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Commentary

Emily learns a tougher lesson than Dad intended

By LARRY LIEBERT, Times Staff Writer
© St. Petersburg Times
published April 20, 2003

My daughter still remembers her reaction when she first learned Dad had invested $500 of accumulated birthday gifts in a stock fund designed just for kids.

"He didn't even tell me he took my money until after he spent it," says Emily, who until then had demonstrated admirable frugality by stashing away birthday money from her grandparents in a white plastic wallet. It's been downhill from there.

This is Financial Literacy for Youth Month (according to whomever decides such weighty matters) so there are more than the usual warnings that parents need to teach their free-spending children the virtues of budgeting, saving and investing.

Absolutely. But lessons in capitalism don't always work out as planned, as my investment for Emily demonstrates.

In late 1999, when Emily was 9, I invested the $500 in birthday money in the USAA First Start Growth Fund. It's one of several mutual funds that specialize in giving kids a real-world experience in the markets by "investing in equity securities of companies that provide goods or services we believe are familiar to young people."

Soon, Emily was receiving colorful monthly newsletters with advice from Curt Rohrman, the fund's kid-friendly manager, and profiles of the companies in its portfolio. Reliable companies with household names like McDonald's and Time Warner. Sometimes I could even coax my daughter into reading some of the articles.

While the newsletter was endlessly cheery, the quarterly statements brought increasingly grim news. As any grownup investor might guess, Emily's $500 stake was soon worth $450, then $400, then $300 . . .

Emily started using markers to deface the smiling photo of Curt, the Money Manager, when her newsletter arrived.

Of course, these have been grim times for investors of all ages. But the First Start fund has consistently underperformed the S&P 500 in recent years.

Eventually, USAA parted ways with Curt and turned over efforts to rescue the First Start fund to outside money managers. I learned this in the fine print of the fund's report for adults and told Emily. Her vengeful laugh was a bit unsettling to Dad. The new money managers have been wise enough not to put their pictures in the kids' newsletter.

According to the most recent quarterly statement, the USAA First Start Growth Fund is down 28.69 percent in the past year and 10.2 percent over five years. Emily's $500 is now down to $198.76.

Meanwhile, the fund is adjusting its mix of investments, bolstering holdings in companies, such as United Healthgroup Inc., that may be relevant to kids but aren't familiar to them.

Lisa Alexander, product manager for USAA's mutual funds, said she tells her 13-year-old son to take the long view on the fund's problems. "Zack," she says, "if this is money you want to spend at the video store next weekend, the time frame is too short. If this is money you're putting away for your education, I believe the market will recover its value, and you'll be better off in the long run."

Maybe. Even if not, this experiment in investing hasn't been a total flop as a learning experience. Emily, who's about to turn 13, probably will be forever skeptical of those who promise sure things and great returns on investments. She'll also be wary of those, like Dad, who presume to make decisions about money her behalf.

For now, Emily sums up the situation in the same terms used by many adult investors in recent years:

"I want my money back!"

-- Larry Liebert, the Times' executive business editor, can be reached at liebert@sptimes.com or (727) 893-8320.

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