As your kids start to learn more about money, it is a good idea to teach them investing as well. Once they are more familiar with investing, you can give them the knowledge to do so themselves once they are adults. Of course, because some kids mature at different rates than others, it might be a while before you can teach them about the more advanced concepts. Still, it is never too early to help them learn about some of the simpler aspects.
Explaining the Stock Market
You will want to begin by explaining stocks and bonds. Stocks have varying returns and the risks can also vary. Still, they tend to come at a higher risk than typical savings account, although the returns are often higher as well.
You can tell your kids that the value can go up or down, depending on how profitable the company is. It is also a good idea to explain that you can’t always predict the risk or value of these investments. For example, company CEOs might lie, or the records could be tampered with. You might want to take this time to explain the stock exchange holidays as well. The NYSE, Nasdaq, and bond markets are fully closed for the day on various holidays, such as Independence Day, Thanksgiving, and Christmas.
Teaching Kids About Bonds
Bonds are low-risk investments, but they do not offer very high returns. Bonds are often backed by governments, banks, or other stable institutions. You can get those that offer solid returns, but they might not always give you the income you were expecting. Since they can be more complicated, you might want to stick to explaining stocks now and wait to talk about binds until they are older.
For Older Kids: Hands-On Learning
Older kids can learn about investing by getting some of their own experience in the process. Have them purchase some stocks, especially if they already have some of their own funds saved up. Of course, not all of that should go into the stock market – some should still remain in the savings account. That way, your child will see for themselves the types of returns given by various investments.
You still have some options if your child does not have enough money to invest. For example, you could use some of your own funds to open a small account for them. Still, resist the urge to just hand over the money. Give them a better idea of the whole process by having them earn the money from you first. They could do so by doing extra chores around the house or even helping out your friends.
You could even have them create a model portfolio, where your child keeps track of stocks they would purchase. Still, one of the drawbacks of this method is that it can be harder to maintain your child’s interest. They are more likely to stay engaged when there are real funds at stake, especially if they have already spent time earning them.
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