Prepping your kids for a life of financial literacy and an understanding of investing (beyond the standard talk of allowances and savings accounts) is crucial to their financial stability and success in the long run. With the amount of resources on the market today, it’s literally never too early to start — and with your commitment to it, it has the potential to be a heck of a lot of fun.
Why teach your kids about investments?
Though there are approximately dozens of reasons to teach your kids about investments, consider these two that are top of mind right now:
- Investing is one of the best ways to set oneself up for financial stability in the future. With savings rates barely keeping up with inflation, if at all, growth in wealth depends on knowing how to wisely invest.
- Wealth no longer lives solely amongst older generations. Not only is it being passed down from generation to generation, but the rich are getting richer at younger ages as they start their own companies, join venture-backed startups, or begin their own online empires. When your kid is the next billionaire-before-30 (hey, anything’s possible!), they’ll be thanking mom and dad for teaching them how to handle their money.
The savings talk is normal at a young age, but unfortunately, the investment talk tends not to be. However, there’s a big difference between saving and investing, and they deserve to understand that early on. And when it mostly comes down to risk, the more they know, the more it’ll serve them in years to come.
7 steps to teach your kids about investing
Teaching your kids about investing isn’t a one-day workshop: it’s a process that you’ll embark upon for years as they age. Below, I break down some ideas of what might work best for you. (Need a primer yourself? Feel free to direct message me or schedule a call with me and I can walk you through a quick overview.)
- Start with savings. From the time they’re young, open a savings account for each of your children — in their name. Help them create fun goals for their savings — perhaps a short-term goal would be saving enough for an action figure; while a longer-term goal could be saving enough for a ticket to the amusement park next summer. This gives them a solid primer on goal-setting, while showing them how a savings account works.
- Introduce investing. After getting them set up to save, give them an intro to investing, and how it differs. Put it in context of things they understand — saving to buy that video game now versus growing that money to buy a car when they’re 16. (A note here: the best way to talk about this is typically in terms of risks vs. returns.)
- Say hi to the stock market. Sit down and start looking at stocks. Explain what it means to own stock in a company. We love this story of a dad who walked into Panera with his kids and told them “We own a little bit of this restaurant.” Start by tracking companies they’ll recognize — like General Mills, Apple, Heinz, and Disney — so they can directly connect it to things within the home or places they have experience with.
- Set up a faux portfolio. After you’ve taught them how to track stocks and they’ve seen the up-and-down nature of them, use Monopoly money to get them started with a “portfolio.” Start with a set amount and let them choose stocks. Help them track them over a few months to get an idea of the swings, actually subtracting and adding to their pool of Monopoly money as you go.
- Use games. Enlist the help of games during this time of learning. There’s no shortage out there for any age of learning:
– Start off with Sesame Street’s “For Me, For You, For Later” dashboard with resources for learning about spending, sharing, and saving.
– Teach them about saving + impulse buys with apps like MassMutual’s Save! The Game.
– Use a virtual stock simulator for your faux portfolio, like Investopedia’s Stock Simulator, which allows you to “compete, risk free with $100,000 in virtual cash.”
– Try out any of the games on this fantastic list from MakeUseOf.com.
- Actually invest. Finally — the real fun. Put some money where your mouth is, and actually make some investments. Let your (now educated) kids help you decide where to spend. Better yet, give them a sense of ownership: encourage them to invest their own money (allowance, birthday money, etc.) to build responsibility. While minors can’t own stocks or open brokerage accounts in their own names, you, as their parent, can set up a custodial or guardian account in their name.
- Get the investor relations packet. Though the trend is paperless, your kids are investors for the first time, and receiving the physical reports in the mail gives them materials they can look through. Companies like Disney make it fun, with a rotating cast of characters parading through their investor newsletters. Sign up online or request an investor relations packet via phone.
Perhaps most of all? Be a good role model. Allow them a glimpse at how you manage your money. Imitation is the best form of flattery, and kids love to imitate their parents. Make this form of imitation financially rewarding.
Start now for a better future
Start your kids off young, and when they do start bringing in an income, they’ll be better prepared, mentally, to think about retirement accounts and further investments. It takes time. It takes focus. The timing isn’t always right, so you might have to try again later. But the benefits make it worth it: you’re not just setting your kids up for financial success — you’re teaching deeper lessons about risks, rewards, and stability.
Other articles filed under Austin CFP Team Posts
November 13, 2017 - This is an excerpt from the WorthPointe e-book A Financial Planning Guide for the LGBT Community by Kermit Johns. This resource is provided as a complimentary resource to aid for the community. Before getting married — remembering your status for...
November 6, 2017 - This is an excerpt from the WorthPointe e-book A Financial Planning Guide for the LGBT Community by Kermit Johns. This resource is provided as a complementary resource to aid for the community. One of the best ways to start the...
October 18, 2017 - First a quick note, I’m honored to have been selected as a finalist for the San Diego Business Journal’s 2017 Veteran & Military Entrepreneur of the Year Awards. I’m honored to be in the company of some fine men and...
October 17, 2017 - I would like you to think about something. What is your biggest roadblock to being free from financial anxiety and uncertainty? You’re experienced. You’re knowledgeable. You have an idea of what you want and you have occasions where you are...
October 8, 2017 - Morgan Smith has been named a finalist for San Diego Business Journal’s Military & Entrepreneur Awards. This new awards program and educational conference will be held at the Hyatt Regency La Jolla at Aventine, 3777 La Jolla Village Drive, on...
- Financially Navigating a Cross-Border Life
- Joshua Wilson Will Moderate Discussions at ALTSTX