Investing is a smart way to grow your money over time, and teaching kids the power of investing early can change their financial future. But how do you explain different types of investments to kids? As cryptocurrency and meme stocks grow in popularity, your kid might already be more curious than you think about different types of investments. Talk to them about investing and how money grows. Use basic explanations about investment types and inspiration to make it relatable to your kids.
What is an investment?
No matter what types of investments you’re looking for, they all work similarly. An investment is money you save and put to work that can grow and earn more money for the future. Investments take time to earn money, and the more time you have for your money to work, the more money you can earn. Your child can learn the power of investing from an early age and take advantage of time to let their money grow.
Types of investments
When you decide you want to invest money for the future, you’ll find many different types of investments to choose from. Depending on your goals, you’ll want to choose different types of investments that will help you best accomplish those goals. From building wealth and retirement to saving for a future home or kid’s college, investments can help you make the most of your money over time.
If you’re saving money that you want to be able to access or use if needed, this is what you are looking for. For example, a high-yield savings account can earn interest while you build your savings. They’re also an easy way to help your child start investing early. Savings accounts won’t make you rich from interest, but they are a great way to put your money to work if you plan on using your funds soon. Other short-term options to consider are cash management accounts, short-term corporate or government bonds, money market accounts, and certificates of deposit.
These investments allow you to earn compound interest. For example, if you put $100 into a savings account that earns you 5% interest, you’d earn $5 in interest at the end of the year. The next year, you’d have $105 and earn even more interest on your larger savings total. That interest continues to compound for as long as you leave it in the account to grow.
A stock represents a piece of ownership in a company. When you buy stocks, you invest in the future success of a business, and your stocks can grow in value over time. Stocks are a popular choice for investing money, and there are many different types and strategies to choose from depending on your financial plans. Stocks are popular types of investments for a range of money goals.
Retirement accounts are a kind of investment account that can come with special tax breaks. Many accounts allow you to contribute money directly from your paycheck, and your job could offer incentives for you to invest. Retirement accounts are the most popular type of long-term investment and a great choice to start investing in at any age.
Special investment accounts
If you’re saving money for something specific, like your child’s future college costs, there might be a special type of investment account for your goal. Before you decide where to invest your money, consider what you want to do with the wealth you build in each type of investment account.
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