Teaching an Eight Year Old about the Stock Market


The Parable of the Gum Ball Machine

It is widely recognized that unless you can explain something in a way that an eight-year-old child can understand, you don’t really understand the topic yourself. If you are fortunate enough to have an eight-year-old grandchild, you will immediately understand the challenge of holding their attention. If you have an eight-year-old child, God bless you for your patience. If you are or have ever been an eight-year-old, this is for you.

In this article, we will explain the stock market, investing, and the importance of building a wealth plan to our old year old granddaughter, Lauren. Ideally, she will have the attention span and be interested enough to ask a few questions along the way.

We are creating a live, real time experiment and will provide you with her questions and our answers as the story evolves.  

Background on Lauren and Introduction

Like all grandchildren, Lauren is the smartest, most gifted, and sweetest little girl you can imagine. She has actually been one of the two or three smartest kids in her class, evidenced by report cards, IQ testing and teacher’s reports so we think we may be able to explain most of the concepts in a way she will quickly grasp, so here goes.

Papa, “Lauren, do you know anything about the stock market?

Lauren, “Nope, is there going to be a test? Do I need to take notes? Why do you want to know?” <Told you she was a smart one, and oh, by the way she “loves school!” >

Papa, “Yes, there may be a test, but we only want to determine whether or not you understand the message.”

So, we are off and running. We have her attention, at least for a few minutes, and we know from experience that we need to get right to the point to hold the attention of her eight-year-old mind.

Papa, “The Stock Market is like the World’s Biggest Casino and people go there to gamble with their life savings.”

Lauren, “What’s a casino and what does it mean to gamble?” <OK, we have some more work to do here than I thought.>

Papa, All right, let’s back up a bit …

Lauren interrupts, “I have homework, can this wait until later?”

<This is not going very well. We best do something quickly to hold her attention>

Hard Reset

Papa, “Lauren, would you like to earn a quarter to use in the Gumball machine?”

Lauren, “I’d rather you just give me one, but I’ll play along for a few minutes; what do I have to do? Will it hurt?”

Papa, “No, this won’t hurt a bit, and you might even learn something. We’re going to the dollar store and, if you want, you can take a dollar out of your piggy bank. You can do one of three things with it.

  • You can spend it on four gum balls right away
  • you can leave it in your piggy bank, or
  • you can “invest it” with me and at some point in the future, maybe I will give it back to you along with another quarter so you could buy five Gumballs instead of four. You could earn a quarter just by letting me hold onto the dollar for a while.

Lauren, “Whadda you mean, ‘at some point in the future,’ and did you say you would “maybe’’ give it back to me <Aha, We finally have her attention>

Papa, Yes, I did say “maybe” and no, I don’t know for sure when I will give it back to you. In the stock market, they call that “risk.” People give other people a dollar hoping they will get back a dollar and a quarter but they never know for sure.

Lauren, I know about Risk. That’s the game you play with Mommy and Daddy with all those little armies and dice, right? <Hmmm, just when we thought we were making some progress . . . >

Getting the Attention Back

Papa, “Now where were we?”

Lauren, “You wanted me to give you a dollar? Do you need money for dinner Papa? I have lots more in my piggy bank and I love you Papa.”

Now, we could stop right there and be happy with what we have, but we do, after all, have a responsibility to teach Lauren about investing. We want her to understand the risks and rewards of shrewd investing. Let’s see if we can wrap this up.

Papa, do you remember the last time we went to the store and you asked me for a quarter? I told you that I could give you two quarters because I just made a good investment in the stock market.

Lauren, Yeah, I remember, I got a gold one and a yellow one and I gave one of them to you because I love you, Papa.

Papa, Aw, shucks, I love you too Lauren. Let’s talk about investing some other time and go to the store for some Gumballs.

Next Time I Get the Chance

I will remember that the love of an eight year old is worth far more than all the money in the world. I will continue to invest for the future, so that I can give my granddaughter all the Gumballs she wants.  

Papa, Lauren, I love you too. The only thing you need to know about the stock market right now is that if Papa does his job you will have all the Gumballs you want for as long as you want them, and, when you get a little older, I will teach you how to give your children all the Gumballs they will ever need.

Lauren, I love you Papa. Can we go now? Do you still need my dollar?

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