Back to School Money Questions; How Do You Invest Money for Other People?

I found out that the easy questions from my kids about money and jobs were over.  It did not take long for my kids to bring the “big stuff” to me.

“Dad, how do you invest money for other people?”

You would think after investing other people’s money for over 29 years that the answer to this question would just roll off my tongue. I must admit that it was just the opposite. I actually had to go to Google and read up on the best way to answer investment questions that would help kids begin to understand. 

I read that they best way for kids to begin to understand investing is to teach them where money to invest comes from.  Money to invest always comes from savings.

Savings comes from not spending all the money that you make every month.  Savings come from setting up a monthly budget for your household.

So the right sequence to investing is budget, savings, investing.

Once you have money to invest, there are two ways to invest it.  First, you can invest money that you pay taxes on every year in a brokerage account. I explained to my kids that you have easy access to this money in case of an emergency.

The next way to invest money is to save for retirement in a company retirement plan.  I explained to my kids that a small percentage of the monthly paycheck that people get goes into a company retirement plan account in their name.

I also explained to them how the company that they work for matches that dollar amount every year up to a certain level.  They liked the concept of the “free money” that they would earn for their retirement some day.

I did not get into stocks, bonds, mutual funds, and self-directed company retirement plan accounts.  This information would be too much-too soon. I have 70-year-old retired clients you still struggle with those concepts.

I kept it simple for my kids.  Spend less than you make, save the difference, and invest what you can every month.

Ric Lager
Lager & Company, Inc.