How to Instruct Kids about Investing

Of course, with an 8-year-old, you cannot get by with price/earnings ratios or cash flow analysis. Teaching kids may be extremely hard, but remember that they are children, and you must make investments interesting for them; otherwise, they will soon lose motivation. 

It would be best to teach your child about investing in an age-appropriate way. Make it a game for them or a responsibility like house jobs. Give them little responsibility for buying things from the market and teach them to find the cheapest and perfect quality items. This way, they will understand how the market has a similar products at many prices. At the same time, most of us do not know of it.

Depositing some money into a brokerage account to teach your child how to invest is not such an innovative idea. When the child loses money, he may develop an aversion to the stock market. That might be even worse. When the child wins money, they may already think they are genius and will start taking more risks.

4 to 9 years

Children at a young age should not yet learn about the stock market. But you can learn the principle of the stock market. Investing is investing for the long term. So, you can teach your child lessons that spending time and energy on something can yield a valuable result overall.

For example, your child can garden. Planting and caring for seeds will eventually produce a beautiful plant or flower. A giant puzzle or craft project can be encouraged and rewarded with a compliment that challenging work can bring remarkable results.

10 to 14 years

Kids heading into puberty are more interested in finances than you think. They must also be able to understand simple investment principles. You can teach them about well-known brand companies. Say, for example, you can take some ownership of Disney when watching a new Disney movie. Or Coca-Cola, McDonald’s, refueling at Shell.

You can also teach them about spreading. Teach them not to put all the money in one company, and that anything can happen to any company. Multiple companies mean less risk. Also, teach them that “get rich quick” is an illusion. Let them enter the lotto with their own money. In this way, they will learn that the chance of winning is minimal to non-existent.

14 to 18 years

After some math knowledge, you can instruct the kids about the power of compound interest. Teach them that money can make money. Teach them that the power of compound interest works faster and faster as more money makes more money.

With the rule of 72, you can learn how to double your money. Divide 72 by the return per year, and you know how many years it will take you to double your money. For example, a return of 7% per year doubles your money after ten years (72: 7 = 10).

Also, teach them that inflation works similarly but makes your money worth less instead of more. You can teach them that they lose purchasing power when their money yields less than inflation.

You can let them gain experience with the stock market through a virtual portfolio.

It is best to start with well-known stocks from everyday life. Create one or more portfolios per the theme. This way, you can show them which system works and which approach works less or not at all.

+ 18 years

Here you can put real money to work. Start investing some of the money they earn during the holidays or weekends. Advise in good times, but especially in tough times. Explain why stocks fall or rise. Teach them that investing regularly is more rewarding than investing a total amount at once. Make sure they do not make the mistakes that you undoubtedly did.

Conclusion