Teaching our children about investing is something most parents think very little about. Sure you’ll teach them how to balance their checking account and pay their bills on time, but rarely have you considered walking them through the steps of the long term financial stability they could have by investing. Try these tips to help teach your kids about stocks and bonds.
1. Teach Them How To Save
The first step to investing is to understand that, by saving your money and letting it add up, you can have more money over the long run than if you were to spend it as you make it. Having your kids save three weeks of allowance so they can buy the better toy rather than spending it each week on smaller or lower quality toys, you are showing them that letting their money grow results in a bigger payoff.
2. Don’t Force It
Now that they understand the value of saving and letting their money grow, it’s time to encourage them to invest a little so their money can make money. Pressuring your child to invest can back fire, so it’s important to invest an amount that they are comfortable with. Once they see their investment grow they will begin to understand the more money they invest, the more money they make. They have to come to the realization that waiting for the bigger payout in the long run is better than the instant gratification they feel by having access to their money now.
3. Make It A Game
If they still struggle with the patience required to invest, try creating a game that will show them the potential rewards in a way they can understand. The idea that returns can grow to be larger than the original sum invested is a complicated idea for the best of us, but especially kids. Try giving them a small bill, such as $10. Tell them that if they save that money for a specific period of time, you will give them 7%. For each period of time that they successfully save, you will pay another 7% of the total, not just the initial amount. So the first time they get $.70 but the second time they get $.75 and so on. The trick is they can’t spend it. As long as they save, they will see their money grow teaching them to be patient and responsible investors.
4. Practice What You Preach
You can’t expect your kids to take your investing advice if they see you living paycheck to paycheck. By investing along with them, you’re not only teaching them a valuable lesson, you’re also doing yourself a financial favor. Remember, it’s never too early or too late to start investing. You may even find that investing together is a great way to spend time and bond with them.
Investing can be scary. The process can be complicated and most people fear letting go of their money to a system they don’t understand. Teaching your kids about stocks and bonds early can prevent them from running scared from a process that could ultimately provide them financial security. They’ll thank you for it later.
David Milberg is a financial analyst from New York City.