What Top Finance Leaders and Experts Teach Their Kids About Money

Along with relationships, finance and money management is the one topic parents dread to talk to their kids about the most. While parents may be able to talk to their children about the basics of savings, discussions typically stop at that. Only about 30% of parents talk to their kids about investing money and saving for retirement.

So why is finance such a hard topic to talk to kids about? Whatever the reason — perhaps parents not knowing where to start or enough to begin with — hopefully this article can be of some assistance.

Over the past year, we’ve interviewed a variety of high-profile leaders and experts in finance on our official podcast Finance Simplified, hosted by me and several other students in college and high school. We’ve interviewed 13 incredible leaders and experts in finance and economics, ranging from the former 2nd-in-command at the US Treasury to a legendary Wall Street investor to a Nobel Prize-winning economist. I always end every episode with some form of this question: “Knowing what you know now about finance, economics, and business, what lessons about the world of money do you teach to your kids?”. Every answer I’ve gotten has been different, and they all reveal new insights into how kids learn about money.

I’ve chosen seven guests who I think have the best responses and advice on what to teach kids about finance. Skip to the bottom if you just want the summary.

Anthony Scaramucci, Founder of Skybridge Capital

Anthony Scaramucci was the tenth guest on the podcast. He’s the founder of Skybridge Capital and was the former White House Communications Director. He’s the father of five kids and has some of the best advice I’ve heard about finance. 

Anthony’s first piece of advice to parents and kids is to make sure they understand their relationship with money. He says that his “children have a different relationship with money” than he has. Growing up in a middle-class family, Anthony said his family “was watching the money very carefully, was on a very tight budget, and learned to deal with things differently.” Anthony says today that his “kids grew up with central air conditioning and more than two houses, and so the point being is that they have a different relationship with money I did.” He says his kids “are a little bit safer in their minds, a little bit more secure with money” but that he needs “to teach them how to make money so that they can always be prosperous and meet their standard of living with the money they have.”

Every generation has a different attitude toward money. The same circumstances don’t always exist, and that means money is treated differently. The lesson here is to be aware of your relationship with money and understand how to maintain or improve your relationship with money. That relationship becomes better when you feel more secure and safe with money, but you have to understand how to achieve that relationship. Whether that’s earning more, spending less, finding better employment, or investing in something new, the key is to know your relationship with money and strengthen it.

Anthony has two main tips to help with this: 1) be a saver and 2) understand compounding. “Number one — you have to be a saver, you have to live below your means”. In other words, don’t spend money you don’t have and don’t spend a large portion of the money you own. “Number two — you have to understand those laws of compounding”. Compounding is at the core of all your returns in investing. You need to understand that because of compounding, earning 7% per year will mean that you double your money in 10 years, and earning 10% per year will mean that you double your money in 7.2 years. Compounding is how you ultimately decide which investments to make and see your money grow.

That’s some wisdom from The Mooch for ya!

Howard Marks, Co-founder and Co-Chairman of Oaktree Capital

Howard Marks was the second guest on the podcast. To some, learning finance may seem like learning the basics of spending and saving — what we call personal finance. To others, it may seem like learning how to pick the right stocks — what we call investing and trading. The truth is that financial literacy is a combination of both, and Howard Marks has had a truly legendary career in the investing realm, earning a net worth of over $2 billion. As a prolific investor and writer, his views on investing and money management are regarded highly by investors everywhere. He’s also the father of two kids, and he started talking to his children about investing when they were teens. 

He recommends that kids, when they begin to invest, understand two fundamental ideas. The first is the difference between price and value. The second is the importance of history and not repeating mistakes. The difference between price and value is simple to understand. It’s ultimately the question, “are you getting what you pay for?” and it applies to more than just investing in stocks. It applies to purchases you make, choices you decide, the relationships you’re in, and almost all aspects of life.

As a consumer of any good — let’s say shoes — one decision you’ll have to make is knowing whether a pair of shoes on sale for $50 is really worth $50 to you. And as a consumer, you always will want to get the best deal on your purchases by getting a bargain. The same principle applies to investing in stocks and other types of investments. You want to buy a stock when their price is cheap compared to the value you see in it. This principle is crucial to understand because it, along with the time value of money, forms the foundation for pretty much everything else in investing.

Howard also recommends that kids who begin investing understand history and not make the same mistakes as past investors. Using history as a guide, you’ll understand why investors lost or made money. Whether that’s buying into a red-hot bubble, becoming emotional, or investing in something you don’t understand, mistakes are less likely to happen when you know history. 

The two key takeaways are to understand the difference between price and value and understand history. If you’ve learned those two, then investing becomes a whole lot easier to unravel.

Morgan Housel, Partner at the Collaborative Fund

Morgan Housel was the eleventh guest on the podcast. He’s an incredibly insightful financial writer and the author of The Psychology of Money. His thoughts on personal finance and investing are some of the most unique and well-regarded in the industry. As the father of two young kids, he says that “they will figure it out for themselves” and that while he’ll “point them in the right direction, everyone is different and it’s going to be up to them” to figure out how they learn finance. 

That being said, he does hope to pass on a lesson about what money is truly used for. Many people think money is used to buy more things or experiences that will make you happy. Morgan’s advice is to view “the ability to control your time in your life” as “the greatest that money can buy.” Money can give you the ability to buy more things, but at the end of the day, money really allows you to control how you spend your time and to spend it on what truly matters.

Aswath Damodaran, Professor of Finance at NYU Stern

Aswath Damodaran was the third guest on the podcast. He’s a professor of finance at NYU Stern, and is often considered a guru to Wall Street’s gurus and nicknamed the “Dean of Valuation”. Aswath’s advice is to his kids and to any kid is to understand finance for what it really is: common sense. “None of the stuff that I’ve built requires a finance degree of the people to find it. It’s common sense”.

As one will learn, a lot of finance is built on common sense. Fields like physics and biology require a specialized understanding of the subject. However, finance is ultimately the study of how people interact with money. All the principles, formulas, and behaviors in finance are all based on common sense and basic human behavior. Understanding this should erase any doubts that only incredibly smart people can be good with money. The truth is the exact opposite — anyone with common sense can learn how to be good with money. 

Heidi Roizen, Partner at Threshold Ventures

Heidi Roizen was the ninth guest on the podcast. She’s an incredibly successful venture capitalist and is the mother of two kids who she’s taught about finance from a young age. Her advice to her kids and any kid is to buy low, sell high, and invest for the long-term. With the resurgence of day-trading, many kids are being introduced to investing as a form of gambling and speculating. Heidi’s advice is to understand what it actually means to invest in a stock, understand businesses, and not treat the stock market like it’s Las Vegas. 

“What ultimately makes businesses valuable is their ability to generate profits in the long-term”. If you’re investing in stocks, you’ll need to decide on whether or not the company can and will generate profits and create value. One can still speculate and trade investments for the short-term. However, doing so is not investing, but rather using the market as a casino and gambling in it.

Josh Stein, Managing Partner at Threshold Ventures

Josh Stein was the very first guest on the podcast. He is a successful venture capitalist as well as the father of 2 kids. He’s got a couple of recommendations that would serve not only his kids, but any kid who wants to learn finance. 

The first is “understanding how to prioritize and allocate spending” and “working within a budget, as opposed to just spending money without thinking.” Learning to budget and knowing how much to spend is the foundation for all of personal finance. It’s the first step any kid should take in becoming financially literate. More often than not, financial stability is not determined by how much one makes, but rather by how much one spends and saves. 

In addition to learning budgeting, Josh also recommends learning about debt and the dangers of getting into debt. Josh says that “there are types of debt that can be useful tools,” citing student loans and mortgages, but that “it’s very easy for people to get caught up in frivolous debt, spending on things like a new TV or computer, or whatever that they can’t really afford.” Understanding the basics of debt and how it can help or hurt you financially is the next lesson that kids should learn. Warren Buffett once said that compound interest is the most powerful force in the world. As Josh puts it, debt is compound interest working against you.

Learning how to spend within your budget and understanding the benefits and drawbacks of debt are two of the most important financial lessons anyone can learn. And the younger you learn them, the better equipped you’ll be. 

John List, Professor of Economics at The University of Chicago

John List was the seventh guest on the podcast. He’s a renowned professor of economics at The University of Chicago and has contributed hugely to the field of behavioral economics. He understands how psychology and emotions play into decisions, and as the father of eight children, he has plenty of wisdom to hand out to kids. His two pieces of advice are to not be emotional while investing and to make the appropriate tradeoff in time. 

As people learn to invest, a common issue is the emotional ties they have to their money. When investing, you always risk losing money. That risk carries an emotional toll because we feel terrible and scared when we lose money. John’s advice is simple: don’t be emotional when investing. That’s easier said than done, as we often don’t know how to remove our emotional biases in our investments.

To deal with this, John recommends that you don’t look at your investments daily or weekly, but after a quarter or a year. The market is typically volatile in the short-term. Investors who check their investments daily may sell at a time when the investment will only temporarily be down before recovering. The goal is to not fall prey to short-termism and understand that the market goes up in the long-term. This means you should check your investments in between larger intervals of time, which helps to remove any emotional decisions you could make. 

One of the most fundamental problems that humans face is that we overweight the present and underweight the future too much. In other words, people are typically more focused on the present and will underinvest in their future. “People always irrationally weight the present,” he says. Health is a good example — people who eat unhealthily in the present overweight the satisfaction in the present but sacrifice their health in the future. However, those who exercise and eat healthily in the present will see a future benefit in their health. As John puts it, the goal is to “always make the appropriate tradeoff in time — impose a cost on today for a benefit tomorrow”. This applies to learning finance as well — it may take some time to learn in the present, but the benefits will be far greater in your future.

What Kids Should Learn

In summary, the experts and leaders above recommend to do well in finance, kids must understand the following:

1. Their relationship with money in terms of security and safety
2. Most of finance is really common sense
3. How to budget and spend on things you can actually afford
4. How to save and live below your means
5. Compound interest and the wonders it can perform
6. The benefits and drawbacks of taking on debt
7. How money helps you control your time
8. How to make tradeoffs between the present and the future

In regards to investing, the main recommendations that the above experts have for kids are to learn the following:

1. The difference between price and value
2. How to reduce emotional decision-making
3. What it truly means to invest in a stock or other asset
4. How a business becomes valuable
5. The market is not a casino and that it’s better to invest for the long-term
6. The importance of history and what has or hasn’t worked in the past

The first 8 pieces of advice will help any kid understand how to make the proper decisions for any general interaction with money. The second 6 pieces of advice will help kids when they actually begin investing. 

Getting Started

Now that we’ve established what topics to learn, how exactly does one learn them? The podcast and the articles on StreetFins are great places to start. But an even better place to start is with a conversation with parents. Parents can explain to their kids the decisions they’ve made with money, and kids can learn a lot from their parents’ successes as well as their mistakes. This will help kids understand what they need to do to achieve financial stability and literacy, and our platform and resources at StreetFins will be here to provide whatever you need at every step of the journey.

I hope this article was helpful!