I think I've hit on a solution: the Dave Stock Exchange. It will reside in my computer, alongside the Bank of Dave, and will deal in derivative securities -- stocks that rise and fall in lockstep with real stocks but are denominated in pennies instead of dollars. Thus on a recent day a share of Intel would have traded on the D.S.E. for eighty-one cents instead of eighty-one dollars, and a hundred shares of McDonald's could have been had for $48.50 -- the price of a single share on Wall Street. I will serve as the market-maker for all the stocks traded on my exchange, so that no real shares will have to be bought or sold. I'll start my kids with stakes of, say, a hundred dollars each. They will be able to invest this money as they wish, and to make additional investments (or liquidate their positions) whenever they like. They will be able to monitor their holdings -- from minute to minute, if they choose -- using any of a number of portfolio-tracking utilities available online. The stocks will be imaginary, but not to them. If they sell fifty shares of Microsoft at $1.43 apiece, I will pay them $71.50 -- money that will be theirs to reinvest or spend.
The only problem with this plan -- and the reason I haven't implemented it yet -- is that the rate of interest currently offered by my bank is more than four times the historical return on stocks. Any rational investor would close out a stock-trading account immediately and throw the proceeds into the Bank of Dave. As my system is set up at the moment, there is no incentive for my kids not to keep their entire net worth in cash.
One solution might be to place a limit on the size of interest-bearing accounts in the Bank of Dave. Funds over a certain threshold -- $200, say -- could be swept automatically into a brokerage account at Dave & Co., where the money could either be invested in securities or left to earn interest at money-market rates. Another option might be simply to let the Bank of Dave die a natural death. This is already happening in the case of my daughter. She is a teenager now, and has decided that she needs the privacy afforded by a real bank account. She has negotiated an increase in her allowance to compensate for the interest she will be giving up, and she has ordered checks. I view this as a healthy development. A real checking account is useful, and I can't afford to keep paying three percent a month to someone who babysits.
Children are instinctive capitalists. If given enough leeway, they quickly become shrewd managers of their own finances. When parents fail in their efforts at fiscal education, it's usually because for reasons of their own they have managed to make saving seem punitive and dull. Money is fun, and it's almost entirely self-explanatory. The only way to teach kids to adopt a long-term perspective is to give them a short-term incentive for doing so.
Illustration by David Hitch