Teaching kids to invest is a prudent decision. Becoming aware of money and related financial concepts at an early age is essential. Children won’t forget those lessons as they grow up.
Children usually mature at different stages. Thus, it might take time for them to grasp concepts such as asset allocation and portfolio. But, you can teach them money basics like saving, investment, and budgeting.
Before kids start checking company profiles online, teach them about risk and reward. Risk refers to the possibility of an investment losing part or all its value. A reward is a gain that investment makes over time.
Here are more tips you can use:
Set the stage: from Saving to Investment
Saving can be easy, and even kids can practice it. But, investing is the next level for making money work. Explain to them the difference between investing and saving.
Shed light on the risks and rewards associated with each process. Remember to explain to your kids the concept of not putting all eggs in a single basket.
Keep the Lessons Simple
Don’t start it off by explaining complex concepts. Examples of complex areas include taxes, debt management, insurance, the national economy, and more. Instead, explain investing for kids to mean using the money to generate more money.
Let them know buying a stock means buying a small part of the company. After buying a stock, the investor tracks the company’s performance over time.
Use Stories to Teach
Kids, just like adults, enjoy story-telling. It’s what makes them beg their parents to read bedtime stories.
Explain to them your own investment and saving plans as you narrate the investment ideas. That means relating to past experiences. It also means narrating to the kids in real time how you are practicing the values you acquired.
For example, you’ve been taking your shoes for repair instead of getting new ones. Using this example, show how delaying gratification to have a new pair helps you to save money for something bigger.
Understand Your Kid’s Learning Style
A child who enjoys visual learning will get bored with a lecture on investing money for kids. Observe how the child learns and consult their teachers in a suitable learning style. Tailor your investment teachings into the preferred style. Use different sources, such as videos, photos, and smartphone apps to communicate.
You can also watch investing news with your kid while explaining some basic money facts.
Use Video Games
Most kids are into computer games. What if you could use the games to teach them setting goals, budgeting, or planning?
Here are essential skills some of the video games can help teach kids:
A top game like the Sims is an ideal example of creating and using a budget. You should work to earn an income, so you buy important household stuff. You should also get the Sim up and put him to work, so you don’t get fired.
You also need to feed the Sim and carry out maintenance around the house using money. Learning this game can help a kid get personal financial skills. The skills may help them achieve great goals later in life, such as buying a home.
Games like StarCraft and WarCraft rely on planning. You need to choose and use resources the right way. Also, plan where to put up buildings and everything else needed for a successful battle.
The games need planning and thought to succeed.
Video games such as The Sims, StarCraft, World of WarCraft, Sim City, and Roller Coaster Tycoon require strategizing to succeed. You’ll need a strategy on things like what to build, the resources needed, designing battle plans for soldiers, and what to spend on. Thus, playing these games can help kids develop powerful strategy skills.
Roller Coaster Tycoon needs players to have business management skills. You should consider a lot while building your theme parks.
This includes setting budgets and ticket prices to keeping visitors happy. So, it opens your mind towards running a business.
Talk about the Stock Market for Kids
Kids in elementary school can absorb more than you might think. So, you may as well introduce them to simple investment concepts like stocks for kids. A stock is a tiny part of a company that someone can own.
When you get an opportunity to watch that Disney movie, or even drink a Code with the child, talk to him or her about stocks. Begin by explaining that most of the things the kid likes are made by a company.
For example, Coca-Cola makes the drink that the kid loves. The company uses the money to make Coke, and most companies sell stocks to get the money. When people buy stock in the company, they own a small part of that company.
Teach them about Diversification
Introduce them to the concept of not putting all eggs in one basket. Tell your child to imagine starting a restaurant that provides only hamburgers to its customers. Provided people like hamburgers, he’ll make a lot of money.
But, suppose people hear that some cows are sick, and decide that eating burgers isn’t safe anymore. Or what if they want French fries, and go to a restaurant that sells both hamburgers and French fries? The restaurant that sells hamburgers only could stop operating.
This is a great illustration for diversification-a crucial investment concept. When you buy stock for one company, you are making a bet on that particular company. You are also making a big bet on the future demand of the company’s products.
But, if you own stock from several companies, you are minimizing the risk of losing all your money. The reason is if stocks of some companies don’t perform well, stocks from other firms might do well. So, teaching kids to invest in a life skill that will help them succeed in life.
Teaching Kids to Invest
Don’t wait until it’s too late to start teaching kids to invest. You can teach them a lot on investment when at the elementary, middle, and high school. If you can’t teach them these skills yourself, consider finding an expert to help.
This post was submitted on behalf of PennyMindingMom.com.