How to teach your kids about investing
How do you explain investing to a pre-schooler? Here are 8 easy ways to get your kids thinking about money and their future.
My earliest financial memory is of my parents helping me to write a will when I was five years old (it wasn't very long).
That was an unconventional lesson, but it did get me thinking about my assets and net worth from a young age. As Karl Pearson said, 'That which is measured, improves,' and in my case it thankfully did.
Teaching a 5-year-old, a 10-year-old, or even an 18-year old about investing is no easy task, but it is an important one. If you want to give your kids a head start, here are eight lessons to get the snowball rolling.
1. Start early with measurement. A moneybox to accumulate savings is one of the best gifts you can give your kids. Combined with a weekly allowance for chores, it teaches them that hard work and patience are rewarded. To take it a step further, have them chart their savings visually on a white board so they can track their progress, or offer them an interest rate so they learn the benefit of compound returns.
2. Set goals. Get your kids to write down a short-term savings goal (say, 1 month) as well as a longer term one (say, 1 year). Short-term targets that are within reach will better hold a child's interest and help them maintain momentum, while long-term goals keep their eye on the prize. They should write down their own ambitions, rather than you dictate them, so they have a greater sense of ownership.
3. Involve kids in everyday financial decisions. Get them to calculate the restaurant bill before it arrives. At an amusement park, you could ask your kids to figure out whether buying individual or family tickets offers the better deal. This can eventually be taken to more advanced levels, like deciding between different mortgages given a range of interest rates and fees.
4. Give your kids a budget. Whether it's a weekly allowance for canteen lunches, or a Westfield gift card for buying back-to-school supplies, giving your kids limited control of spending teaches them the value of money and encourages them to seek more bang for your buck. You can supercharge the value-seeking mindset by letting them keep any money leftover.
5. Teach them to avoid speculation. Warren Buffett had a pokies machine in his house for his kids to blow their money on. A similar lesson can be taught by offering your kids a rigged game at the dinner table: for example, a coin toss where they pay $1 to play and win $1.50 if it comes up heads. A little gambling between you and a 5-year-old is much better than a lot of gambling between a casino and a 30-year-old.
6. Turn them into business gurus. Garage sales, lemonade stands, selling gum at school – they all teach kids a vital lesson about fundamental business concepts, such as the difference between revenue and profits. With various layers of fees and promotional add-ons, eBay is a wonderful tool for this.
7. Teach them investing rules of thumb. Some of the best include: Don't put all your eggs in one basket; Never invest what you can't afford to lose; Ignore short-term price fluctuations; Activity and fees are your enemy; Be fearful when others are greedy and greedy when others are fearful. Easy-to-remember mantras are an effective way to drum in the basics, and a book of Buffett quotes is probably a good place to start.
8. Take the plunge in stocks. When they have enough savings, it's time to get your kids investing for real. Help them open a brokerage account, or hold a stock or fund on their behalf. If you opt for the fund approach, teach them about expense ratios and why low fees are important. If they want to buy an individual stock, encourage them to invest in companies they understand and deal with regularly, such as Woolworths. This helps to drive home the message that stocks are ownership shares in real businesses they can see and touch, not just ticker symbols. It's also better that they start with a safe blue-chip or diversified fund, rather than shoot for the stars and get disenchanted by a major loss early on. Nonetheless, give them room to make mistakes – some lessons can only be learnt by consequence.
We'd love to hear about your own tips and tricks in the comments section below.
To get more insights, stock research and BUY recommendations, take a 15 day free trial of Intelligent Investor now.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free
Join the Conversation...
There are comments posted so far.