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Honey, I Cryptoed the Kids

And so began the first of many father-daughter conversations about money.

I think about the range of topics we have covered over the years—from credit cards to cryptocurrencies, from buying shares of Apple to “Venmo-ing” money—and it’s dizzying. Especially when I compare these conversations to the ones I had with my father. His two favorite pieces of advice were simple but sound: “save your money” and “buy low, sell high.”

Money is a topic that for many—including me and my children—can induce as much angst as productive dialogue. Now that my daughters are out of college and working in their first jobs, the issue of money—how to spend it, earn it, save it, budget it, invest it, borrow it—has taken on a new urgency. They have jobs. They have spending habits. They have vague financial objectives. They have their own bank and savings accounts. And I, (hooray!) have ceased to serve as their personal ATM.

Financially speaking, my daughters may be “independent,” but I, like so many parents, have moved into a new and often challenging role: informal financial advisor and coach. With the rapid pace of product, app and general fintech innovation over the last decade, I am running furiously to keep up, despite a decades-long involvement in the financial industry.

When I told Emily and Natalie about this article, they showed mild interest but voiced little confidence in dear old dad’s ability to tell the whole truth. As a result, I have included their perspectives.

Understanding finance shouldn’t just be for the “Brads and Chads” who live in Murray Hill and have a job at JP Morgan.—Emily

Don’t be boring. You should talk about Bitcoin.—Natalie

How can parents talk about money with their children, imparting wisdom, values and lessons learned, without sounding preachy or dull? In either case, most children—my kids at least—will not engage in a conversation.

The twins  

Learning from Crypto

We were talking about cryptocurrencies at the dinner table. It is, in some ways, the perfect financial topic to discuss with adult children because it is a window onto money and investing itself. I was amazed to learn that several of Natalie’s college classmates were “investing” in Bitcoin and Ethereum (and other so-called cryptocurrencies) and claimed to have made tons of money doing so.

Initially, I fell right into conservative dad mode and warned (lectured) about the perils of “illiquid” and “unregulated” investments and the myriad of scam artists online. Those words meant nothing to Natalie and had not stopped her classmates from making loads of money.

Then I did something that resembled my (better moments of) parenting when Natalie and Emily were much younger: I listened. I got off the soapbox and learned about my kids’ fascination with the rise of digital currencies. As a result, we took the next key step: I asked the kids to join me in a crypto experiment. Just like the science projects we worked on in grade school…except that I had never actually done that. I’d only watched the really good TV dads do it with great success. First, we needed to do some research and reading. Then we had to open up accounts together, buy some crypto, and trade our accounts as we saw fit. Finally, we would compare our experiences. Mostly, we would do it to learn, but hopefully we’d make a little money too.

Dad, no way I am wasting my money on this. I’d much rather spend my money on food.—Emily

How do I get started? How do I open an account? How much do you think we can make? How much money should I invest? Should I buy Bitcoin or Ethereum or both?—Natalie

And right there, in our own family dynamic, was a lesson about financial markets: not everyone behaves in the same way, even when armed with the same information (or misinformation). Different individuals form different opinions about value and risk. Acting or not acting upon these opinions can lead to very different investment and wealth outcomes.

Natalie’s questions led to a healthy discussion about how much to invest in Bitcoin. It is an important question to ask before making any investment. To answer it, though, we realized we had to ask and answer a few other questions: What’s the likelihood of loss and the likely magnitude of a loss? How easy is the investment to sell if I want to sell it? How much do I really know about this investment?

So, we thought about the characteristics of this investment: crypto prices had been wildly volatile but trending upward rapidly; online wallets, where one opens up an account, were unregulated and, from time to time, shut down; there had been hacks where people lost all their money without recourse; liquidity—the ability to get out of our investment easily—was uncertain, but with the small amounts we were investing this didn’t seem too big a problem; and finally, we clearly lacked expertise on digital assets.

So, how much to invest? That was an easy one: not much! In fact, in my head, a loud and robotic voice repeating: “Danger, Will Robinson.” But, if you risk only a small percentage of your available investment capital, then even a total loss, which was highly unlikely, would not hurt too much.

In diving into crypto, Natalie and I were forced to do the one thing that is on almost every great investor’s list of must-dos: read. We read voraciously about Bitcoin. We read articles from experts claiming it was all a scam, that the whole thing would end in tears as it did for Dutch tulip bulb owners in the 1630s and internet stock owners in 2000. We read others claiming that Bitcoin was just the very beginning of a digital gold rush.

In the end, we made a judgement call. We invested based on our research and we sized our investments prudently. In part, we agreed with Emily’s healthy skepticism:

(a) we were not software engineers and we couldn’t possibly understand the code behind Bitcoin and
(b) we were investing in a trend of euphoria more than a real and understandable asset.

The whole process, all the discussions we went through were no different from what I might have “lectured” my kids about before making their financial decisions—whether buying a stock, selecting an investment advisor, downloading a financial app or taking out a loan. Listen. Do your homework. Read. Get as comfortable with the asset and the situation as possible. Understand the potential upside and the downside, the liquidity and the volatility. Size your investment amount appropriately based on those factors, while maintaining prudent levels of diversification within your overall portfolio.

Doing the research, making this investment in real time with my daughters, listening to their questions and concerns, finding out the answers together (even if the answer was: “we don’t know”) was worth at least hundred boring lectures from dad. Or maybe 0.0015 Bitcoin.

Now that our adventure in Bitcoin has been put on hold (we exited early in 2018 after rumblings that North Koreans had allegedly stolen boatloads of Bitcoin by hacking into a South Korean exchange), we are readying for out next father-daughter financial discussion. Perhaps a trip to Lululemon for “research” on the stock. I will be sure to bring a credit card so I won’t have to pay.

→ For more on talking to children about money

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