5 ways to teach your kids about investing
For many adults, investing is still a confusing pipedream that is rumored to lead to something called financial freedom. For those working outside of banking and finance, it may seem like those who invest are part of an exclusive elite club that have access to deals that are not available to the masses.
While this is of course not true, we recently thought that if adults still think this way then what about kids? By nature, kids are more open-minded and care free to the financial constraints of adult life (and they absolutely should be!). If you can reinforce the importance of investing and financial discipline from an early age, you will give them a valuable life skill which they most likely will not get from school.
Here’s our top 5 ways to teach your kids about investing:
1. Apps that help kids invest
With a variety of innovative apps available in the modern day, thankfully someone has created an app specifically for helping kids to learn to invest. BusyKid is an app that lets your child see the money they have earned from doing chores, manage their allowance and invest in to stocks. Investing can be intimidating for first-timers, but apps like BusyKid help simplify this experience so it becomes second nature to your children.
2. Create an investment account for them
Start making monthly deposits to an index linked fund or a P2P account which you plan to set aside and transfer ownership to them in the future. Over time and once they reach a mature age (Say their mid-teens), you can show this to them with a comparison of the total deposits you have made and how much interest you have earned for them with virtually no effort. Understanding the power of compound interest is the key to becoming an intelligent investor.
3. Compare 0% returns to your own returns
Do you give your kids pocket money every month? If you do, you can tell them how much their pocket money over the past few years could have been worth today if they had invested it. You can compare this with the performance of your own investments or for simplicity, at a rate of 10% per year in monetary terms or something better…
4. Speak their language
What’s the big thing they have wanted for a long time? Talking in terms of something visual or physical is much more receptive to kids than saying your money could have grown by X%. If they have been saving up for that new games console or bicycle and are still short of some money, you can help them understand that they could have been able to pay for it already if this money had been invested in the meantime.
5. Pay themselves first
If they are in their teens, maybe they even have a part time job at this point and you can help reinforce budgeting and paying themselves first for investing. If they have financial discipline from this age, they will carry this with them for the remainder of their lives and most likely be very thankful down the line when they retire 20 years earlier than their peers.
Tell them about the risks
It’s important to mention at this point, you should also inform your kids about the risks of investing and not putting all of their eggs in to one basket.