There is so much to discuss on the topic of how cryptocurrency and NFT, or non-fungible tokens, will affect the next generation of investors, that I will dedicate two articles to it. A second article, focusing on NFTs, will be published in a few weeks. This first article focuses on children and cryptocurrency, specifically how parents can teach and introduce their children to the new world of digital assets…
Before we get into whether you should start introducing your kids and grandkids to crypto and other digital products, I’ll give you some background.
The New World
Just click on your world. Your cell phone and computer connect you to others and to the world in ways that today are the normal. We are always in touch with friends; we run our business; we are affiliated with the company; we play games; we watch crazy videos and share them; buy and sell all products and services imaginable; we pay bills and transfer money; and we buy and sell art and collectibles.
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Smartphones are a part of our lives. In the United States, there are 294.2 million (opens in a new tab) mobile phone users (the number is 6.6 billion worldwide (opens in a new tab)). 85% of American adults use a smartphone. And interestingly, 47% of US users (opens in a new tab) says he can’t live without his device.
A generation for us
NPR reports (opens in a new tab) but more than half of the children in our country have a smart phone by the age of 11. This does not include smartphone use by children whose devices are provided by their parents. Little kids play video games, and older kids (opens in a new tab) Not just games, but kneeling on social media, texting, clicking on YouTube, TikTok and other sites. Actually, EdSource.org (opens in a new tab) reported that children aged 8 and under spend at least 48 minutes per day on mobile devices.
The numbers show us that the digital world is share of the world. Games and social media are one thing to understand, but I think many of the older generation are struggling with the thought of digital currency and digital art. I advise parents to try to understand this new world and educate your children, instead of hiding your head in the sand.
Let’s start with the basics of money development as a mediator.
Why was money created?
Once upon a time, about 10,000 years ago, people lived in places where they could easily move from place to place in search of food. When a group of people met another group, they sometimes found something new that they liked, which led to trade between the groups to exchange goods and services.
Exchanges quickly become difficult because it becomes too difficult to determine the value of things. You can tell the value of something by knowing what people are willing to give you in exchange for what you have or what services you can provide. Started using a mediator, or a common measure of value. For example, when shells were used as a common medium of exchange, the value of everything was measured in shells.
People soon realized that they needed to control the supply of the medium of exchange to make things work. Precious metals, such as gold and silver, were hard to find and could be controlled by rulers or countries, making them a good medium of exchange. The value can be stamped on these coins so that everyone knows the value.
Before you change the digital world
The new digital world is important, but I strongly feel that you need to start your child’s financial education with physical money. Give small children coins and bills when they complete their homework or when you give them money. Then go to the bank and open a mutual fund and checking account with them.
When you get home, show him how to access his online account now. Their money went digital, but they saw it really before it went digital. They need to start understanding the difference between “video game money” and real money.
The next step is helping children learn how to spend their money on a debit card, which is digital money. This is a great way to put “training wheels” on your first finance car.
The teaching process must continue. I spoke with Johnson Cook, co-founder and president of Greenlight (opens in a new tab), a fintech family business. (I’m a Greenlight consultant.) Cook told me, “We encourage parents to start young and engage with their children about money. First, children should learn the basics of finance – how to earn and save – and then move on to investing. It is important for children to learn financial responsibility by using real financial tools. Our debit card and banking apps are a great way to start a lifelong money lesson. “
Fast forward to the digital world
Now for the fun part. Remind your child that a medium of exchange is anything that people agree to use to buy and sell goods or services. Also explain to them that now when you use a credit card, credit card or PayPal, you are using digital money. You don’t pay for everything you buy with bills and coins. A few years ago, a digital currency called cryptocurrency (opens in a new tab) it has also become a medium of exchange, a new currency for people to buy and sell things in the digital world.
When people first experimented to see what bartering tools would work best, some of the things they tried were feathers, pinecones, dog teeth, feathers, shells, axes and, my favorite, a dead rat! You can imagine that most of these did not get the job done.
Likewise, there are many different types of cryptocurrencies. The main difference between old money and today’s crypto is crypto and blockchain (opens in a new tab) the world is not under anyone’s control. In ancient times, as today, money was controlled by rulers or governments. With crypto, everyone can see all the “money” that has been created, bought and sold on a public ledger that people call the blockchain.
Another major difference between cryptocurrency and conventional money is that the value of buying or selling something goes directly to the person’s digital wallet, instead of being filtered through the banking system, such as with credit and debit card purchases.
Also, remember how long ago people had to decide the value of something based on what others were willing to pay for it in the marketplace? Cryptocurrencies work the same way – their value will rise and fall based on economic and market trends, plus supply and demand.
Just like you have a wallet for your bills, coins and cards, with cryptocurrency, you have a digital wallet (opens in a new tab) this requires you to have your own password, or private key. You use this digital wallet every time you buy or sell something using cryptocurrency.
Should You Buy Cryptocurrency?
I do not provide investment advice. The value of cryptocurrency can fluctuate, like any asset or currency. For example, Bitcoin (opens in a new tab), the most popular cryptocurrency, was introduced about 10 years ago. The value at issue was fractions of a dollar. In 2011, it reached parity with the dollar, meaning one bitcoin was worth more than $1. In November 2021, it rose to an all-time high of over $68,000. (opens in a new tab) per Bitcoin. Today, it costs less than $20,000 (opens in a new tab).
These wild swings are risky. But, if you are young and have time on your side, a small part of your portfolio should definitely contain cryptocurrency. My big word of caution is not to become a day trader in crypto or, frankly, in any investment property. Day traders follow the market and try to beat the volatility of the day. The problem is that it is very difficult to monitor the market and get ahead of the swings. Most day traders lose money (opens in a new tab).
Children and Cryptocurrency
Your child’s financial literacy lessons should include crypto lessons. Start with the story, let the children search and explain it to you. Technically, children can own cryptocurrency (opens in a new tab); there is no legal age restriction. However, in practice, some cryptocurrency exchanges have a minimum age of 18 to purchase.
Encourage children to answer questions such as:
- What is crypto?
- How is it used?
- How do you buy it?
- What is blockchain?
- What is a digital wallet, and how does it work?
You can think of more questions.
Victor Wang, CEO of Stockpile (opens in a new tab), told me, “You should consider introducing your children to crypto investing, which is why we offer it as an investment option on our platform.” He joked, “A famous marathon runner once said that ‘the hardest part of any race is the journey from bed to floor.’ One reason we recommend crypto to kids and parents is that they want it. 55% of kids in a recent survey are interested in crypto investing. Financial literacy is one thing; It’s a very different financial experience.”
The exciting part is that you and your child can put your toes in the water to learn and work together.
And you can remember this quote from Ralph Waldo Emerson: “Do not be shy and careless about what you do. All life is an experiment. The more you try, the better you get.”
This article was written by and represents the opinion of our contributing advisors, not the Kiplinger editorial staff. You can see the SEC rate in the chart if you are close to the selected date (opens in a new tab) or with FINRA (opens in a new tab).
