19 Sep 2018
How to Teach Kids about Money and Investing
We all want our kids to be smart about money, but that isn’t likely to happen without our help. It’s our job as parents to teach our kids about money. Fortunately, most children are naturally interested in dollars and cents—and many are eager to dive into investing.
After all, it’s no accident that the iconic board game Monopoly® is perennially popular in more than 114 countries!
But here’s a daunting thought: key financial concepts are formed by the age of seven, according to a study by the University of Cambridge. That being said, better late than never. Many parents start by teaching money management essentials, then introduce the basics of investing. However you do it, the important thing is to keep it real and make it fun.
To learn about finances, kids first need some money to work with. Of course, things have more value when we need to earn them. Instead of forking over a weekly “allowance,” consider treating that money as “earnings” and linking it to the completion of chores.
Most kids are savants when it comes to spending, but saving…not so much. Discuss both spending and saving with your child, and decide together how your child should allocate his or her “income.”
With kids, visual cues make a difference. Use a transparent piggy bank or clear glass (or plastic) jar, and kids can literally see their savings grow. As the saying goes, “show me the money!”
Some parents create a third budgeting category: giving. Allow your child to choose the charity he or she wants to support (local animal shelter? Children’s charity?), and your little citizen of the world will experience the joy of helping others.
Tip: Look for a kid-friendly website (like ThreeJars.com) or app (like PiggyBotTM and RoosterMoney) that allows kids to set up their own virtual budgets, with buckets for saving, spending and sharing. Parents hold onto the actual money, while kids track their deposits online, learning money management in the process.
More Fun Ways to Teach Kids about Money
Need more ideas? Here you go:
- To teach the concept of compound interest, periodically add money to your child’s bank. Or explore compounding calculators on sites like org or apps like Wealthlish.
- Encourage your child to “play store,” explore games and apps that involve shopping and handling money. Kids learn effortlessly through play. They can even run a lemonade stand and learn the value of hard work.
- Get your child involved with the family’s food shopping, whether finding online coupons or tallying your grocery bill—and savings!—while you shop.
- Saving for a special toy? Teach your child to price shop online like any informed consumer.
- When buying a toy at a brick-and-mortar store, encourage your child to pay the cashier directly. So proud!
- Open a child’s savings account at a local bank. Look for one that pays interest and is fee-free.
How to Teach Kids Investing Basics
Teaching kids investing is a marathon, not a sprint. The key is to scale your lessons to your child’s level and focus on fun. However, be sure to discuss risk and reward—many kids have unrealistic expectations of striking it rich.
When explaining various types of investments, a good place to start is with stocks and bonds. If you own some, show them to your child. Why not track the weekly performance of your stock?
If your child loves board games, explore investing games like Daytrader®. For adventures in simulated investing, check out the online Stock Market GameTM or app—a virtual investing game widely used in classrooms.
Eventually, you may want to buy actual stocks with your child. One way to do so affordably is through a website or app like Stockpile. This is not a kid’s investment tool but it allows children (and adults) to buy fractional stocks for as little as $5. The focus is on popular brands that kids like—Disney, Nintendo, Amazon—which makes it even more interesting.
To expose your child to lower-risk investments, you may also want to invest in a stock market index mutual fund. Either way, it helps to have some skin in the game. Tracking returns on various investments kids really own is a great way to learn how they work. Talk about teaching life skills in action!
One More Thing
When it comes to teaching kids about money and investing, our impulse is to shield our children from making financial mistakes. But keep in mind: we typically learn more from our fails than our successes, so think twice before you jump in.
And if you don’t think you’re qualified to teach your child about investing, take heart. With so many financial tools, apps, resources and investing games available, you can learn together. You may even enjoy it more than your child!