Want to teach your child more about investing but don’t know where to start? Teaching children about investing their money can help to give them more options when they become an adult. However, where to invest your money is a complex subject that many adults can still find confusing. So, what is the best way to advise your children on this tricky topic?
There are a lot of resources out there that can help you teach your children all things investment-related. In this brief guide, discover some of the best ways to introduce your child to the world of investing.
Make sure your child understands money and its value
Before you start teaching your children how to invest, it’s a good idea to make sure they first understand the value of money. Talk to them about why learning about money is important for their future. Explain its value and how it can be used. There are many fun money activities that can help you with that.
By the time your child is old enough to start investing, you’ll want them to fully understand the value of money. If they don’t, they could waste it on risky or dud investments. If they understand the value, they will typically make much more careful financial decisions.
Talk about how you as a parent make money
While you don’t need to reveal how much you earn if you don’t want to, it can help to talk to your children about how you make money. What does your job entail, and do you have any other lines of income?
Talking about how you earn money shows your children what to expect. You can also use your own experiences to inspire your children to make different decisions. For example, you could let them know that looking into education and training can increase their chances of getting a well-paid job. Whatever route they choose, having a clear focus on their financial future will help to give them a better life further down the line.
From saving to investing
You will want to teach your children that before they can invest, they will need money. For many people, saving is the best way to acquire these funds. All investments require some form of capital. Whether they want to invest in stocks and shares, or in property, they will need money to get them started. You may need to teach your children good saving habits before you teach them about investing.
You can also explain the differences between saving and investing, and why it helps not to put all of your money into one basket.
The defining factor between saving and investing is risk. Saving money is almost entirely risk-free; however, the interest you make on that money is fairly low. By investing your money, you can greatly increase your returns, but this comes with the risk of losing some of that initial investment.
What is investing?
Many parents wonder how to explain investing to a child, and the best place to start is with the basics. Investing is a way to use your money to make it grow over time. Show kids there are many different ways to invest, whether in stocks, bonds, property, or a different venture. When you buy assets with your money, you are investing.
Talk about risk inherent in investing
Risk is an essential topic, especially when first teaching kids about investing. Help them understand that investing won’t make them rich overnight, and it’s not a guarantee. It’s important to understand the risk of any investment before putting in your money and what you can expect to realistically earn (or lose) over time.
Different types of investments: stocks and bonds
Introduce your kids to different investment types like stocks and bonds. Your child may be interested to know they can buy stocks in companies they care about, from toy companies to clothing brands or their favorite fast food chain. Help kids understand how stocks relate to companies in their world. When kids buy stock in a company that does well and makes money, it helps them grow their money too.
Start investing with a game
A great way to introduce children to investments is with a game. There are plenty of investment-based games you can play with your children, both online and offline. Why not start with a board game such as Monopoly? This teaches kids about using money to invest in property and the returns they can make. Most children love Monopoly, and you can purchase a huge range of Monopoly themes to match their interests. For example, there are Harry Potter Monopoly sets or football-related sets you can play.
Or you could look at GoHenry’s very own in-app Money Missions. This collection of interactive games is a fun way for children aged 6-18 to learn financial literacy. Money Missions cover money basics, investing, saving, compound interest, borrowing, giving, and more.
Games teach kids about investments in a fun, easy-to-understand manner. Make sure you choose a game designed for your child’s age range. Also, don’t forget to read reviews to see whether other parents recommend the specific game you are thinking of for your child.
Start with a $20 investment
Once your child is ready to invest, you could give them $20 of actual (or pretend!) money to get them started. What are they going to invest their money in? Think of some non-volatile stocks and shares, and allow them to follow the progress of their initial $20 investment. This will help get your child used to how investing works with real money.
Let your child invest
As you introduce your child to investing, help them learn how to make money choices confidently. Encourage your child to build independence by investing their own money, but keep a few tips in mind as you get them started:
- Look at different companies to invest in together. Talk about companies your child is interested in and help them understand if a specific stock is a good investment.
- Explain the power of compounding. Kids are still learning patience and the power of working toward a goal over time. Help them understand how their investment will compound and what it could be worth many years down the road.
- Open a brokerage account for a minor. Your child will need somewhere to invest their money, so plan where the money will go. Consider a Roth IRA for kids, a custodial account, or setting up a 529 plan for their future education.
- Consider an online broker. Depending on the rules of the online broker, you could potentially open a brokerage account and give your child the privilege to trade online. Managing investments online can get your child more involved in the process and makes teaching kids about investing more accessible.
Extra tips to take into consideration
There are a few tips you’ll want to consider when teaching your children about investing. They include:
Keep it simple: Investing can be a complex topic at any age. So, if you want to introduce them to investments you are going to need to keep it simple. Focus on the basics and make sure the lessons you are teaching your child are age-appropriate.
Speak your child’s language: You’ll find it much easier to teach your child about investing if you speak their language. Tailor the lessons to their personality and interests. The more relatable you make investments sound, the easier your child will find it to learn about investing.
Use examples: When teaching your child about investing, don’t forget to use examples. Following on from the tip above, make sure the examples you use are relatable. Try to include a mix of theoretical investments and practical investment scenarios to provide them with the best financial education.
Keep the financial discussion going with your children throughout their teen years: The most important thing you can do is keep the conversation going and create ways for your teen to continue learning about money. Keep talking to them about smart ways to manage their money and the benefits of investing in their future.
Teach your kids about investing with Money Missions
At GoHenry, we know how difficult it can be to teach your children about investing. That is why we have put together fun, easy to follow Money Missions. Our bite-sized lessons teach your child what investing is and how it works, and introduces them to the concept of stocks and shares.
For just $4.99 per month, you will gain access to our in-app Money Missions, and your child will receive a GoHenry prepaid debit card. Ready to start teaching your children about investments?
The information provided is not intended to be investment, tax or legal advice – nor does it claim to be comprehensive. Speak to a professional if you’re unsure about whether investing is right for you. We do not endorse any third parties referenced.