Here's a chapter from Juwan Rohan's Book, Money Talks: The Beginner's Guide To Investing For Kids, Chapter 1 -
“There are different types of money depending on what country you live in. But all money has one thing in common. It allows you to use the currency to buy other items such as food, toys, clothing, and shelter. Money puts a price or value on the cost of each item that people or companies are supplying to others,” Daring Darius explained. “Money has been around in some fashion for hundreds of years. The earliest form of money was developed by trading. As far back as the Indians and Egyptians, people would trade cattle for produce or fruits for cotton. They developed a value system for what each of their produces were worth.”
“So I could trade you a bag of peanuts for a new cell phone?” Cash Cody asked.
“No, with a trading technique, the value had to be fair,” Daring Darius said.
“That’s fair,” Cash Cody said. “You like peanuts, and I need the new smartphone,” Cash Cody argued.
“Do you know how many pounds of peanuts you would need to be the same value as your new $800 cell phone?” Daring Darius asked.2
“I don’t know,” Cash Cody said. “I figure a two-pound bag should be good enough.”
“Not even close,” Daring Darius said. “A one-pound bag of peanuts has a value of approximately $0.20 per pound. How many pounds of peanuts would you need to get that $800 cell phone?”
Help Cash Cody figure it out:
$800 / $.20 = How many pounds of peanuts.
Cash Cody grabs his calculator and said, “Only 4 pounds of peanuts.”
“No, you didn’t divide it right,” Daring Darius said. “You would need 4000 pounds of peanuts to equal the value of the $800 cell phone.”
“How am I supposed to find 4000 pounds of peanuts?” Cash Cody asked.
“That’s why people invented the flat money currencies. It is a lot easier to carry around coins and dollar bills than it is to carry around 4000 pounds of peanuts, right?”
“Definitely!” Cash Cody said.
Daring Darius explained, “Well, that’s why people started to figure out a system. They figured coins were much easier to carry and stash away in your pockets or hide for safety. So around 650 BCE, the kingdom Lydia in western Asia Minor started trading coins! Countries starting following 3
and money started to evolve…hence the green dollar bills you see today!”
“Boy, are you a know it all,” Cash Cody said.
“Let’s do another example,” Daring Darius said. “I think you need more practice with this.”
“Alright, I know I can get this problem right,” Cash Cody said.
“What did you ask your parents to get you for Christmas?” Daring Darius asked.
Cash Cody said, “I asked for the trendiest phone case, a new skateboard, and the new version of Beats headphones,”
“Wow! How much do all those items cost?” Daring Darius asked.
“I don’t know,” Cash Cody said. “The headphones were two hundred dollars, I think. What did you ask for?”
Daring Darius said, “I asked my parents to help me find ways to start earning money so I can buy those things on my own. After talking to them for a while, I decided I could sell my artwork, so I asked for new art supplies. This way, I can draw and paint on canvases and then sell them to my family members when they come for dinner. I also asked for new t-shirts and iron-on patches so that I can create my own clothing. It has been fun to see my classmates wear my brand around the school.”4
“I want a T-shirt,” Cash Cody said. “I didn’t get a T-shirt.”
“That’s because you can’t afford to buy it,” Daring Darius said.
“I will pay you back for it,” Cash Cody said. “I swear.”
“Cody, I have known you a long time, but I know you owe a lot more debts than you have paid back,” Daring Darius said.
“What is debt?” Cash Cody asked.
“Debt is money that is owed because services were already provided or the item was already supplied,” Daring Darius said.
“Fine, let me have the T-shirt, and I will pay back the debt I owe you in a few weeks,” Cash Cody said.
“When you owe money to banks and financial lenders, they charge interest, or additional money owed because they gave you the money upfront,” Daring Darius said.
“You can loan me the money for a few weeks,” Cash Cody said.
“Okay, I will loan you $20 for the T-shirt and charge you 3% interest per week for the loan,” Daring Darius said.
“Okay, so I will owe you the $20 plus the interest in two weeks?” Cash Cody asked.
“Yes,” Daring Darius said.5
Help Cash Cody figure out how much he will pay Daring Darius for the T-shirt.
$20 * 0.03% interest = amount of interest for one week.
Amount of interest for one week * 2 weeks= amount of interest total Cash Cody will pay for the loan
$20 + amount of total interest = the total Daring Darius will receive.
“Hey, that’s a good deal,” Cash Cody said. “I will only owe you $12.20.”
‘No, you will pay me $20 plus the interest charge of $1.20,” Daring Darius said. “You will pay $21.20 for the shirt if you pay it back in two weeks.”
“Oh.”
“The longer you take to pay it back, the more you will pay,” Daring Darius said.
“I get that,” Cash Cody said. “I don’t like owing money.”
“Good, You have finally said something we can agree on,” Daring Darius said. “Not all types of debt are bad. See, there are good types of debts that our parents have, like the mortgage on the house and my dad’s small business loan. But there is bad debt such as excess amounts of credit cards that charge high interest, or a high-interest car loan.”
“But once I have the T-shirt,” Cash Cody said, “then 6
I will have something of high value and can sell it to our classmates for more money.”
“Not quite,” Daring Darius said. “You will have the T-shirt but need to understand more about owing money and not paying it back.”
Cash Cody said, “Come on, man, we are friends. You aren’t going to care if I take a while to pay it back.”
“I might be forgiving with you, but banks won’t be,” Daring Darius said.
Cash Cody frowned. “What will banks do?”
Daring Darius said, “Banks consider how much debt you owe before giving you a new loan. If you owe a lot of money to other banks or lenders, the bank won’t approve of giving you a new loan.”
“Okay, that’s a bummer,” Cash Cody said. “But they won’t stop you from keeping the stuff you have loans out on, will they?”
Daring Darius said, “The banks will repossess your item if you fall behind in payments. “My dad has told me a story about his Mustang that he had right out of high school. Dad didn’t have a credit history or history of repaying loans with the banks, so he got a really high-interest car loan when he purchased the Mustang. Dad fell behind on the payments because he wasn’t making enough while attending college. The bank sent him several notices, but when the bank 7
still didn’t have the money owed, they came and took the Mustang away from Dad.”
“Woah, that is terrible,” Cash Cody said. “Why didn’t they give him more time?”
“Because lending money and not getting paid back is a risk. The bank is liable or responsible for the money owed to the car dealership. They don’t want to lose money on a car they aren’t driving,” Daring Darius said.
“But they got the car, and then what did they do with it?” Cash Cody asked.
“The bank took the car, so they had this valuable item or an asset. They were able to sell the car and earn back the money that they had lent out,” Daring Darius said.
“So assets are things that you own that are worth a lot of money?” Cash Cody asked.
Daring Darius said, “Yes, but more specifically, an asset is something that will make you money. Whereas a liability is going to cost you money.”
Cash Cody looked confused.
Daring Darius said, “We will do an example. Pretend your parents gave you a brand new bike that is very popular and valuable.”
“Cool”8
“You decide to sell it to a friend for more than what your parents paid for it,” Daring Darius said. “Is that an asset or liability?”
Do you know the answer?
“An asset because I’m making money,” Cash Cody said.
“Yes,” Daring Darius said. “Now, take that same bike and pretend you go joyriding through the school and run over another student. Is that bike an asset or liability?”
Do you know the answer?
“Um,” Cash Cody thought. “The bike is still worth the same amount of money.”
“Yes, but it has hurt another student now,” Daring Darius said.
Cash Cody nodded. “It’s a liability.”
“Yes,” Daring Darius said. “Running over another student is going to cost you money because that student’s parents will expect you and your parents to cover the medical bills and possibly file a lawsuit against you.”
“That will cost a whole lot of money,” Cash Cody said. “I don’t want to do that.”
“That’s right,” Daring Darius said.
“How do you know all this?” Cash Cody asked.9
“I have been asking my parents questions about money for a long time,” Daring Darius said.
Cash Cody said, “Okay, then I have a question for you. Do adults ever have extra money to spend on fun stuff? My parents are always talking about saving, but yet all they do is pay bills. Dad has wanted a motorcycle for as long as I can remember but has never got one.”
“Our parents have been friends for a long time. I know my dad is helping your dad invest his money,” Daring Darius said.
“Investing, what’s that?” Cash Cody asked.
“It means they are putting money aside for the future in a variety of ways,” Daring Darius said.
“Oh, like my piggy bank. I save money in there sometimes,” Cash Cody said.
“Your piggy bank isn’t exactly what I’m talking about. A piggy bank allows you to save money, but your money amount isn’t changing while you have it in the piggy bank. You aren’t losing money if you don’t take the money from the bank, but you also aren’t gaining money by leaving the money in the piggy bank.”
“What can I do to earn money while it’s in the piggy bank?” Cash Cody said. “I’d like that.”
Daring Darius laughed and said, “I know you would. 10
But keeping your money in a piggy bank isn’t going to earn you money beyond what you put into it. By putting money in a savings account at a bank, you will earn a small amount of interest each month based on the amount of money in the account.”
“So the bank would be paying me the $1.20 interest that you were going to charge me for the loan on the T-shirt?” Cash Cody asked.
“Well, yes, if savings accounts paid that much interest. The interest rates in the saving accounts have really dropped. My dad has $1000 in a savings account and only earned $0.03 this month in interest.”
“That’s not going to add up very fast,” said Cash Cody.
“I know,” Daring Darius said. “That’s why most of my dad’s extra money is put into investments. He invests in assets such as stocks. Stocks are shares of a corporation, which gives Dad partial ownership in the company. That means that Dad gets a percentage of the company’s earnings based on how many shares he purchases.”
“That sounds confusing,” Cash Cody said.
“I can help you understand it with an example,” Daring Darius said. “Apple is a really popular stock that my Dad was just telling me about. For one share or piece of the Apple company, my dad paid $130. Dad had purchased ten shares. How much money did Dad invest?”11
Help Cash Cody figure it out:
$130 * 10 shares = amount of money invested.
Cash Cody thought for a moment and said, “$1300.”
“Yes,” Daring Darius said. “Now, yesterday, the stock was up 0.001%. How much money does Dad have now?”
Help Cash Cody figure it out:
$130 * 0.001% = amount earned per share
Amount earned per share * 10 shares = total amount earned
$1300 + total amount earned = the amount of money Daring Darius’s Dad has now.
Cash Cody said, “It’s not much more than he started with. He earned $1.30 extra from the ten stock shares.”
“Right, so Dad has $1301.30 in the stock now. But he earned $1.30 in one day instead of only $0.03 from a month in a savings account.”
“That’s true. I want to put my money in the stock market,” Cash Cody said.
“I do too, but with an investment like this, there is a risk,” Daring Darius said.
“What risk?”
“The stock market doesn’t always go up,” Daring Darius 12
said. “It could go down that amount, and Dad could have lost the $1.30 instead. That’s why Dad doesn’t put a whole lot of money in one stock. He buys ten shares of many stocks.”
“Why would the stock market go down and not up?” Cash Cody asked.
Daring Darius said, “It is all based on a law my dad explained to me as the law of supply and demand. If lots of people want to sell the stock, but no one is buying the stock, then the price of the stock drops. If lots of people want to buy the stock, but not many people are selling, then the price of the stock goes up.”
“I see,” Cash Cody said.
Daring Darius said, “Investing in the stock market and selling stocks can be an asset and earn you a lot of money over time if you are patient and smart about it. But the stock market investing can be a liability if you are going to invest all your money in one stock and then pull the money out a day later.”
“So how is doing this going to help my dad get his motorcycle? And when will Dad stop telling me no for the new things I want?” Cash Cody asked.
“Let’s look at how the average person’s life views money. Our dads are working for money, right?”
“Yes.”13
“When my dad first graduated college, he had a large student loan that he had to pay off. This was a big expense or liability that he had taken on in order to get the education, an asset because he could get a better job. If Dad hadn’t understood how to manage his money, he could still have the student loan and be living paycheck to paycheck. But Dad was smart with his money. He invested his time and money and paid off his student loan before Mom, he bought the house and took on the mortgage.”
“How do I know the education to get and how much a job will pay me?” Cash Cody asked.
“You may have to pay your dues or invest time into your job before you get to the high-paying salary that you are desiring. But by choosing a job that you love, the time you invest won’t seem as long. But in order to do what you love for the rest of your life, you have to realize that in the BEGINNING, you have to sacrifice in order to achieve success.”
“Maybe I will just play the lottery,” Cash Cody said.
“No, that’s not going to make you rich,” Daring Darius said. “You are more likely to be homeless waiting for your winning ticket. The key is to figure what you want… you can become very wealthy if you figure what you want at a young age. It’s okay to work a 9-5 and climb the corporate ladder to become the president of the company. You can be rich doing that if you invest your money and take on more assets than 14
a liability. So what’s important for you to understand is you have to be comfortable doing what YOU want to do.”
“Okay, I will have to think about it,” Cash Cody said.
Daring Darius said, “Just remember, the higher the risk, the higher the return, but that also means the higher the education and dedication it takes to become successful. Success doesn’t come easy, you have to educate yourself and sacrifice a lot in order to be great, but by learning all about money now, you are off to a good start.”
Cash Cody nodded.
“So, Where will you keep your money from now on?” Daring Darius asked.15
Cash Cody said, “Invest it! The piggy bank isn’t earning me anything.”
“Very good.”