It’s Never Too Early, or Too Late, to Show Kids the Investment Ropes
So how did Black Friday go for you? On the one hand, there’s nothing like the Lure of the Doorbuster: that ultimate big-screen buy or appliance prize that tempts people to line up by the hundreds, sometimes overnight, to get a shot at the booty.
But if your kids were watching, maybe you just gave them a double whammy lesson in financial foolishness. Not to be a Grinch, but unless you waited in line for the sake of having fun, the chances of coming out on top are formidable.
If you braved a 4-hour line for a $100 discount, you only made out $20 better compared to making $20 an hour at your day gig (not counting the pizza you ordered in line).
OK, so you still scored some deals on a 20-foot-tall electric Santa and a barn-sized HD TV. But did you put those goodies on your credit cards? And if so, what does this teach kids about living within their means?
The point, holiday shoppers, is this: While presents are all fine and dandy for the holidays, maybe it’s time to think outside the gift box. That is: What if you started your kids down the road to investment?
Get Started Now
It’s never too early to start teaching your kids about money, says Melanie Mortimer, President of the Securities Industry and Financial Markets Association (SIFMA) Foundation. By starting as early as 3-years-old, your kids can grow up to be part of a more prepared and financially savvy generation.
Really? Three years old? When you think about it, the beginnings of investing start with that cash cow for the ages, which is actually a pig. Giving kids a piggy bank will help teach kids the main values of saving and investing, Mortimer says. Tell your kids that they can buy something special once the piggy bank is full.
Some piggy banks even exist that transcend that admirable goal. Susan Beacham, the founder of Money Savvy Generation, trains kids in financial literacy through an exceedingly clever tool: a plastic piggy bank with four bellies, if you will. The Money Savvy Pig has compartments for the priorities Beacham contends they need to learn: spend, save, donate and invest.
Our kids are incredibly savvy when we ask them to be, says Beacham, who should know: She’s a parent herself. We’re not raising kids, we’re raising adults. As soon as we change that paradigm in our thinking, everything with our kids changes. The job of teaching kids about money starts when we have them. It’s even possible, that the child who starts very young could find their way to achieving an American investment ideal.
If you know how to behave like a millionaire by the time you’re 21, you may not have the cool million in hand, Beacham says, But you’ll be on your way. You’ll have the seed money and you’ll have established the good behaviors.
How can adults help their children learn the ropes of investing, and start them on the way with the soundest of financial habits? Here are a dozen best practices and tips from financial experts, many of whom, like Beacham, have learned from their parenting, and so practice what they preach.
Setting the stage: From saving to investing. While saving is an easy way to relate—even a child can do it, right?—investment is the next step in making money work. Point out to children the difference between saving and investing, say Bonnie T. Meszaros and Carlos J. Asarta of the University of Delaware’s Center for Economic Education and Entrepreneurship. Go over the risks and rewards of each and include discussions about not putting all of your eggs in one basket. As a jumping off point, Meszaros and Asarta recommend the Consumer Financial Protection Bureau’s website, Money As You Grow.
Keep it simple, speak their language. Growing up south of Pittsburgh, Andrew Murdoch started saving his paper route Christmas tips from 9 years old until he had several hundred dollars. It started him down the road to a love of investing, but he cautions those that would do the same with their kids to begin with the basics, no matter their age.
Don’t start off explaining relatively complicated concepts, such as the difference between an ETF and a mutual fund, or how to short a stock, says Murdoch, president of Somerset Wealth Strategies in Portland, Ore. Explain that investing is basically just a means of using your money to create more money. Buying a stock is just buying a tiny piece of a company and will track the performance of the company over time.
Teach with stories. Kids (as well as adults) are hard-wired for story: It’s what keeps us returning to movies, and compels youngsters to beg parents to read to them at bedtime. Engage them in your investing activities and narrate the ideas of investing, Mortimer says. Talk to them about your own saving and investing plans—and explain to them why you are saving and how it will benefit you in the long run. That means relating experiences from your past, or showing them in real time how you’re putting to work the values you’ve learned. For example, if you’re getting your shoes repaired rather than buying a new pair, explain how by delaying your immediate gratification of having a new pair, you’re actually saving money that you can use for something bigger later on.
Know your child’s learning style. A visual learner will quickly become bored with a conversation about investing, says Jared Snider, senior wealth advisor at Exencial Wealth Advisors in Oklahoma City. Observe how your child learns and ask their teachers for insight into your child’s learning style. Fit your investing conversations into that style. Use multiple sources to communicate such as pictures, videos, smartphone apps, stories.