Ways to Get Kids into Investing
Adults now are finding out how important it is to get kids into investing as early as possible. Help the kid in your life learn to handle money and have fun too.
In 2017, CNBC reported that 46 percent of young adults had nothing in their savings. An additional 21 percent had less than a thousand dollars. These young adults, from ages 18 to 24, are preparing to start their lives. But parents now are looking for ways to get kids into investing so they won't run into the same problems.
When you get kids into investing early, you ensure they have a healthy relationship with money through their adult life.
Explain interest and savings to them.
Now that you've established some good savings habits, you can start to show them how saving can pay off better than they ever expected! Standford found that delayed gratification is a quality that directly links to an individual's success. When you add interest into the mix of savings, you can show your child how waiting for a later reward by saving money can be better than taking the immediate option.
Start with the basics.
Success in any subject starts with a solid understanding of the base concepts. The first step is to teach your kids about money, saving, and spending. Focus on building simple concepts first. Explain that there's no such thing as free money, and that they can't get back money they already spent.
Help your kids understand what money is by having a visual representation of their financial success. You don't need to give your kid real money. Buttons, tokens, and game pieces are great stand-ins for cash. Children need something tangible that they can see and hold. Try explaining how to use a running ledger to a three year old!
Try this: Start simple and assign a set value to the token of your choice (such as one token = $0.25). With a fixed value in place, you can easily equate how many tokens will equal a candy bar or toy.
Play "This or That" to teach them how opportunity cost effects saving and spending.
Opportunity cost is a difficult concept for adults, but children learn the lesson quickly. With games such as "This or That" you can help young children, and even toddlers, identify that choosing one option means saying "No" to the other choice.
After you decide what age you should start teaching your children about investing, you can help them understand that buying things they want means parting with their money. Start slow and explain that on top of spending money, they are also saying "no" to other possible purchases. Buying a piece of candy means not having a toy that they could also enjoy.
Creating this foundation of positive saving habits is the first step for them ton understanding what it means to start investing. After all, you can't invest without money!
Try this: Introduce the "This or That" game during play times when they may not want to share toys and during holidays that may result in gifts. If your child is old enough to earn an allowance, play the "This or That" game when you hear they want something that they don't need. This activity is useful to tie together saving and investing.
Pay with Candy to Get Kids into Investing
Looking for a fun way to get your kid to understand the impact of an interest rate? Nothing peaks a kid's curiosity like a bribe. Candy might not be the go-to choice for every parent, but even parents who make their kids wait for candy-driven holidays can play along.
Halloween and a variety of other holidays through the year can result in hoards of candy. Of course, no kid wants to wait to devour their haul. Have you seen the shock and disappointment on Halloween night when a kid has to hand over their hard-earned candy after only a piece or two?
Try this: When it's time to put their candy away, you make them an offer. They can go through the usual routine (whatever that is in your family), or they can choose to put their candy in a top-secret hiding space with the promise that waiting will earn them more candy. Sound crazy?
The standard "term" on candy interest is that they may earn one additional piece of candy for every ten candies in their bag. This game will encourage waiting and moderation. It also makes counting fun as you count their candy together daily, weekly, monthly, or whatever timeframe you deem fit!
Start a mommy (or daddy) high-interest savings account.
Savings accounts for children are relatively standard these days, and most parents try to make regular contributions. It often happens, though, that children don't see or know about these accounts until their late teenage years or even early adulthood.
When you start a Mommy/Daddy high-interest savings account, you'll show them how interest builds, and how high-interest can grow quickly. It sounds pretty tricky at first, but after a visit or phone call to your bank, you can forget about maintaining the account at all.
How to start a Mommy or Daddy high-interest savings account: Open a savings account for your child and set up an automatic transaction to withdraw a set dollar amount from your account and deposit that amount into your child's savings. Then discuss with your bank how to establish a second, recurring, transfer that is a percentage of the savings account's balance. Give your kid a fair interest rate. It should look like:
- January 1st—Deposit $3
- January 2nd—Deposit $0.15 (5% of the $3 account balance)
- February 1st—Deposit $3
- February 2nd—Deposit $0.30 (5% of the $6.15 account balance)
Explain stocks and bonds.
You might be surprised at how quickly kids take to the concepts of stocks and bonds. Your tiny financial advisors can easily understand how they may own only a portion of something bigger. These two games are fun, and they encourage a sense of ownership.
Sell stock in baked goods.
Baking can help kids learn patience, but also allow them to understand that patience pays off. Invite your kids to help you bake a cake or even just put some ready-made treats on a baking tray. Put a spin on this fun kitchen activity though and let them engage in individual stocks of the treats, prvoding them a tangible way for them to learn how to start investing in the stock market without using any of their money.
Ask your kids to do one part of the baking task. This part could be stirring or laying a cookie down on the sheet pan. Explain to them that their action is an investment in the finished product.
Just like the stock market, one person’s contribution, though tiny, can affect the outcome of a company. When your baked treats are ready, you can show them their contribution by paying out a portion of the goods. A set number of cookies, a brownie square, or a sliver of cake might represent what they invested. Remember to keep their payout equal to the work they put in, and to take your share, too, enjoying it together!
Teach your kid about bonds.
At first, your kid might confuse bonds and mutual funds with a high-interest savings account. Elementary school age children should eventually grasp that the investment is for a set period though, and that they will get more out of it than what they invested.
Try this: Are you planning a family vacation or a weekend getaway? Ask your kid to "buy bonds" or invest in "mutual funds" that will help make the vacation happen. Are you actually using your kid's money to fund a vacation? No. Instead, put their long-term investment in a jar somewhere they can visually see and add to it regularly. When it's time for vacation, pay out the mutual funds or bonds with a reasonable jump in dollar amount and thank them for their investment.
This game works because, while you might only be dropping a few coin, or tokens into the jar each night after work, your child will enjoy watching the jar fill-up. It's a game that you can almost forget about, and it makes your kid feel like they contributed to something for the family.
Let them get some first-hand experience.
You're not asking your kid to pay for college, but you can ask them to start putting themselves into real-life situations. Making financial decisions at an early age will help build their confidence in investing and money management later.
Grocery Store Games to Get Kids into Investing
Personal finance starts with the bare necessities, such as groceries. While this activity isn't a game, it gives your kid a job, and kids love being in charge of something.
Financial Decisions Activity: This activity is best for kids who can add and subtract, which can happen anywhere from ages 4 to 6. When going to the store, give your kid an old-fashioned calculator with easy to press buttons. You'll also want to provide them with a budget.
As you go through the store tell them the price of everything, you put in the cart and have them add everything as you shop. Let them know that they're in charge of telling you if something is too expensive.
These financial decision activities can open discussion about investing in bulk items and determining if a purchase is the right decision.
Follow their favorite company as a "ghost investor."
While you've involved your kids in a stock market game, helped them gain confidence in personal finance, and taught them about saving, the big picture might still be out of their grasp. Acting as a ghost investor can help pull them from pretend money management into the real world.
Surprisingly kids usually have a favorite company, and they're typically giant corporations such as Disney, McDonalds, or Coca-Cola. Sit with your child and visit the company's investor relations web page. Not only can you explain how the company speaks to their investors, but you can show the usefulness of technology in investing and staying up to date with company news!
Keep your kids interested in investing.
Teaching is only the first step towards building quality investing habits. To get kids into investing you need to apply it in everyday situations. These games will help you peak their interest, but you'll have to keep up with their many questions about investing, too. Who knows? They may be the next five-year-old on a mission to teach kids the value of saving and investing their money at a young age.