Vancouver, B.C. (January 30, 2001): Our previous newsletter indicated that teaching children about the value of money gives them a giant leg up, particularly if we want them to mature into financially responsible adults. When it comes to teaching children the basics of investing, fee-only investment counsel and financial advisor Adrian Mastracci notes that "Enthusiastic parents and grandparents make all the difference in the children's interest in investing."

Mastracci, president of Vancouver based KCM Wealth Management, comments, "Our clients often ask how to convey those important investment skills to their children and grandchildren."

"Investment guidance from parents and grandparents has a tremendous affect on our children," says Mastracci. "Teaching them about the art and science of investing as part of their life skills prepares them for their future and takes away the mysteries associated with the markets."

Mastracci offers these suggestions on getting children started on the path to savvy investing:

• Enthusiasm, enthusiasm and enthusiasm. These are the three ingredients that you start with and maintain during the long journey. The time and efforts devoted to work with children on this will pay off handsomely. It is a true test of a long-term commitment on the part of parents and grandparents.
• Make it a fun experience and take it in small doses. Both you and the children will appreciate it.
• As a parent or grandparent discuss the roles of a bank, credit union, your investment counsellor, financial advisor, accountant, lawyer or broker so that the children appreciate and understand how they fit into the investment puzzle.
• As you read newspapers or visit internet sites, select a different topic of interest on the economy every couple of weeks, introduce the children to it and explain its importance. Typical examples are interest rates, inflation, company pensions, government spending and the fortunes of companies. You will have no shortage of material to work with, but make sure you start with simple concepts that have some relevance to the children.
• Introduce the children to business pages and internet sites that have material they understand for their age group and level of knowledge. Perhaps, have them conduct simple research assignments on particular issues being discussed.
• Explain the magic of compounding. As an example, investing $50 per month at 7% per year, compounded monthly, accumulates about $26,000 in 20 years. A second one is to provide for a 3% annual rate of inflation on $1,000 of today will require about $1,800 in 20 years.
• Begin a simple stock portfolio that you can afford for the children or grandchildren. Over time, select 3 or more stocks that the children can easily relate to - say a toy company, music company, soft drink company, computer firm or the famous restaurant (see suggestions later in this newsletter).
• Of course, ask for their input in the stock selection process and engage them in discussions of how these companies affect their life.
• Allow the children to do as much of the maintenance as possible, such as looking up stock prices, or updating the portfolio. You will be amazed at their skill levels.
• Make sure that at least one of the chosen companies sends a regular dividend, no matter how small.
• I am going to remove my investment counsel hat (but only for a brief moment) and suggest that you put aside thoughts of long-term asset allocation for the starter portfolio. Concentrate on making it an experience the children can relate to in their everyday life. This is the more important lesson.
• As resources allow, you can initiate a separate family trust account or a Registered Education Saving Plan for the children on a prudent long-term investment basis and fund it accordingly.
• If possible, select a local company for their stock portfolio so they can attend the annual general meeting of shareholders. The children's attention span may be short, so be prepared to leave early. However, they will begin to understand the entrepreneurial spirit and the importance of ownership.
• Perhaps a percentage of their monetary gifts and allowances, say 10% to 20%, can be directed for the purchase of stocks. This could be the start of the concept of "paying yourself first." It also builds a disciplined and committed approach to investing - skills they need later in life.
• Make sure that the children receive all the shareholder communication, such as the quarterly and annual reports, from each of the stock companies selected. More important, read and discuss these with the children so that they acquire a greater understanding of the world of commerce.
• Don't worry if the children make some investment mistakes. It is a normal part of life as it was with you. At the end of the day, children learn from their mistakes. Therefore, it makes sense to let them learn valuable lessons when the mistakes are not too costly.
• Whenever possible, encourage a school investment club or one among a few of the children's friends. It is one of the best ways for children to be immersed in the investment arena. (Look for more details on this topic in an upcoming newsletter).

"As parents and grandparents, we can teach children the ABC's of investing, especially if we start when they are young," added Mastracci. "Your long-term reward is that the children reach adulthood with a broad working knowledge of their investment sense, ready to be financially responsible. You will be very proud of their achievements."

Mastracci summarizes, "Of course, you are fully aware that children are not going to do what you say. Rather, it's what you actually do that creates the lasting impact on their actions."

Children's Portfolio Suggestions

Setting aside all notions of individual investment merits, there are many suitable candidates for children's stock portfolios, which are representative of a product or service that children can associate with. Some individual selections to research are:

• America Online
• Auto Company (whose car you drive)
• Bank stock (if possible, where their account is)
• Coca-Cola
• Company where Mom, Dad, Grandma or Grandpa works
• Dell
• Disney
• Gap
• Hewlett Packard
• Intel
• Mattel
• McDonald's
• Microsoft
• Motorola
• PepsiCo
• Toys R Us
• Telus

Individual stocks are the preferred vehicles, especially in the early years, so that the children can associate with the products or services and relate to them in their everyday life. As the children mature you can introduce mutual funds, dollar cost averaging, asset allocation and market indices.