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November 17, 2020

How to Teach Your Kids About Investing

If you’ve recently started learning about personal finance, you may be feeling some regret at not knowing about investing and saving earlier. That’s why teaching kids about investing basics at a young age can be so impactful. It can set them up years ahead of their peers and give them opportunities that might otherwise not be possible. Even just the understanding of concepts like investing, compounding returns, savings accounts, and IRAs can go a long way in preparing children for the future.

1. Start with spending and earning basics

While you could always open up a savings account and save for your kids on your own, it might be better to spend some time teaching them how to save their money and helping them grow their savings on their own terms.

Start by helping them understand the value of a dollar. Practical lessons are always best, so you could start by giving them pocket money for the chores they complete or for doing well in school. If you don’t want to start with pocket money for chores, you could also use gifts, birthday, and holiday money to teach them about finances. Most children develop an understanding of money and expenses by the time they’re 10 years old.

Once they have this basic understanding, it’ll be easier for them to grasp investing concepts.

2. Gamify the learning process

Kids today have more ways to learn than ever before. Games, both digital and offline, are a great way to solidify a concept. Patience is an integral part of investing in the stock market and can be taught using an old game. Tell your child they can have a piece of candy at lunch time, or if they wait until after dinner, they can receive two pieces of candy. Most of the time the child will opt for instant gratification, but over time can be taught to appreciate the value of waiting until later.

One of the best ways we’ve seen of parents teaching their kids about investing is from Shark Tank Entrepreneur, Kevin O’ Leary. According to CNBC, O’Leary bought a glass piggy bank (so that his kids could see inside) and added a few pennies each night while they slept.

“The idea was that they would wake up and see there was more there. That was for them to understand the concept of compounded interest…They understood it really early on and now they’re pretty good investors…They understand the idea that money makes money. And, when you spend it you kill that money.”

The point was to show that socking away money and putting it toward an investment that grows can have long term benefits — rather than only seeing the short-term benefits of spending.

3. Use kid-friendly resources

To be quite honest, we spent an inordinate amount of time looking over these colorful and engaging resources that teach children and teenagers how to invest. Some of our favorites:

4. Involve children in the decision-making process

A fun exercise to do with kids and teenagers is to explore investing options as a family. Ask kids what products and services they like and have them articulate why they’d like to own a tiny portion of the company as a stock. Together, look at the stock’s performance (a simple time-series chart may be enough) and discuss if they’d still like to invest in the company. Encourage them to think about factors like the environment, the company’s social work and treatment of employees when deciding about whether or not to invest.

If you open a practice account for investing, encourage the child to review their ‘portfolio’ with you monthly. Even if they lose pretend money, it can be a great opportunity to teach them about patience and time in the market.

5. Make it a habit

The best lessons are the ones that become habits. When kids earn or receive money, encourage them to save and invest a portion of it. One way to do so easily is to teach the child to divide the money into 3 portions: one for spending, one for investing, and one for donating. This will help them build good financial habits early on and encourage a broader view of the uses of money.

It can be difficult to teach children about the value of money, especially now that the days of piggy banks and spare change are long gone. We hope that this article gives you some new, engaging and innovative ways to teach your children about how to succeed financially. No matter which games, books, and apps you pick, the education you are providing them will be key to prepare them for adult life.

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