Hah! I bet you thought I was going to talk about young entrepreneurs! But no, I want to give you some tips on teaching kids about investing since it was so meaningful and important when my parents taught me.
But first, let me tell you a story about how my Mom, Grandmother and I ended up taking an investing class together at UCLA and why it forever changed my financial life. After I returned home from college, maybe 1996, I wanted to learn how to use E*Trade and invest savings from my first job's salary.
I told my Mom about a night class I found that was open to the public. My Mom brought my Grandmother (both ladies were self-taught savvy real estate business owners) and there we were, sitting in the front row (not my choice), three generations. We were quite a trio on a college campus with our notebooks and pencils, (jewelry, make-up and reading glasses for them). As we went through the class we had different take-aways. But what we all learned were these basic rules:
Don't invest more than you are willing to lose.
Buy low, sell high.
Buying stocks with dividends helps your portfolio grow hands-free.
Investing a little bit over time equals a lot of money later.
Stocks will go up/down without reason.
You don't have a loss or a profit until you sell.
Don't be too concerned over daily changes. Think long-term, slow and steady wins the race.
I wanted to learn how to use E*Trade because I was a die-hard Mac user back when Microsoft owned the world and Apple was on the fringe. I was scared to put money into companies without being able to understand the complicated metrics and why stocks go up and down. The class taught me the basics and by researching and investing over years, I learned enough to put money away for my first house.
The stock market is a gamble. I'm not suggesting you teach your kids day trading- far from that. I wanted to illustrate how learning together with my Mom made the journey so important for me. I bet it would be meaningful for you and your kids as well.
So, let's explore exactly how to relay the ideas of investing and set our children on a path to financial independence and prosperity.
Building a Strong Foundation
Before we dive into the complexities of investing, let's focus on laying strong foundations through financial savviness. Encourage your kids to set financial goals and teach them the value of saving. By instilling the basics of responsible money management, we prepare them for having the money to put to work.
Where to Start
Grab their interest. Talking about money might feel dry to kids - like math class. Find a way to relate the topic to something that interests them. Take out your iPhone or show them a car and tell them that they own a part of the company that made that car. Then teach them how stocks allow anyone to own a piece of a company, to vote as a shareholder and that it's a roller coaster ride with some risk. Here are some more advanced topics to cover:
1. The Power of Compound Interest
Compound interest is a fundamental concept in investing. It refers to the interest earned on both the initial investment and the accumulated interest over time. Teach your children that by starting early and consistently investing, they can watch their money grow exponentially through the power of compounding.
2. Exploring Different Investment Options
Introduce your children to various investment options available to them. Some common options include:
a. Stocks: Ownership shares in a company that entitle the holder to a portion of its profits and assets.
b. Bonds: Debt securities issued by corporations or governments that pay periodic interest and return the principal amount at maturity.
c. Mutual Funds: Pooled funds that invest in a diversified portfolio of stocks, bonds, or other assets.
d. Real Estate: Investing in properties or real estate investment trusts (REITs) that generate rental income or appreciate in value over time.
3. Understanding Risk and Reward
As your kids start exploring investing, it's important to discuss risk and reward with them. Explain that all investments involve some level of uncertainty, and it's essential to balance potential gains with possible losses. Teach them the value of diversification, where spreading investments across different assets can help manage risk.
4. Patience and Long-Term Thinking
Investing is not a get-rich-quick scheme. Encourage your children to embrace patience and adopt a long-term mindset. Teach them that successful investing often requires staying invested for years. Dollar-cost averaging is an investment strategy where you invest a fixed amount of money regularly over time, regardless of the stock's current price, to reduce the risks as stocks go up or down. You can average down to take your average share price down or average up to continue to add to your position on the way up.
5. Exploring the Concept of Entrepreneurship (Hah! You must have known I would sneak this in!)
Aside from traditional investments, introduce your children to the concept of entrepreneurship. Encourage them to think creatively and consider starting small businesses or pursuing innovative ideas. As you grow a business your business can also invest in stocks, mutual funds etc as a way to grow value. This entrepreneurial mindset can teach them valuable lessons about risk-taking, innovation, and financial responsibility.
One last thing, I have this silly saying that when the market drops like crazy on any day that "everything is on sale." Those are buying days for sure!
Parents, by teaching our kids about investing, we empower them with valuable life skills. Let's build strong foundations, explore different investment options, and help them navigate the world of risk and reward. Through engaging and fun learning experiences, we can set our children on the path to becoming financially responsible adults. By leading by example, we provide them with a roadmap to financial independence and a brighter future. Oh and yes, I invested in Apple and so glad I did because I also put a little into some big stinkers. That goes back to #1- don't invest more than you are willing to lose. I hope this helps!