Apart from providing them with education, teaching children to invest is one of the best ways you can help them prepare for a brighter future. While saving is a virtue and there’s no harm in putting your money in the bank, you can be sure that the rate by which your savings earn interest is bound to be outpaced by the rate of inflation within a given period of time, lessening your money’s buying power.
As soon as kids are old enough to understand basic math and the concept of money, you can start teaching them to invest. Ideally, the importance of investing should be ingrained as firmly as the importance of brushing teeth or changing underwear.
Here are a few tips to help you out:
Start with a goal
The first step to doing anything is knowing why you’re doing it. Explain to your child that investing is not simply a means to get more money or get richer. Teach kids that money is a tool and not an end in itself.
Whether you drive a Porsche or a Honda, whether your children go to community college or Stanford University, whether you need to get up in the morning for a two-hour commute to your office or work from home: these are all dependent on how much money you have to make them reality.
Make the concept of investing more relatable for younger children: buying that bike or affording a trip to Disneyland all depends on whether or not you can afford it.
Keep it simple
Your children don’t have to have Warren Buffett-level skills to get started on investing: this is exactly the reason why you’re teaching them. Don’t flood them with jargon like mutual index funds or portfolio diversification. These advanced concepts they can learn later on. Teach as you need: the important thing is to get started.
Start with the basics: explain that owning stock means owning a piece of that company, and that the value of that company depends on how well it performs (or how much it earns).
Go to the next level by talking about compounding: how much money you put into an investment determines how much money you’ll make out of it. For example, USD 5 at a monthly rate of 3% will earn them USD 0.90 at the end of six months, but USD 15 at the same rate will return USD 2.70 at the end of the same period.
These are not real rates, of course, but they’ll get the picture: money makes money.
Get them invested
By this, we mean getting them to invest in something that matters to them: they can pick stocks from companies like Disney, Mattel, or McDonalds (this might be the one time that you won’t mind your child being associated with fast food). If your kids like Corvettes, by all means let them buy stock in General Motors.
Remember that intellect and emotions are not always each other’s diametric opposites: working hand-in-hand, these two create powerful motivation. Knowing why you have to do something won’t be enough to keep you going, but liking it will.
Be an example
Beyond explaining the basic principles, there’s really not much you can do to convince your children to invest, except by walking the talk. Never force the conversation because this is the fastest way for them to develop aversion to it.
Take a leaf from Jack Bogle: he says he’s never had to talk about it much to his children and grandchildren, but they follow his investing strategies to a T. Give your children credit and be a hero. Allow them to see what you do and live up to their expectations — live frugally, build good credit, use credit cards wisely, and of course, save.
Ryan Del Villar is a Content Strategist for MoneyHero. Ryan is also a freelance writer at Helm Word, an Online Reputation Management company.