Your toddlers are not old enough to understand the stock market and portfolio diversification, but they are not too young to learn about the basics of saving and investing. Imparting financial know-how to them throughout their childhoods will better prepare them for adult life and exercising fiscal responsibility.
How should you go about it, though? What is appropriate to teach them, and what are the best methods for doing so? You can educate your children through hands-on practices and setting a good example, leaving lectures for the classroom. They do not have to learn to be an expert investor like Thomas Zaccagnino, but they will pick up more than you think.
When they’re younger
The foundation: Start by emphasizing the concept of saving. Do not skip right to investing. No one can invest without sufficient funds, so stress to children who comprehend the basics of addition and subtraction that toys they want to purchase might be out of their price range—for now.
It’s possible your child has already been playing “store” without understanding the concept of commerce, but kids capable of basic math may evolve their stores to incorporate transactions. Kids love stories, so role-play customer and shopkeeper to compose narratives that teach them about comparison shopping and spending wisely.
When your children begin to express interest in making real money, help them come up with business ideas, such as a lemonade stand or selling handmade crafts. Let them sell some of their own used toys in your next yard sale. Even if you provide them with an allowance every week or month, consider paying them small amounts for chores and other household tasks. If they fail to perform their duties, you teach them that working with money is not risk-free.
Donating: Make sure you highlight the importance of giving. Take your children to various charitable organizations or service activities to inspire a drive to give back to their communities. Broadening your children’s perspectives about the world around them will help steer them in more financially and socially responsible directions.
When they’re older
Learning about investing: When you believe your children are ready for the next step, educate them about what investing entails. President of Somerset Wealth Strategies, Andrew Murdoch, says:
“Don’t start off explaining relatively complicated concepts, such as the difference between an ETF and a mutual fund, or how to short a stock. Explain that investing is basically just a means of using your money to create more money. Buying a stock is just buying a tiny piece of a company and will track the performance of the company over time.”
If you make the process fun, your children are more likely to retain information. There are online games like Kapitall you can use, or you can use tools such as the SIMFA Foundation’s Stock Market Game that caters to students as young as fourth grade.
Real-time practice: Once your children are past elementary school, it may be time to guide them through the basics of the stock market. You can help them legitimately invest if you believe they are mature enough to do so, but it’s also an option to pretend to invest and track the market to see what their returns or losses would be if it had been real (it’s beneficial to target companies that they are familiar with, such as Disney or Warner Bros.). This way, you can discourage hasty decisions and emphasize the value of approaching investing with an analytical approach.
Author Robert Kiyosaki recommends that teenagers “purchase a silver coin for an investment of less than $20. This investment will do two things: give teens an asset that starts them on the road as an investor, and creates an awareness for silver as a finite commodity.” They will begin paying attention to all the uses for silver and begin to understand how assets affect entire markets.
Show them your own portfolio
Children often try to emulate their parents, so amidst your financial lessons, it is natural that they will wonder where you put your money. You may find sharing your financial practices with your children uncomfortable, but doing so can potentially help hold you accountable and encourage them to exercise transparency. Show them what stocks you own, how much money you make and lose, and explain to them why you made the decisions you did.
Do not withhold money lessons from your children until they are older. Later ages are better for progressing their understandings, not starting from scratch. Simulate what you can, guide them through practical applications, and remind them that investing is a learning process for everyone. How will you teach your children about investing?