I will be writing some post to try to educate my kids. I know they are still very young (4 and 7) but it is never too early to start. And the can read these blog posts later on in life 😉 (This is probably the case, because they don’t speak or read English very well at this moment – You got to love an understatement!).
Last week my oldest asked me, Daddy what are you doing behind the computer? (I was logged on at my broker account and watched the stock prices). I told her I was analyzing some companies I wanted to buy stocks in. After a short moment she asked me, what is a stock….
This, for us, is such a normal thing that we do not think about it anymore. And for me is the same! So after some thinking I started explaining.
Every company, say for instance Albert Heijn (the biggest grocery store chain in The Netherlands – part of Ahold), consist of stocks. So if you own one or more stocks in a company, you are actually a part owner of this company. The more stocks you have in a company, the bigger the boss you are 😉
Big companies have millions of stocks listed on the stock market(s). And this is the place where you can buy and sell stocks.
If you own a stock, you are:
- Allowed to vote during a shareholder meeting about the finances of a company;
- Allowed to vote during a shareholder meeting about the policy of a company;
- In titled to a part of the profit of this company.
The profit that a company makes, can be used by the company itself for investments, or can be (partly) given to the shareholders. This is called Dividend.
If all goes well with a company, they make a profit and the share price will rise. Which means that when I sell my stocks, I get more money for my stocks than I originally paid for. So I will make a profit. The other side of the story is, that when a company goes bankrupt, the stock price will go to zero, and I will loose all my money.
So you have to know that there is a risk in owning stocks.
And that’s why it is important to do you research in a company thoroughly. And only if you are convinced it is a great company with a great outlook, you can consider buying some stocks of this company.
I used Ahold as an example in my story. When I explained it all, I made a quick calculation:
In my Vrijheid Fonds, I own 443 stocks of Ahold. This means, with around 900,000,000 outstanding shares, I own 0.000049% of the total company. My influence on the company is rather small (love the understatement).
So a stock is proof of part ownership of a company. And if I buy enough stocks, I will eventually own the whole company. At that point my kid started to smile and said: “Keep buying stocks of Ahold, I like to have our supermarket for ourselves” 😉
This is my fifth blog post about teaching my kids. I hope my kids at the age of say 18, have all the financial knowledge I’m having right now. This would be a huge advantage for them! And that’s why I started these blog post series.
At my first four posts I got really some great feedback. A lot of readers said they like reading these posts and are going to or already are discussing these subjects with their kids. This is really great. We can create a snowball of knowledge together. So lets start educate kids about the wonderful subject of finance.
Did or do you teach your kids about stocks and the stock market? How did you do it?
And will you help me to get the knowledge snowball rolling?