How to teach your kids about investing?
Investing remains one of the recommended long-term strategies to grow your money and secure your future. Teaching your kids how to invest as they grow can help them take charge of their financial security. It is a difficult process and it takes more than a piggy bank to teach them about investing. Here are a few strategies you can follow
Make them understand the value of money
Explain to your kids why and how a strong financial support system will benefit them in their old age. Make them understand that money has to be earned and they would have to work to earn the money. Give them practical lessons by giving them money for completing chores or other activities. You could also give them pocket money every month and list down all the chores they need to complete, allow them to manage the money as long as they save.
You could also ask them to quote the prices of items in the house and then compare it with the actual value. This will help them understand how every item costs money to buy and how much.
Begin with savings
Explain to your kids (in an age appropriate way), how savings work. This would be a great first step to introduce them to the world of investing. Open a kids savings account and make them put a portion of their earned pocket money into the account. Set up a savings goal for the account so your kids can watch their money grow. Once they understand savings and how interest makes their money grow, you can get into the more deeper areas of investing.
Break the topic down using examples
Take an orange and ask them to assume it to be a company. Then separate the segments of the orange and give one to each child. Keep the majority of the segments with yourself. Tell them that the segments are the shares of the company that they can buy from the company. You are the majority shareholder and they become the minority shareholders of the company.
Make them identify products and their parent brands, like Frozen from Disney, or make them identify the different brands of cars. Explain to them that these products are owned by a parent company and the parent company sells shares of the company to people. People buy these shares and become shareholders. Identify publicly-traded company brands in your house and tag them. Examples are Television brands, Refrigerator brands, and different brands of toys. When the company makes a profit, the company pays dividends to the shareholders.
The most common and easiest example to use to explain profits is the lemonade stand. The kids get money from their parents (an investor) to set up the stand and buy ingredients to make the lemonade. They sell the lemonade and make some extra money (profit) that they can keep after returning their parents investment. They may pay a little extra to their parents for their investments (dividends). They use the extra money earned to buy more ingredients and sell more lemonade. This simple example tells kids exactly how the investing world works. People give money to companies and buy shares in the hope of making a gain in the future.
Look at graphs of the brands identified by them and explain to them about the performance of these companies. Try and compare the performance of some of their favorite brands. Explain to them the performance in the past month (short term) and the past 5 years (long term).
Open a stock trading account for your kid. Allow them to pick 1-2 stocks based on brands they identify and watch the stocks' performance monthly.