As parents, it is crucial to instill essential life skills in our children, such as maintaining a healthy diet and financial management. Teaching kids about investing at an age-appropriate level is an important way to empower them to make their money work for them. This knowledge will undoubtedly benefit them in the future.
Depositing money into a brokerage account with the intention of teaching your child about investing may not be advisable. If the child experiences losses, it could potentially lead to a negative perception of the stock market, hindering their future involvement in investing. Conversely, if they achieve gains, they might develop an overconfident mindset and take on greater risks, which could pose significant drawbacks. Consequently, it’s essential to consider alternative methods for introducing children to investing that minimize potential adverse outcomes.
4 to 9 years
Children at a young age should not yet learn about the stock market. But you can learn the principles of the stock market. Investing is investing for the long term. So, you can teach your child lessons that spending time and energy on something can yield a valuable result in the long run.
For example, your child can garden. Planting and caring for seeds will eventually produce a beautiful plant or flower. A giant puzzle or craft project can be encouraged and rewarded with a compliment that hard work can bring great results.
10 to 14 years
Kids heading into puberty are generally more interested in finances than you think. They must also be able to understand simple investment principles. You can teach them about well-known brand companies. For example, you can take some ownership of Disney when watching a new Disney movie, or Coca-Cola, McDonald’s, or refueling at Shell.
You can also teach them about spreading. Teach them not to put all their money in one company and that anything can happen to any company. Multiple companies mean less risk. Also, teach them that “get rich quick” is an illusion. Let them enter the lotto with their own money. In this way, they will learn that the chance of winning is minimal to non-existent.
14 to 18 years
After some math knowledge, you can teach the kids about the power of compound interest. Teach them that money can make money. Teach them that the power of compound interest works faster and faster as more money makes more money.
With the rule of 72, you can learn how to double their money. Divide 72 by the return per year, and you know how many years it will take you to double your money. For example, a return of 7% per year doubles your money after ten years (72: 7 = 10).
Also, teach them that inflation works similarly but makes your money worth less instead of more. You can teach them that they lose purchasing power when their money yields less than inflation.
You can let them gain experience with the stock market through a virtual portfolio. It is best to start with well-known stocks from everyday life. Create one or more portfolios per theme. This way, you can show them which system works and which method works less or not at all.
+ 18 years
Here, you can put real money to work. Start investing some of the money they earn during the holidays or weekends. Advise in good times but especially in bad times. Explain why stocks fall or rise. Teach them that investing regularly is more rewarding than investing a total amount at once. Make sure they don’t make the mistakes that you undoubtedly did.
Conclusion
The most important thing is to teach children about investing from the start and know what to teach as children grow because the teaching should change according to a child’s age.
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