. And, in the girl’s case, art.

Of course I have been tearing my hair out over these developments. Not that I don’t like music. I love music. It makes a fantastic hobby.

Like every parent, I want my kids to avoid the mistakes I’ve made, and among my many mistakes over the years has been adhering to the crazy notion that somehow I ought to be able to make a living doing what I “like” to do. That never really worked out well for me.

However, I find myself unable to be a Tiger Dad. My heart is not in it. Somewhere deep within my crusty, hard-bitten carcass remains the vestiges of a long-haired young idealist who is cheering my kids on and would be ecstatic to see them be successful at doing what they love. And I am also incredibly proud of them when I see them perform.

Besides, I think this whole streamlining of kids into careers is bullshit. If there is any time when someone should be able to follow their passions, this is it. The future can take all sorts of turns. One of my best friends is a successful computer programmer today; he nearly finished a PhD in comparative literature before turning down that path. The primary difference between him and his colleagues who went technical from the beginning is that he can carry on a much more interesting conversation.

Here’s another thing those early retirement gurus have in common: They all, obviously, hated their jobs, else why were they motivated to be done with them so quickly? My son’s high school band director, by contrast, is one of the happiest fellows you’ll ever meet.

Ah, but go into any restaurant, bar, or Starbucks, and you will meet dozens of people who tried to follow their passions and never got that lucky break. By and large, they are not happy people.

So what does all this have to do with my kids’ “play portfolio?” I mentioned there were several reasons I was abandoning that idea, and the first reason was that we were starting to deal with real money, not play money. The second reason is this: Instead of pushing STEM at my kids, this Tiger-Wannabe Dad is going to push fiscal discipline. I think it will serve them better in the long run.

I’m beginning to see this portion of my kids’ education as more important than any other that I can give them, excepting perhaps what I hope will be a strong moral foundation. Because understanding some simple facts about money and having a goal like financial independence held out not as pie-in-the-sky but as eminently achievable can open the doors to their dreams. You can chase your dreams if you have F-You Money. And I don’t think you need a six-figure income to acquire it. Instead, you have to start early and be disciplined. It helps to have some inspiration, in the form of a small start. So today I opened up Vanguard accounts for both of them. No more picking play stocks–from here on out it will be straight indexing, with a purpose. My wife and I will put our little gift amounts in those indexes from now on, and once we pass the buy-in threshold for the mutual funds rather than the ETFs, there will be no more transaction fees bogging down the returns.

One of the amazing experiences of parenting is witnessing and, to a debatable extent, influencing the transition of a child into an adult. It is always gratifying to me when my kids show both comprehension of and interest in an “adult” conversation. And this particular decision prompted one of those. After a brief huddle in which I described what I was doing, both kids readily agreed to move the majority of that Bank of Dad cash into their new accounts. No hesitation. “Good idea,” they said.

Whenever the kids earn their first W2-style paychecks, we’ll open Roths for them. We’re not playing around any more.

I’m debating what to do with the stock positions they already hold. Most are in stodgy stocks that I figured would be good lifetime bets: Coca Cola, GE, and the like. Last year I swung for the fences and bought some Weibo, and that one returned 126%. I think I’ll leave at least the Weibo position in place just in case it turns into the next Amazon. As for the rest, I’m not sure. The index will probably outperform them. But that might be worth watching over a lifetime, with just a little skin in the game. Could drive the lesson home.

So that’s what my kids got for Christmas this year. A new investment account, and a book advising them how to grow it. Sounds exciting, right? Yeah, yeah…so my son also got a new tenor practice pad and sticks, and my daughter got a new piccolo. Rock on.

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