Creating a Financial Legacy - For Only $100 Per Year

I was nearly 30-years old before I began investing in stocks and bonds. It took me several more years to truly understand how to do this successfully.

As a grandparent, one of my wishes is to help my granddaughter gain confidence in financial planning and investing at a much younger age.

In the last several years, some of the largest financial institutions like Charles Schwab, Fidelity and Interactive Brokers have begun offering fractional share trading, with minimal investments as small as $1 per share. This allows investors to build a portfolio of several stocks with a modest investment. This also creates a laboratory for learning to invest while minimizing risk – allowing an opportunity to teach young adults about financial planning and investing.

When my granddaughter Elsie turned eight, I decided to setup a custodial account and gift $100 on her birthday to invest in the stock market. This annual gift will continue until she reaches adulthood when the custodial account automatically reverts to her control.

Every year as Elsie grows older, I plan to educate her on more and more sophisticated financial concepts. These birthday gifts have now been made for the last three birthdays. So, what has she learned so far?

Age Eight 

The goal during this first year was to introduce the concept of stock ownership. Elsie was asked to pick two companies she would like to own. Not surprising, she picked Disney as her first choice and Apple as her second choice. I purchased $50 of each stock. Also, I printed and framed replica stock certificates for these first purchases.

Age Nine

The goal during the second year to introduce the notion that stock prices can go up or down over time. Fortunately, Elsie had an investment gain during the first year. Elsie was also excited to realize she was earning dividends from stock ownership. She also picked two new stocks to own – Target and Gap.

Age Ten

For this third year, I graphed the price movement of each of the stocks Elsie owned along with the actual dollar and percentage gain or loss of each stock. She had stocks with both gains and losses – so I also included smiley, neutral and sad faces as appropriate on the graphs. I also included a graph of the S&P500 index and its percentage gain during the prior two years. I asked Elsie to invest in a S&P 500 ETF with a portion of her annual gift. She also chose to sell Gap and buy Roblox.

So, what is next?

For age eleven I plan to calculate the gains and losses for each stock and the S&P 500 index, noting the S&P 500 will probably show up in the middle of the pack because of its ability to diversify gains and losses across 500 large cap stocks. This will introduce the benefits of diversification across investments -- and the opportunities to diversify across large cap, small cap, foreign markets, emerging markets, bonds, money market accounts and various other factors.

In future years I plan to start introducing data to help determine the fair value for a stock. This would include introducing financial statements, price/earnings ratio, book value, dividend yield, revenue & earnings growth rate, and various other factors. And finally, the importance of financial planning to first define and then achieve key goals over her lifetime.

Each additional bit of information will be introduced when Elsie is able to understand and appreciate each new concept.

At the final step of this process - at age 21 - I will gift the several books I have read and used over the years to understand financial planning and investment strategy.

Learning about financial planning is not a one-and-done process. Rather, it is a gradual process of introducing new information and concepts as each young adult matures.

So, consider creating a financial legacy for each of your grandchildren.

All for just $100 per year.

About the Author

Richard O. Weijo, PhD, received an undergraduate degree from Concordia College in Moorhead, Minnesota, and went on to receive his MBA and PhD degrees from the University of Minnesota. He was an Assistant Professor of Marketing at the University of St. Thomas in Saint Paul, Minnesota. Richard was also a Senior Analyst at the Pacific Northwest National Laboratory, and his most recent corporate position was as a Manager of market research and Director of customer channels at Portland General Electric. Currently, he is a consultant and a writer. He adores his young granddaughter Elsie, whose birth inspired his book, Remember Me: Creating and Leaving an Inspiring and Memorable Legacy.