Teaching kids how to invest at the earliest possible age means that your kids will become as comfortable with investing as they are with their video games. Kids love to learn new skills and feel confident and knowledgeable about things - this includes money. Showing them how to build their reservoir of skills to make more money, so they can do and buy the things they want in the future, will result in capable, self-reliant young people.
Things You Will NeedParents want their kids to have a great overall education and to prepare them as best as they can for the world that awaits them when they become adults. School will teach them many things along the way, but one area it falls short in, is in financial matters. It wasn't until most of us entered the workforce and/or had exposure to this in our post-secondary education, that we became investors ourselves. Think of how much further ahead we could have been had we started learning the ropes when we were very young. This is why emphasis needs to be placed on teaching kids how to invest as early as possible.
Believe it or not, you don't have to wait until your kids are teenagers with part-time jobs to start them on their investing activities. If a child is receiving any kind of allowance, then they are ready to start investing. This means that kids as young as six years old can start being taught some basic investing strategies.
Tips & WarningsTeaching Kids How to Invest - Step 1
It is a good idea to set up a savings account for very young children. If they have money coming in either through allowances, or money gifts at birthdays, etc. from family, you should get them used to saving at least a portion of it each time they receive it. You want them to get into the habit of automatically setting at least 10% aside (more as they get older). This will become second nature to them. You can get them excited about their growing bank balances, by showing them the interest they are earning, while still allowing them to enjoy spending the rest of their money as they want to.
Teaching Kids How to Invest - Step 2
Play boardgames and online money games with your kids. There are many boardgames and some free online games that come with financial lessons that are also fun to play. Make it a part of your regular routine so that knowledge continually seeps into their minds.
Teaching Kids How to Invest - Step 3
As kids get a little older, you can start them investing in very safe instruments such as certificates of deposit and Government Bonds. However, the further out you invest in maturity date of the security the more risk you will have because of interest rate fluctuations. Both of these avenues have minimal risk, but provide greater interest payments on funds invested. Once they are comfortable with those, you can start introducing them to the stock market. It will be a great opportunity to open up discussion with them.
Teaching Kids How to Invest - Step 4
Have them keep records of all of their investing activities. Show them how to set up different pages for the various types of investments they have, so they can keep track of maturity dates, interest payments, and dividends so they can see how their money is growing over time. Kids can gain a great sense of pride in their financial accomplishments, and it builds their self-confidence as well. Keeping records is also a helpful tool to show them what their money is doing for them, rather than just being spent on things that have little or no future value.
By teaching kids how to invest, you will be giving your children a huge leg up in their future financial success. You will be instructing them in respecting money, appreciating it, and how to make it work for them. By breaking them in slowly at a young age, they will get used to thinking of their money in terms of all of the options it can give them, outside of being spent and never seen again. Kids are eager learners, and love to feel knowledgeable and capable in life. Give them the opportunity to gain some strong financial know-how and you will be setting them up for a stellar future.