Time is the ultimate way to build wealth, and kids who start investing early can benefit for a lifetime when they put their money to work early. But how do parents teach the power of investing for kids? Start with a few basic steps to teach investing for kids in a fun, relevant way.
Step #1: Teach kids why they should invest
Before talking about investment accounts for kids or the stock market, teach your child why investing money is important. Start with basics like saving toward a bigger purchase and managing a kids debit card. Saving money helps kids understand why it’s important to set aside part of their allowance or paycheck toward future goals. Help kids understand how investing can be an even better way to save for their future while growing their money.
Step #2: Explain why they should start investing early
It’s tempting for kids to believe they have plenty of time to save for later goals like retirement or buying a house. One way to get kids interested in investing early is to show them how compound interest works. Explain how investing puts your money to work earning money for you (like interest). The longer your money has to work, the more money you can make.
A great example is to show your child a penny and ask what would happen if they doubled that penny every day for a month. Kids will be shocked to know they’ll end up with over $10 million in just 31 days. In the same way, money they invest compounds over time. The more “days” your child has to put those pennies to work, the easier it is to build millions of dollars over time with minimal effort.
Step #3: Show how investing relates to your kid
Many parents struggle to get kids interested in investing. Relating it to topics your child cares about can help. For example, if your child has a favorite clothing company or loves Disney, you can explain how buying stocks means buying a piece of that company. Show them how all their favorite Disney movies help the company grow and buying their favorite sneakers helps a business make money. People who own Disney or Nike stock grow their money as well. Shareholders can even earn a piece of the profits, called dividends. Introduce capital gains by explaining how kids can make money if they sell their stock when it’s worth more down the road.
Step #4: Give resources to learn about investing for kids
Harness the power of social media to teach investing for kids. Encourage them to follow influencers to learn how investment accounts for kids work and how to invest money wisely. Watch videos together and start the conversation using ideas from your child’s favorite accounts. Introduce the basics of investing for kids, so they’ll have a great foundation to start investing from an early age.