If you recently invested in dogecoin, a parody cryptocurrency based on the "doge" internet meme about a grammatically confused Shiba Inu, you're not alone. The price of dogecoin has shot up in recent weeks as investors have piled in, encouraged, it seems, by the very online Tesla CEO Elon Musk, who tweeted on February 4 that dogecoin is "the people's crypto." The coins, which traded for fractions of a cent at the end of January, were trading for about 8 cents apiece as of February 8, and dogecoin is now the world's 10th largest cryptocurrency.
Among the prominent buyers: billionaire investor Mark Cuban, though not for the reason you may think.
On February 8, in a message shared via Twitter, Cuban said he had bought some dogecoin as a way to teach his son about market. "I bought a few dollars worth for my son and we watch it and discuss all it's [sic] price movements and why they occur," he wrote. "It's fun, it's exciting, and it's educational for him."
Although Cuban holds stakes in a variety of cryptocurrencies, including bitcoin and Ethereum, he had previously expressed skepticism when it comes to investing in the meme-based Dogecoin. "If I had to choose between buying a lottery ticket and #Dogecoin … I would buy #Dogecoin. But please don't ask me to choose between it and anything else," he tweeted on February 3.
Buying investments for your children can be a great way to teach them about markets. And while they don't have to hit it big for those lessons to make an impact, it can help. After 5th-grader Jaydyn Carr made just under $3,200, a 5,000% profit, on GameStop shares his mom had bought him in 2019, he told The New York Times, "Long-term investing is important because that is how I got this money."
Here's what experts say you can learn from Cuban when it comes to educating your children about the ups and downs of investing.
Any investment that you buy for your child should be "relevant and age-appropriate," Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, recently told Grow. That may mean buying Disney stock for a fan of princess movies, shares of Nike for an aspiring athlete, or, perhaps, some cheap cryptocurrency.
Cuban's choice of dogecoin may seem unconventional, but if his school-age son is interested in the meme currency, it's probably good to use it as a teaching opportunity. "The real thing you want to do is spark that interest in investing, however you can do that," says James Royal, a senior analyst at Bankrate.
Video by Helen Zhao
Because Cuban has chosen something that doesn't cost much and is beginning when his child is young, he's able to teach the lesson relatively cheaply. "By starting early, you can teach these lessons when it won't cost you much," Royal told Grow in a recent interview.
Getting your child interested in personal finance early can jump-start their financial literacy and encourage behaviors that will have a positive long-term impact on their finances. Most parents opt to start investing for their kids by buying stocks through a custodial account, a type of account you'll find at most online brokerages that's considered the child's asset but that is controlled by an adult until the minor reaches a certain age, typically 18 or 21 depending on state laws.
When you buy an investment for your child, the goal is to impart understanding about how markets work. Cuban seems to be using dogecoin to illustrate how supply and demand dynamics cause the currency's value to fluctuate, for example.
But if you, like Cuban, have bought an individual investment for your kid, the lessons shouldn't stop there.
That's because owning one single investment of any kind is risky — especially cryptocurrency, says Erika Safran, a CFP and principal at Safran Wealth Advisors. "There's no true valuation to cryptocurrency, and it's not backed by the full faith of anything," she says. "Though there's more legitimacy to it, investing in it really is a bit like gambling."
Investing your child in a volatile investment can affect their tolerance for risk, a major factor in their decisions down the road, she adds. "If you're a new investor, taking on such a high risk may create a big loss that frightens you, which could temper future investments that you make," she says. "Or if you start out with a 10-bagger, you may think, 'Oh, my God, I'm great at this,' and set yourself up with incredibly false expectations. Because that doesn't happen regularly either."
Video by Courtney Stith
Once you've gotten your child interested in markets, it may make sense to begin diversifying their investments, buying a few different investments to show that having assets that go up and down at different times spreads the risk across your portfolio.
Sooner or later, you have to teach your kid that building wealth over the long term is a methodical process, says Roger Ma, a CFP at lifelaidout and author of the book "Work Your Money, Not Your Life." "Where Mark Cuban and I differ is that I don't think investing should be treated as a game," he says. "Investing prudently and diligently is oftentimes quite boring. You should be teaching about saving, making tradeoffs, and consistently putting money in diversified, low-cost index funds."
Cryptocurrencies like dogecoin have a place in investor portfolios, Ma says, albeit a small one. "I usually let my clients have 5% or less in 'play money,' which might be individual stocks, private equity, or you can throw crypto in there as well," he says. "That allows them to 'get their fix' without jeopardizing their long-term financial goals."
More from Grow:
- Fifth-grader in Texas made $3,200, a more than 5,000% profit, on GameStop shares
- How to invest in crypto if you want to ‘be very rich’ or else not ‘despondent about your losses,’ according to a wealth advisor
- 4 last-minute smart financial gift ideas that go a lot further than cash