How to Start Investing: 4 Ways to Teach Your Kids
Children copy whatever we do. While some lessons can be taught to them with just your day-to-day actions, others require you to gently nudge them in the right direction, and share your wisdom. Learning how to start investing falls in the latter category.
The education system, up until high school, does a good job at strengthening the core foundations needed to help children take on the real world. However, certain areas could definitely do with some improvements. For example, kids are never taught how to invest their money. This is shocking, considering that investment is one of the best ways to scale your fortunes, starting from the late teenage years.
As a result, years later, many people don’t know how to approach investments, either because they’re scared, or because they’re simply comfortable with their normal, steady paychecks. Again, at the end of the day, it’s not their fault.
To avoid having your children fall into the same trap, and to help them take full advantage of investing, it’s up to you to pique their interest and teach them this skill.
Here are 4 ways you can turn your children into savvy investors:
1. Start Early in Teaching Them How to Start Investing
Children are very impressionable, especially when they’re under the age of 10.
At this stage of their lives, they’ll believe and do whatever you tell them to.
While it’s never too late to learn how to start investing, the earlier you begin, the better.
Considering that, on top of teaching them about things related to their mandatory curriculum, go out of your way a little to teach them about how investment works.
You don’t have to go all in and blast them with all of the terminologies right off the bat.
Instead, start small. Start by talking about the concept of investment (while doing so, it’s important that you clarify how it’s different from saving).
With comic books and bed time stories, consider buying these finance books for children:
- Growing Money (by Gail Karlitz)
- The Young Investor: Projects and Activities for Making Your Money Grow (by Katherine Roberta Bateman)
- How to Turn $100 Into $1,000,000: Earn! Save! Invest! (by James McKenna, Jeannine Glista, and Matt Fontaine)
- Finance 101 for Kids: Money Lessons Children Cannot Afford to Miss (by Walter Andal)
Piquing the interest of children at an early stage can go a long way. Take advantage of this.
2. Give Them a Taste of Investment
Books and bedtime finance lessons aren’t enough to make children understand the importance of investing.
Once they get the basics down (i.e. how an investment works and the different types of investments there are), test whatever they’ve learned and give them a small taste of what it feels like to invest.
Here’s how you can do that:
- Make an “investment box” and ask your kids to add $1 from their allowance, into it.
- Tell them that for every dollar they add, they’ll get a return of $1 (100% return).
- At the end of the month, when they have $4 in the box, give them $8.
This monthly exercise will make them appreciate how investments work, and motivate them to learn more about them.
All you’ll have to do is to add another $4 to their monthly allowance.
3. Teach Them How to Start Investing with Stories
Children (even adults) love a good story.
Incidentally, the most financially-savvy individuals were once children who grew up learning about investing and business.
While teaching them the essentials of how to start investing, narrate your own investment stories (if you have any).
Tell them about the various major investors, such as Warren Buffet, Carl Icahn, and Mark Cuban.
4. Allow Your Children to Invest
Once you feel that your child is ready, give them a taste of the actual investment world.
You can do that by opening a custodial brokerage account for kids.
Support them financially during this journey, to a point where it doesn’t affect your budget, and trust them to make their own decisions.
Meanwhile, coach them and offer your advice whenever they need it.
Benefits of Teaching Your Kids How to Start Investing
Here are the benefits of teaching your kids the wonders of investment:
- It teaches them how to be careful with their money.
- It teaches them how to pay off student loans and even avoid student loans altogether.
- Kids who learn how to manage their finances, and know how to grow their wealth with investments, are more likely to be successful.
And that’s just scratching the surface.
Teaching your children about the benefits of investments can go a long way in ensuring that they have a comfortable future.
Remember – at the end of the day, no one is really too young or old to learn how to start investing.
However, the sooner one starts, the better.