Q Do you have any suggestions on good books that a 16-year-old could read to understand how investments work and offers good advice? Also what's your opinion on good techniques for teaching about how investments work? I am toying with the concept of having him read the book and giving him $1,000 to invest if he can explain some basic concepts. KEVIN
A What a wonderful idea. Learning about investing early will hold your teenager in good stead over the years.
Financial literacy matters more than before in the world your teenager is growing up in. Colleges count on parents and their children to come up with more tuition dollars on their own, and when he graduates, he's likely to have at least some student loan debt. When he enters the workforce, his employers will insist he take responsibility for his investments and funding with 401(k)s and similar savings plans. People are increasingly expected to prepare themselves for rapid technological change. The modern credit economy comes with a steep price tag as the merchants of debt are adept at promoting the convenience of credit while hiding the true cost of debt.
On investing, I like "Street Wise: A Guide for Teen Investors'' by Janet Bamford. Around the same time (2000), the Motley Fool published its "Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of.'' Another idea is Janet Lowe's "Warren Buffett Speaks: Wit and Wisdom from the World's Greatest Investor.'' She gathered together many quotes and insights from the world's greatest stock picker. The first half of the book is more about life and family, while the second half concentrates on investing. Buffett offers up plenty of investing insights in an easy-to-understand way. He also draws the critical difference between trading and investing, something you'll want your son to learn.
You'll also find rich learning resources on investing on the Web. I'm not a fan of the websites that focus on young investors. Instead, you'll do better at websites like Yahoo Finance and Google Finance as well as most major mutual fund companies and trading platforms, since they have really boosted their graphics, access to research and basic introductions to investing. When you're picking a place for him to do his investing, I would compare the quality of the investing services and information.
Here's a suggested approach: Picking stocks as an investor -- not a trader -- is a fun way to learn. Whatever your teenager's passions or interests, there are public companies to research and follow. Investing in stocks opens up a different way of looking at the world.
For example, he could conduct some initial stock market research walking around a mall and looking in stores to see what's selling. It's a very different experience walking through a mall with the eye of an investor rather than a consumer. He could do the same exercise at home. You could also talk to him about his interests, perhaps sports, the environment, bikes, and so on. Again, he could start looking into an interest as an investor, asking if there are any money plays for him to research.
This approach doesn't really focus on making money. It's nice if he ends up reaping a profit. But the emphasis is on learning, mistakes and all. Have fun.
Chris Farrell is economics editor for "Marketplace Money." His e-mail is email@example.com.