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How to Teach Your Kids About Money: Part II

Now is a great time to educate our children about the market and our economy.

Now more than ever, it’s important that we set aside time to talk to our kids about money. Every day our kids are picking up mixed messages of intermittent panic from the news, dealing with sudden social distancing, adjusting to life without school, and their entire life changing for them without notice. As parents, it is our job to explain the realities of life with our children to get them best prepared to handle life’s natural hurdles that emerge during a normal life. I believe that part of a parent’s ability to help their child to become successful is the ability to help your children see the world for how it really operates so our children can properly navigate to achieve extraordinary goals over a lifetime.

I have spent time with all of my kids the past few weeks talking about the COVID-19 pandemic, and the financial and economic shutdown, and I recommend you do the same to take some of the fear and mystery out of what is happening in the world around them.

I did this short interview with Zach to provide a window into our discussion on the pandemic and the economic impact on the US economy. This is the kind of discussion I recommend you have with your kids to help inform them about what is happening and help provide context and calm to an otherwise volatile situation.

 

Our economy is designed for long-term growth, but we’ll still go through pockets of challenges.      

 

He’s been impacted financially by COVID-19. Prior to the pandemic, he worked at a restaurant, but since this restaurant doesn’t offer delivery service, he and many of his coworkers lost their jobs. Fortunately, he can turn to his parents for financial support, but a lot of his coworkers had to find other jobs or start cashing unemployment checks.

It’s a scary situation, and it’s the first time in his life, and the lives of many other children, that something like this has happened. Technically, we’re in a recession, and we don’t know how long it will last. In the meantime, there are several developments we need to talk with our kids about.

The first is the extent of our unemployment issue. In the video at 1:37, you can see a U.S. Weekly Initial Jobless Claims chart that dates all the way back to the 1970s. In the decades leading up to the present day, the number of claims had its share of peaks and valleys (including the 2008 financial crisis), but during the first two weeks of the economic shutdown, the jobless rate literally went off the chart. The extent to which we’re seeing joblessness, and how quickly it’s happened, has never occurred before. It doesn’t mean the world’s coming to an end, but it is extremely rare.

The next is how the stock market reacted to the pandemic. In short, it got crushed. It spiraled faster and deeper than it ever had in such a short period of time. Will it recover? In the long term, we believe so, and that’s another important lesson to teach our kids: The market doesn’t always go down and stay down. Teach your children that you can’t expect to invest and have the market only go up. The market movement both up and down is normal. Our economy is designed for long-term growth, but we’ll still go through pockets of challenges.

At 3:30 in the video, there’s another chart comparing the coronavirus crisis to other historical bear markets, including the dot.com bubble burst of 2001, the 2008 financial crisis, and the market correction of 1987. As you can see, from February 19 to March 23, we experienced a massive drop-off, but the market did bounce back. As previously mentioned, we don’t know how long this recession will last, but what we have seen so far has been exceptionally rare.

It’s unfortunate that Zach lost his job, but now is the time to be thankful. This is another thing we’ve spoken about at length—we’re thankful for the fact that we work hard and save money for moments like this. In fact, we plan on filming an upcoming segment on the importance of saving money once you start making it. If you live within your means, you’ll never miss the savings for times like these.

The market will become volatile and drop every once in a while, but that creates opportunity. When the market dropped this time around, we invested in stocks that were low now but we expect to recover. For example, we sold Zach’s ExxonMobile position and made an 18% return in just a week and a half.

So take this opportunity to educate your kids about the market—it’s not going to end! Talk about cash flow, the job market, and put everything into a historical perspective. Also, talk about the economy. This is a time of connection, learning, and understanding. If you do this right, you can add context to this seemingly frightening situation and ensure your kids don’t create bad long-term habits. The last thing you want is to let this become a difficult situation that breeds fear and anxiety.

As always, if you have more questions about this or any other finance-related topic, please feel free to contact us at Henry+Horne Wealth Management. We’re always here to help.