Our parents grew up with the notion that money was not an acceptable topic of conversation. But times have changed. And now that we’re parents, we owe it to our kids to make them financially savvy as early as possible. Below are five tips about investing that can match your children’s age and interests.
1. Start at preschool age.
Investment is work you do now that pays off in the future. While in preschool, start your kids with the basics. Teach them to make the necessary connections between making efforts now, then reaping the rewards later.
Introduce the investor concept when your child finishes a coloring book. Praise your kid for the result of invested time and effort: an awesome work of art.
2. Teach through stories.
Bedtime storytelling is an ideal way to prep your child for investing. Before putting out the fairy tale boxed set you got them for Christmas, read The Little Red Hen to your child.
It’s about the hen who invested a lot of time and effort to turn wheat into bread. Her lazy friends just hung around and didn’t want to help her. When it was time to eat, the lazy animals had nothing, so they went hungry. But the Little Red Hen who was all about long-term thinking enjoyed the bread that she worked hard for earlier.
3. Make it into a game.
Once your child is in elementary school, you can use time at the mall as an opportunity to teach your kid about stocks. Demonstrate for them that when you have stock, it's like owning a small piece of a company. Find out the stuff that your child likes.
Jollibee burger? A company made that. But to produce those mouthwatering Yumburgers, Jollibee needs money. Companies sell stock to get that money. Engage your child by saying, “When you buy a stock from Jollibee, you own a piece of your favorite company!”
4. Show them how NOT to put all their eggs in one basket.
Here's how you introduce the important investment concept of diversification to your child. “So imagine you own a pizza joint that only sells pizza. You’ll make money as long as people like pizza. But what happens when they start wanting more? They’ll eat at another restaurant. Your pizza-only business could lose money and eventually close down. But if you own stock from different companies, you’re reducing the risk that you'll lose all your money. Because if some of those stocks don't do well, your other companies' stocks could do better.” Inform them of other investment options.
One way to invest their money and protect themselves is via insurance. Insurance companies like FWD Insurance offer products that protect you and grow your money.
5. Introduce "compounded returns."
When your child hits junior high school, introduce the investment concept of compound interest and returns and how investing their money is the best way to make their money earn for them.
To make this relatable, teach your kid how compound interest works with the “Rule of 72.” This rule says that money doubles at a rate where 72 is divided by the percentage gain. So, if you make three percent of your money every year, it will double in 24 years; that is, 72 divided by three.