Teaching Kids About Investing

Teaching kids about investing is an important step in helping them to understand the value of money, the importance of saving, and the potential for growth. Investing can be a complex and intimidating topic for adults, but it is important to start teaching children about it at a young age. Doing this will help them to develop a sense of financial literacy and to understand the importance of making smart financial decisions.  With the right approach and resources, conversations about money management can be simple and fun.

Below are a few tips to help you teach your kids about investing

1. Start Early

The earlier you start teaching kids about investing, the better. Not only will they be more likely to make sound financial decisions in the future, but they will also be more prepared to take advantage of long-term investments. Have some birthday money sitting in a piggy bank? Put it to work and help them see how it grows. Some example ideas to put the piggy bank to work are teaching kids investing by making a business plan and executing a lemonade stand or selling bracelets or collector cards. You can also open an investing account and teach them to learn about index funds. The goal is to meet them on their level to see how investing in options that have the potential to grow.

2. Compound Interest

A great starting point is to learn about compound interest. Not only is this a financial lesson, but also encompasses crucial life lessons about patience, strategy, and delayed gratification. Money Geek has a great printable activity to help teach this concept to kids.

Compound interest is the eighth wonder of the world. He who understands it, earns it...he who doesn't...pays it. -Albert Einstein

3. Diversification

Another important concept that you can teach is the importance of diversification. Diversification is the practice of spreading out investments across several types of assets, such as stocks, bonds, and real estate. This helps to reduce the risk of losing money and to ensure that the portfolio is well-balanced. Parents can use real-life examples to help children to understand the importance of diversification, such as by showing them how a portfolio with a mix of stocks and bonds is less risky than a portfolio that is solely invested in stocks. Let’s be honest, we do this every day with all our decisions, right? Can they only ever eat candy and have all positive outcomes? Of course not. We have to make healthy choices and sprinkle in a few of the riskier choices along the way, like sweets and screen time.

4. Start an Investment Account

When you think your child is ready and mature enough to follow along, you can set up a small investment account and help them to research different companies and stocks. This will not only help them to understand how the stock market works, but it will also give them a sense of ownership and responsibility. Encourage them to start saving a portion of their allowance or birthday money to invest in their account. This will help them to learn the importance of budgeting, saving, and investing for the future. And again, patience, strategy, and delayed gratification.

5. Teaching Kids About Investing Can be a Game

Whether a simple game like the activity linked above, the board game of Life on family night, or an internet-based stock market game, money management and investing are great to teach through games. Planning and running a low-risk business like a candy or lemonade stand can also teach tons and be easily modified to be age appropriate. Inspiring healthy competition between siblings or friends in a school fundraiser can also teach valuable lessons. Games are great for all kids and all ages, but practical examples through games or hands-on activities can be especially helpful for gaining engagement to new ideas with boys.

6. Lead by Example

Finally, it is important to lead by example when it comes to investing, saving, and money management. Children are more likely to understand and embrace the importance of investing if they see the adults in their lives doing it themselves. Talk to your children about your own investment decisions and how you are planning for the family’s financial future. We recently purchased a new house and spoke to our 5 and 8-year-old girls about it and the entire process. We even took them with us when we went to the title company to sign the paperwork. Did they understand it all? No, but they asked thoughtful questions, and they understand that we set financial goals to get the house and had to execute a multitude of steps before reaching the end goal. The girls now understand that we are renting our previous house. They understand that we had to determine what rental rate was needed to be to cover expenses. They don’t have to get into the weeds on every single detail, but kids can absolutely understand the larger concepts of financial decisions and it can be very validating to them to be included in the process. Strict privacy and avoiding these conversations can lead to kids that have no idea how money works. Teaching kids about investing as they grow up gives a fantastic way to layer small lessons on earlier foundations. Help your kids create a wider breadth of usable knowledge as they move toward adulthood.

In Conclusion

Teaching kids about investing is important for helping them to understand the value of money, the importance of saving, and the potential for growth. By starting at a young age, children will develop a sense of financial literacy. This will help them become better equipped to make smart financial decisions as they grow older. We can teach our kids what we may not have been taught before. This can change the generational trajectory of their opportunities for success and financial security. Teaching about concepts such as compound interest, diversification, and the importance of patience and long-term thinking will have immeasurable returns. Involve your kids in the process of investing, encourage them to save and invest as they can, and lead by example.

Additional Resources

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