How to Get Started Teaching Your Children About Investing

Learning starts at home, and it’s not just the alphabet you need to teach your children. Instilling a full education, including about financial matters, from a young age can propel them toward success.

Investing may seem like a complex subject to teach kids, but the fact is they are sponges. They soak up and absorb information faster than we anticipate. Investing should be part of the education you give your children when you discuss other topics of financial literacy.

But how do you open those lines of communication? It’s quite simple.

When Is the Best Time?

Every child is different, so some may understand it in their pre-teens, while others won’t get a firm grasp of it until they’re slightly older.

The earlier you teach them about financial literacy as a whole, the better. If you’re struggling in that aspect yourself, why not take the time to learn and educate your children at the same time?

What Should They Learn About?

The first basic discussion you should have is about stocks and bonds, largely because these are two of the most commonly traded assets.

Explain the difference between the two of them, especially as it correlates to the risk-reward relationship. Then, let them know where they can purchase stocks and bonds, and give a general overview of how the market works.

Have Open Discussions

Finances can be a difficult thing to talk about and many have preached that it’s one thing you don’t talk about. But those times are best left in the past. How else are your children supposed to learn, if not from you?

Instill a healthy appreciation for discussing topics centered on finances and successfully handling money. You don’t have to talk about your specific financial situation, but you can open the lines of communication.

Use Your Own Investing Experience

If you’re an investor, why not share your experience with your children? They can then learn both from your successes and failures. You can even teach them what pitfalls to avoid.

Share your portfolio, if you’re comfortable, and share insights into what made pick certain companies over others. Leave the door open for your children to ask questions, because they will likely, in true youth fashion, have plenty for you.

Give Them Homework

Can’t you just hear your child groaning now? But seriously, this is the type of homework that’s meant to be fun and instill a deeper understanding of investing.

It can be as simple as having them pick out stocks they’re interested in, based on their own interests (think specific beauty or sports brands, or an industry like airplanes), and following those stocks to see their progression.

Help Them Track Current Events

One of the most successful ways to instill financial literacy is to help your children understand what is happening currently.

Stay up to date on current events, and have open discussions when significant market moves happen. Over time, you’ll be surprised at the insight your children have to offer as well, as they learn the ins and outs of investing.

Open a Trading Account

If your children genuinely show an interest in trading and seem to have some type of understanding, you can actually help them open a brokerage account and teach them how to work with an online broker.

You can even do this for minors, whether you have them use their own money they’ve saved up or give them a sum to start with, by opening a custodial account. You’ll be responsible for the account in general, but it will give them hands-on experience.

Practice Gives Experience

If you’re not ready to take the risk that comes with a custodial account, you can actually open a paper trading account. This gives kids the freedom to “invest” without any of the risks.

They will see simulations in real time and get a feel for how the overall process works.