Teaching Your Kids How To Invest In 4 Steps

We’re not raising kids, we’re raising adults. As soon as we change that paradigm in our thinking, everything with our kids changes. Our kids are incredibly savvy when we ask them to be.

If your kids already understand the fundamentals of money it’s maybe time you take them down the road to investment?

Setting The Stage

From saving to investing. While saving is an easy way to relate, investment is the next step in making money work. “Point out to children the difference between saving and investing,” say Bonnie T. Meszaros and Carlos J. Asarta of the University of Delaware’s Center for Economic Education and Entrepreneurship. “Go over the risks and rewards of each and include discussions about not putting all of your eggs in one basket.” As a jumping off point, Meszaros and Asarta recommend the Consumer Financial Protection Bureau’s website, Money.

Start Simple

“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,” says Murdoch, president of Somerset Wealth Strategies in Portland, Ore. “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.”

Investments take many forms. Because young kids have a hard time understanding the concept of the future, wrapping their little minds around investing can be tough. So relate it to something tangible. Help your child plant a garden or put some seeds in a flowerpot. Talk about the time the plant needs to grow and the water you need to “invest” in it so that you get the payoff of a beautiful sunflower or a ripe tomato at the end.

The Market Game

You can start younger kids off by giving them a play money portfolio and tracking the results. “Make it fun by making it a game at first,” says Rebecca Pavese, a financial planner and portfolio manager with Palisades Hudson Financial Group’s. Stock market games and simulations allow children a valuable and fun opportunity to learn all about the process of making good investments and begin a good foundation for sound money management. These games are designed  to be used in mathematics and economics . It helps children expand their knowledge and gain new skills in investing, saving, communication, cooperation, research and decision making.

Diversifying Their Investments

Tell your kid to imagine opening a restaurant that sells only hamburgers. As long as people really like hamburgers, she’ll make lots of money. But what if people hear that some cows got sick, and those people decide that burgers aren’t safe to eat anymore? Or what if they want French fries, too, and start going to a restaurant that sells more than just hamburgers? That hamburger-only restaurant could go out of business.

The Lottery Is Not An Investment

Explain that the chance of winning a lottery jackpot can be less than one in 250 million. That’s so small, it’s a waste of money to play at all.

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