It’s hard enough getting your kids (and yourself) out of bed every morning. Now you’re supposed to hype them up about something as dry and “grown-up” as investing? Good luck!
Tough as it is, getting your kids interested in investing at a young age is the best thing you can do for their financial future. If your kids invest $5,000 per year from age 25 until they’re 35, they’ll have more in the bank come retirement than someone who invests the same amount every year from age 35 through 60.
Even if you weren’t socking money away by age 25, you can put your son or daughter on a smarter path. Here’s how:
1. Keep it simple.
Even if your children want to be finance majors in college, you can’t jump into beta indicators and short positions before explaining the basics. Start by explaining the core concept of investing — using money to create more money — before folding in lessons like the difference between stocks and bonds. If at all possible, relate these concepts to what your children are covering in school (remember learning about compound interest in math class?) to provide a real-world perspective.
2. Share your investment story.
How did you manage to afford the house you live in? Although part of the answer is probably a mortgage, the rest might be a down payment you pulled from your portfolio.
Discuss your own investments, pointing specifically to shares you own in recognizable companies like Nike, Facebook, Google, and Ford. This will help you hold their interest and ground your investment strategy in actual, visible numbers. Track your stocks daily or weekly to teach your child about the ups and downs of investing. Not only will doing so help them understand risk, but it will help them see they shouldn’t panic if numbers drop in the short term.
If you’re like most household investors, you use one or more investing apps to manage your holdings. Don’t give your child carte blanche to buy and sell whatever he or she wants, but do sit down together to conduct some trades.
If your son or daughter seems truly interested, get him or her an account. Stash provides custodial accounts, while Acorn offers free management for college students. If you provide an allowance, allocate a portion of it for investments. Even if your child manages to lose it all, there are worse ways he or she could’ve used the money.
4. Introduce a financial advisor.
You know as well as anyone that kids don’t always listen to their parents. Letting them shadow a trusted financial advisor can give them a deeper look into investing and perhaps even pique their interest in investing as a career.
A financial advisor can provide in-depth information about whatever area of investing your kids might be interested in. Socially responsible investing, for instance, is a hot area that has real-world benefits.
Some kids take to investing immediately, while others need a bit of a warm-up. But even if your angsty teenagers shrug it off, you’ll have planted a seed of solid financial habits. And that’s one of the best investments in your children that you can make.