How to Teach Your Kids to Invest

How to Teach Your Kids to Invest
Source: Forbes.com

There’s two kinds of people in the world, those who use their money to spend it, and those who use their money to make more money. If you fall into the second category, then you might be aware of the importance of teaching your kids how to invest their money wisely from a young age, so when they’re old enough they’ll know exactly what to do with their money and guarantee a comfortable lifestyle for their future.

But a concept such as inversions is not so simple to explain, so here are a few useful ideas that might make it easier for you to teach your kids how to invest:

  • The main differences between investing for kids and adults

As you may know, if you’re at all engaged in the investing “game”, kids and underage people are not allowed to be the sole owners of stocks. Adults are responsible for their investments and they’re free to make movements on their own without having to hire anybody, but a minor might need some type of representation, usually an investor specialist that takes care of their investments and follows their orders or gives them advice. Adults handle a bigger flow of money, hence they can invest in stocks, which are a little more risky.

Kids, on the other hand, may do better by investing in mutual funds, which are safer and more suitable for small amounts of money. Another major difference in adult and child investing is the time both get. Kids have between 10 and 20 years to start enjoying the results of their investments, while adults have less time and usually more urgency to start seeing results since they use investing as another way to earn income.

  • The ideal age to start teaching kids about investing

When it comes to inversions, we can all agree that most of us learned too late in life what this is all about, and could have taken advantage of our money if we started earlier. That’s why economy experts recommend you start teaching your kids all about investments as soon as possible.

Kids start getting allowances and cash as gifts as young as 3 years old. From that moment on, it’s important that you start teaching your kids how investing can make their money grow in a passive way. Other parents feel it is better to teach their kids about investing when they’re about 8 years old and have more mathematical knowledge. But how should you tackle this topic when they’re so little? Well, it all starts with the concept of saving.

  • Show them the difference between saving and investing

Your kids should know the benefits of saving from the time they’re little, as well as be taught about the value of money and where it really comes from (hard work). When they start getting allowances or cash for their birthdays or even the occasional $5 from their grandparents, start stressing the importance of saving their money so that in the future they can afford something they can’t buy at the moment.

However, the real important part is that you teach them the basic difference between saving and investing. Sure, saving will get you your money over time, but investing in a business or lending money can get you more cash than you originally received simply by placing it in the right place.

  • Teaching kids about risks and rewards

When you paint your kids two scenarios: one where they save and ultimately end up with all their money combined and one where they get more money than they gathered, it’s pretty common that your children will opt for investing.

But the responsible thing to do as a parent is to make sure to teach them all about the risks and rewards of inversions. They might end up with more money than they had before by just making the right choice, but highlight the fact that there comes a risk with this action and they might end up losing some money, hence why they shouldn’t place all their bets in one place but try to invest in different activities and ventures.

  • Let them “play” the market with simulators

So you’ve clearly stated the basic concepts of investing and what they might get out of it. When your kids are old enough to read and make simple additions and subtractions, it’s the best time to get them to start playing the market in a safe environment. Since this is their first approach with the market they need to practice without the risk of losing real money, either theirs, or yours. You can find several market simulators with fake money portfolios where they can start investing and tracking their results to see how they’d react in a real situation.

  • Encourage them to start a business

Using stocks isn’t the only way to invest. Kids can actually make their money grow in more exciting ways that get them involved and could result in a business idea for the future. Be on the lookout for your kids interests and suggest they start a small business with your support but using their savings. Maybe your kid likes to bake cupcakes, knit bracelets or draw paintings. Encourage them to use a part of their savings to start selling their product and make their money grow.

  • Gift them a “10 Stock Pack” to start investing

Some financial experts recommend that, if you’re interested in teaching your kids about inversions and stocks, a great way to start is by gifting them with a 10 stock pack. This pack might contain dividend payers and not dividend payers alike, so they’ll start noticing the difference between these two types of companies and stocks. This 10 stock pack won’t cost you much and it’s a great realistic experience so they can see for themselves what happens to their stocks according to the decisions they make.

  • Teaching them to save, spend and invest equal parts of their money

Once your kids have started to get a hang for inversions, and particularly if they’re doing well, they might get overly excited about making their money grow like crazy. Here’s the right time to teach them a valuable lesson: never to put all your eggs in one basket. Even though inversions are a great way to make your money multiply, they’re a bit risky and they can never replace other financial decisions to assure yourself some stability. Teach your kids the importance of dividing their money so, whatever they receive, they set something aside to save, spend and invest. This way they’ll experience all three actions and their consequences.

Remember that teaching your kids how to invest is uneasy and, even when you know how to work the market, certain unexpected situations can happen. So at all times stress to your children the fact that investing is a risk and they should take it very seriously and practice investing with intelligence and premeditation.