Earlier this month, global wealth management firm T. Rowe Price released the results of its 2020 Annual Parents, Kids, and Money Survey, which sampled more than 2.000 parents and their children ages 8-14. ranging from Latin, Asian, black and white ethnic groups.
A key finding from the research was that 57% of teens / preteens sampled said they were familiar with encryption, compared with 47% of parents surveyed. Specifically, the average teens said they were familiar with the following financial technology - also known as fintech:
- Crypto or cryptocurrencies (57%)
- Traditional stocks (49%)
- Investment app or cryptocurrency exchanges (40%)
- Meme shares (34%)
- Non-fungible tokens (NFT) (31%)
The percentages above add up to more than 100% because respondents were given more than one answer.
Research has uncovered both positive and negative effects of cryptocurrencies
One of the more positive findings of the research was that cryptocurrencies are sparking conversations about money between parents and children. The study found that 42% of parents familiar with cryptocurrencies agreed with the statement: "My kids and I have regular conversations about finances thanks to cryptocurrencies." And 48% of parents familiar with cryptocurrencies said they are "excited" to talk to their kids about cryptocurrencies and various digital assets. However, fewer than half of parents said they do not discuss the risks associated with investing in cryptocurrencies with their children.
"It's nice to see children take an interest in investing, but parents need to talk to their children about the risks associated with investing in cryptocurrencies," said Roger Young, Thought Leadership Director at T. Rowe Price and father of three, in the statement announcing the study results.
This is a potential problem and a missed opportunity, because research has also found that children have some misperceptions when it comes to investing in cryptocurrencies. Many of the children in the survey mistakenly believe that cryptocurrencies are the primary way to invest in the future. The results of the study showed that 40% of children agreed with the statement "cryptocurrencies are the future of investing". Of the guys familiar with cryptocurrencies, 51% agree with the statement.
These are troubling numbers, because while the kids in the sample may have a basic understanding of fintech, they seem to lack fundamental insights into investing principles.
Three tips to keep in mind when it comes to investing in cryptocurrencies
According to the researchers, it is the responsibility of parents to be informed and engage with their children on all topics related to finance, but especially when it comes to cryptocurrencies.
Here are Young's three common sense tips that all investors need to keep in mind, regardless of their age.
- Families investing in cryptocurrencies should do their research and be prepared for a wide range of possible outcomes.
- Cryptocurrencies are extremely volatile and speculative investments, so they shouldn't represent a large portion of the assets needed to achieve important financial goals.
- While past performance is no guarantee of future results, history has proven time and again that investing on fundamental principles in a diversified portfolio of stocks, bonds and cash is a good strategy.
It's also a good idea to help your kids learn how to do their research and understand that they shouldn't invest more than they can comfortably afford to lose.
