If you think it’s too early to teach your kids about investing, think again. If you start early on, your kids will grow up to be among the few who are financially aware. While there is no hard and fast rule about how soon to start, the most important thing is exposing your kids to financial literacy.
You can start by giving your kid a piggy bank and telling her that she can buy something once it’s full. This will go a long way in teaching her to save and invest. It will also educate her on the value of goal setting.
There are even piggy banks you can buy that go beyond mere savings. Some have compartments called “bellies”: spend, save, donate and invest. These categories teach your kids how to save for specific priorities and financial literacy. Once your kids have graduated from savings, it’s time to introduce them to investing. Here are some surefire investing tips to teach future financiers:
- Teach the value of investing: You have to drill down on the fact that while savings is good, investing is even better. With investing, kids are not only keeping their money, they’re making it work for them. It’s been said that money is a bad master, but a good servant. Nowhere is this more obvious than in investing. When you invest, you multiply your money’s capacity to serve you. This is a must-have skill for financial literacy.
- Talk in ways they can understand: If you want your kids to get interested in investing, don’t start with volatility in stock prices or the advantages of mutual funds. That’s the quickest way to put them to sleep. You have to let them enjoy the process of earning money, and teach them how investing is just another way to add to the enjoyment.
- Use stories: Kids love stories. All you need to do is look at Disney movies to see that. Why not use the power of stories to teach kids how to invest? You can tell them about the story of Warren Buffet and how he went from selling Coca-Cola bottles from his grandfather’s grocery store as a kid to becoming one the most respected businessman in the world. Be sure to also tell them about your personal investment stories and how you have consistently brought home the bacon with your financial savvy.
- Be sensitive with learning styles: Kids have different learning styles and the sooner you understand this, the more effective you will be in teaching your kids the value of money. A one-size-fits-all approach to learning is already obsolete. Kids now are smarter and the cookie-cutter approach just won’t cut it anymore.
- Use play money: A hint of realism is key to piquing your kid’s interest. Using play money to buy their own “stocks” will give them a taste of how adults do it in real life without the risk of losing real cash and help visualize financial literacy.
- Use computer games to teach about stocks: Kids love computer games and gamification is an enjoyable way to make them simulate a real-life stock market. Some websites offer stock market games for grades 4-12 and mobile apps that work in conjunction with it.
- Start their own stock portfolio: When you think your child is ready to have real stocks, you can start by buying her a portfolio of ten stocks. You can buy one share each from companies that your child can relate to, like Disney, Coca-Cola, and Apple. This will not only get them excited about having their own stocks, it will also teach them that some companies are better investments than others.
- Get them interested with compound interest: What better way to illustrate how money grows than through compound interest? The best way to demonstrate the power of investing is to show your kids how money increases exponentially over time. This is also an object lesson to teach that debt behaves the same way and must be controlled as much as possible.
- Teach them to give: Highly successful investors like Warren Buffet are also legendary givers. Giving is perhaps the most excellent expression of making money serve you because now you’re using it to help not only yourself, but others. Teaching your kids to give will help them discover the joy of altruism and achieve financial literacy.
- Pass the legacy with dividend reinvestment: At what age did you own your first stocks? Perhaps you got your first stock from mom and dad’s dividend reinvestment plans. Why not do the same for your kids? This way, you can give them their own stocks without shelling out cash.
It’s never too early to teach your kids about money. The earlier they learn, the better they will be at financial literacy once they become adults. A lot of people want to blame the economy for their present financial problems, but while that might be partially true, that is not the whole story. A lot of the economic woes that we experience as young adults are actually due to poor planning, but teaching your kids about money early on can save them a lot of financial despair, freeing them up to pursue what they truly want in life.