My parents taught me a lot of great lessons about money. They taught me the importance of saving, tracking my spending, making tough choices, and giving to charity. However, when I was growing up, they didn’t teach me about investing.
My younger brothers learned a little more about investing because, a few years after I graduated from high school, mutual fund automatic investment plans started becoming popular. With a commitment of as little as $50 per month, you could open an account and use dollar-cost averaging to grow your wealth with one of the brokerage’s mutual funds. However, even then, you still had to go through a major, “traditional,” broker to set up the plan.
Today, almost anyone with $25 and access to the Internet can open an account and begin investing in low-cost funds. Last year, I opened an investment account on behalf of my son, and he’s started learning about investing.
Ideas for Teaching Your Child About Investing
The book What All Kids (and Adults too) Should Know About … Saving and Investing by Rob Pivnick suggests that the first step is to lay a solid financial foundation. My parents helped me lay that solid financial foundation (even if I ignored a lot of what they said for years), and it helped me move forward when I was ready to invest.
But there’s no reason to let your kids wait until college. With the Internet, and with so much information available, it’s possible to get them interested in investing — as long as you’ve started with the basics of financial literacy.
Teens are especially well-suited for learning about investing, since they can begin to grasp principles like compound interest. Pivnick suggests providing information by focusing on rewards. You can get the attention of a teenager by showing him or her how to become a millionaire faster with the help of a good investment plan.
Another good way to get your child interested in investing is to talk about different events, and track the performance of some of their favorite brands. While you don’t want to focus too much on stock picking, since indexing is a good place to start, kids do like to talk about the things they know. Buy a few shares in a company they like, and index the rest. Together, you can compare the performance of the individual stock with the index, and discuss daily ups and downs.
As you teach your child about investing, be sure to show examples of how your child can get ahead with the help of investing. If you have a solid nest egg growing, show him or her how you’re doing. You can also illustrate how might be even further ahead if you had started younger. Don’t forget to let your child check his or her investment account every couple of months in order to stay motivated. My son loves watching his account balance grow. It’s more gratifying to watch that balance grow than it is to watch his more traditional savings account.
Try to make it automatic. My son saves 20 percent of his allowance and other income, and keeps it in a high-yield savings account. Every month, part of the money is transferred from the savings account into the investment account. We reconcile his account online each month, so he can see what’s happening, and he likes the technology aspect. Kids today are digital natives, and being able to show them how to technology can also helps their finances is a great way to keep them interested.
Finally, make sure your child understands the importance of staying in for the long haul. It’s hard for teens to grasp the idea of sticking with something for decades, but by showing them performance possibilities, and helping them create the habit, there is a good chance that, once they make it automatic, they will be investors for life.
