I love my parents. They taught me a lot of great lessons about the importance of saving and smart spending. However, they didn’t talk much about investing. As a result, I didn’t learn about investing until I was well into my 20s. I knew that investing existed, of course, but I didn’t really “get” it, and I didn’t understand how I could begin investing.
I would like my son to get a head start on investing, and understanding the importance of putting his money to work on his behalf. As a result, I’m already teaching him a little bit about investing.
1. Relate it to something they know
One of the best things you can do is relate investing to something your kids know and understand. If your kids like a certain breakfast cereal, show him or her how it’s possible to purchase ownership in the company through stocks. This works for clothing brands and gadgets.
While you don’t want to load up on individual equities for your kids, you can still explain how investing works using examples of their favorite companies. I show my son some of his brands that are in an index fund that he is invested in. Just seeing that familiar name, and talking about it, helps him understand the concept of a good business performing well and offering returns to shareholders, even though he doesn’t own individual equities in his custodial account.
2. Let them see the results
My son is old enough now that he understands some of the basics of interest. He knows that the money in his high-yield savings account is making money. He gets “free money” in the form of interest every month. It’s fun for him to check his account.
One day, I showed him his earnings from the savings account, and compared it to my earnings from an investing challenge I’m participating in. He saw the difference immediately. He can see that it’s possible to earn more over time if he’s willing to start investing now.
3. Talk about investing
One of the best things you can do to help your child learn to invest is to talk about money in your home, and how you use it. Talk about your own investments, and talk about investing for the long-term. Let your child see that you don’t panic when things go a little wrong, and let them see that they can ride out some of the difficulties of the market with the help of indexing.
Let your kids see you that you are involved, and show them how it can benefit them, and they will be more open to getting started.