One of the greatest gifts you can give your kid is the ability to invest for the long term. Parents can teach their children how to save for a first home, a college education, and a comfortable retirement from an early age. If you’ve searched for ways to start investing for kids, you’ve likely seen many options and conflicting information. What is the best investment plan for children? And how do you show them the importance of investing early?
What are long-term investments?
Long-term investing is buying and holding assets, like stocks or property, for long periods of time. The longer you invest, the more time your investments have to increase in value. You can invest long-term for goals like buying a house, college, or retirement.
Short-term vs. long-term investments
Short-term investments, like a savings account connected to a kids debit card, make a great starting point for teaching kids how to invest. Short-term goals can help kids understand the value of saving and investing early for goals down the road. Consider using automatic transfers from a kids debit card to balance short-term goals with long-term investments and build wealth early.
Best long-term investment plan for children
The best investment plan for children depends on your financial situation, but there are a few common investment types you should consider, including:
- Retirement. Even small amounts of money invested early have decades to grow and can set your child up for a successful future.
- College. You can start investing for kids' education as early as you’d like. Research special college investing accounts and show your child how investing small amounts now can help them pay for a degree later.
- First home. Consider helping your child plan for their first down payment as an adult.
- Building wealth. Teaching kids how to invest money can help them succeed financially for life. Your child can use investing skills to accomplish their goals and build lasting wealth.
Understanding risk and diversification
As your child learns more about investing, explain how to weigh the risk of investing their money. Long-term investments are a great way to lower the risk to your money since they have a long time to grow and recover from any dips in the market. Short-term investing and more exciting investing topics like crypto can carry more risk to your money. You can spread out your risk between many different stocks and investments, called diversification, in case one goes south.
Teaching investing for kids
Teaching your child how to save and invest is easier in stages. While long-term investments are essential for their future, get kids excited about saving by starting with smaller goals. Help kids grasp the basics of saving, then introduce long-term investing relatably. Show kids how to invest in their favorite Disney characters or Nike shoes through the stock market, or get them involved in money games that teach investing for kids at home.
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