Teaching Kids About Investing
- Friday, January 03, 2014
Here's a quick overview. It's a "peer-to-peer" lending site, which just means people lending to other people. Those who want to borrow have their credit information checked and rated by the site, and they post loan requests.
Investors can then choose to lend to them in small amounts. For example, someone trying to consolidate credit-card debt might ask for a $6,000 loan. That loan might eventually be funded by 240 investors who each put in $25. The theory is that by cutting out the bank middleman, the borrower can get a lower interest rate than he or she otherwise would receive, while the lenders get higher interest payments than they would get from traditional savings-type products.
Of course, lending to a stranger isn't as safe as lending to a bank, no matter how well Lending Club screens and rates the borrowers. It's helpful that the risk level for each loan is explained in a number of ways to potential lenders by Lending Club before anyone puts their money at risk. But any way you slice it, this is a riskier proposition than a bank savings account. Lesson #1 for my youngster: they're not paying you a higher interest rate than the bank was just because they're nice. There's more risk here.
Using a Lending Club account in this way is more hands-on than other savings vehicles would be. That's not always great. Sometimes neither she nor I feel like jumping on the computer together to look for new loans to fund when she has cash in her account. But along the way, we have had fantastic conversations about investing, covering everything from how banking typically works, to risk, return, diversification, compound interest, and so on. And when one of her very first loans went "boom" and defaulted on her — well, I'd never have wished for that to happen right out of the gate, but I'm also fairly certain it made a real-world impression on her that would have been difficult to duplicate any other way.
Obviously there are many ways to engage kids regarding investing. I'm a parent with three still at home, so I totally understand the dreaded feeling that this is yet another area you're supposed to cover with them "in your free time." The good news is a little intentionality can go a long way, and any seeds you can plant now will only help them later.
Mark Biller is the Executive Editor at Sound Mind Investing. Since its founding by Austin Pryor 23 years ago, SMI has been providing clear, trustworthy, effective investment guidance to the Christian community. Some 10,000 subscribers look to its flagship publication, the Sound Mind Investing monthly newsletter, for biblical guidance on a range of financial issues and specific, market-beating investment advice.
Publication date: January 3, 2014
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