A Guide To Teaching Your Kids About Investing
Many parents think that it is not necessary to teach their children about money and investing. In fact, according to a recent survey, about two-thirds of adults with kids say their parents taught them about saving, but only 22% said their parents taught them about investing. With an eye-opening statistic like that it's clear that more parents need to teach their kids about investing. As a parent, it's up to you to give your children the knowledge that they need in order to make the best financial choices for themselves as they grow up.
Here's a guide to help you teach your children about investing:
1. Explain The Difference Between Saving and Investing
Start by explaining that you can't invest without savings. If your children don't have a savings account yet, open one for them so they can begin saving early on. Next, walk them through what investing means. Simply explain to them that investing is spending money with the goal of making more money. You can use their savings account as an example since they will be earning interest on their savings. Once they have a good understanding of what investing is, you can also explain to them that they can invest in stocks, mutual funds, and 401(k)s.
2. Keep It Simple
Sure, you could dive into explaining the details of stocks and mutual funds, but it's better to start off by keeping things simple. If you stick to the basics of investing your children won't get overwhelmed with information overload. Instead, simply explain to them the basics of investing and how it can benefit them down the road. For example, you can explain to your children that when you buy a stock, you are a part owner of the company. So for instance, if you bought Apple's® stock, when people buy iPhones, Apple is making money and you are making money as well since you are part owner. Giving your children examples that they can clearly understand is very helpful.
3. Get Your Children Involved
There's no better way to teach your children about investing than to get them involved in your own investing decisions. Share your investing activities with them. You can walk them through own saving and investing strategies and discuss the reason why you are saving and investing. The more your children see you taking your saving and investing plans seriously, the better. Additionally, the more your children are involved, the more they'll learn. Make sure to use every opportunity as a chance to teach them something valuable that will help them in the long run.
4. Set Goals For Them
To help your children learn about the value of investing, set goals for them to help entice them to save and invest. You can start small by having them aim to save $10 a week and put that money into their savings account for them. Over time, show them how the interest on the money that they have saved has increased their account balance. This will teach them that you can still invest even if you don't have a lot of money. Additionally, creating the habit of saving and investing from an early age will help them tremendously in the future.
Remember to start small when it comes to teaching your children about investing. The goal should be to teach them the basics so that they understand enough without overwhelming them too soon at any early age. Your children will thank you later on for taking the time to teach them the basics about money and investing when they were young.