While most parents do their best to teach their kids about healthy eating, exercise and other very valuable lessons, financial literacy is often overlooked.
So what can you do to start teaching your kids about investing? The good news is that it doesn’t have to be complicated or overwhelming.
The following tips will help your child start their investing journey:
Start with the basics
Where you start and the investing tips you share depend on the age of your children.
Before they can learn about investing, your child will need to have a basic grasp of the value of money as well as a modicum of maths skills. It’s probably too early to start with a child who still thinks 50 cents is more than a dollar because the coin is bigger.
Once they are past this stage, you can introduce key concepts like saving and budgeting. Give your child a goal such as a toy or special takeaway treat, then work with them to save the money.
When your child has an understanding of these concepts and their value, you can introduce them to the concept of saving for the long term as well as the short term, and talk about compound interest as well as other ways to make their money grow.
Analogies are an excellent tool to help children understand complex concepts.
Here’s an example:
Investing is like planting a seed and watching a plant grow. You start with very little, make small contributions and end up with more.
You also need to care for the plant/investment. The more you water it/add more funds, the more it will grow.
Of course, a storm or some insects or another catastrophe could come along and kill your plant. This is why many investors plant more than one seed, to make sure that some survive.
The plant analogy is a good one because it also gives a clear impression of the time investing takes.
Keep it relevant
Investing for older kids should feel relatable. Try to choose an investment that makes sense to them within their sphere of experience.
If you decide to try investing in something tangible like company shares, choose a brand they are familiar with (so long as its performance is promising).
This way, they can develop a better grasp of what real investing is like. Knowing what the company makes helps the idea of investing in it be more concrete in your child’s mind than if they are putting money towards an obscure entity.
Of course, you need to stay in control as the adult and make sure funds are being invested carefully.
Use a mock portfolio
One of the best and risk-free ways to teach an older child about investing is to create a mock portfolio.
It can be entirely theoretical, or you can have them chip in some pocket money and use your own money to contribute to growth over time.
By creating your own mock portfolio, you can include stocks, bonds, mutual funds or any other investment you want your child to experience.
Use the real stock market or create it yourself, but either way, a mock portfolio is an excellent learning tool to help kids grasp the realities of investing.
Don’t ignore risk
When you are teaching your kids about investing, make sure that you explain risk.
There is always the chance that you can lose money when you invest, and your kids need to know this.
Going back to the seed analogy or explaining how insurance works can teach children how a diverse portfolio and a comprehensive investing strategy can reduce risk.
Lead by example
Finally, the best way to teach your child about investing is to lead by example.
Share your investment moves with your child and show them the wise decisions you are making when investing for your future and theirs.
Explain to your child that there is no harm in seeking help from an expert. The best time to seek help of a financial planner is before you make decisions or simply to help you just get started.
Need help exploring investment opportunities for your children? Talk to Landen today.