Are you teaching your children about investing? As they become aware of money and other financial concepts, it’s important to familiarize them with investing and arm them with the know-how and tools to take with them into adult life.
Children mature at different rates, of course, so it may be a while before they’re ready to tackle concepts such as portfolio creation and asset allocation. But you can teach them the basics of investing when they are quite young.
Introducing your children to the world of stock investments can be a valuable learning experience. If you own stocks, consider showing them the companies that make up your portfolio. Take the time to explore the investor relations pages of different companies together to learn more about what the company makes, how much it earned that year, and how many people work there.
Ask your child what company stock they would like to buy. Young as they are, kids often know corporate names and have favorite firms. Disney is one that may be popular with some children. Track Some Stocks: Once you introduce your kids to basic concepts, sit down and let them select a company. If you have the money, buy a few shares in the stock and then check the investment together at least once a week to show how it can rise or fall. If you don’t want to take that risk, consider making a simulated online portfolio and tracking stocks for fun, without the expense of purchasing shares. You can start out with Apexfinancialpath’s Stock Market Simulator, which is free to use. By picking stocks with your children when they are young, they’ll experience the up-and-down cycles of the markets. This may better prepare them for the reality of fluctuations and help them make informed decisions when they grow up. Let Your Child Invest: Give your kids the basics of investing when they are younger. As their knowledge expands, you can provide them with a more in-depth explanation of stocks and other investments. Let your child buy their own stocks at some point, especially if they have some cash in a savings account. Part of teaching them is ensuring they don’t put all their eggs in one basket, so suggest investing a third in each and keeping a third in savings. This also helps them compare the returns of different investments. But what if your child doesn’t have any money to participate? There are a couple of options: You can use your own cash to open a small brokerage account where your child can make investments. You can build a model portfolio of stocks that your child wants to buy someday. There are several ways to open a brokerage account for a minor. Another thing to decide is whether you want to introduce your child through an online broker—there are some that are especially good for beginners. Depending on the brokerage, you may be able to open a custodial account in the name of your minor child and give them the right to trade in it online. As the adult, you would remain the official custodian. As with anything else, check with a tax expert for the best option before you start. Learn From Current Events: The heavy trading in GameStop during the winter of 2020 taught many kids about investing, according to The Washington Post. In January 2021, the video game retailer’s stock became heavily shorted, leading to heavy price increases and volatility and, ultimately, major losses for many investors. At one point, the company lost 70% of its value in two days. According to the outlet, many youngsters heard about the news on YouTube and from friends. Parents were using it as a teaching moment. In fact, one 10-year-old who received $60 worth of GameStop stock for Kwanzaa saw it grow to $3,200 before selling it in time.Teaching financial literacy to children at an early age is crucial for their future success. Walking through what happened and why can make the excitement and risks of investing come alive for young investors.
When is the best time to introduce children to finances? The earlier, the better. Start with opening a savings account to get them excited about saving and watching their money grow. As they mature, discuss more complex topics like stocks and bonds. Why is financial literacy important for kids? It’s vital for everyone, but especially for young children. Early education on money, money management, and investing can lead to financial freedom and success later in life. Starting small with saving can progress to more in-depth topics like the basics of investing, helping them make meaningful decisions about their finances as they grow older. Can you open a trading account for your child? If you’re confident, you can open a custodial account, which allows you to trade in your child’s name. Remember, you are responsible for managing and investing in it. The bottom line is to let your child make real decisions and take real risks. They might lose money, but the purpose is to familiarize them with investing, including its advantages and disadvantages. The experience of following investments and the gains and losses, whether actual or theoretical, will be invaluable.
