How to Teach Children About Investments
A strong financial future requires financial skills in the investment arena. To teach children money-managing skills, include lessons about investing their money in addition to standard lessons in earning and saving. Teaching children about various investing options will prepare them for financial success.
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Instructions
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Present a basic overview of investing to help children understand the premise. Explain that people invest money by placing it into a fund or a venture, expecting that the money will increase while it remains in the fund. Investing involves selecting a risk carefully, allocating money for the risk and waiting to see if the risk pays off with a reward of additional money.
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Explain basic investment terms to children to begin giving them a familiarity with the investment process. Include terms such as assets (money or resources), expenses (costs of goods or services), liabilities (debts), ROI (return on investment), equity (value of ownership) and risk (whether the investment will increase or decrease in value). Include common investment options, such as the stock market, bonds, certificates of deposit and money market funds.
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Play investment games that will help children gain an understanding of investments. The board games “Monopoly,” “Stock Market Tycoon” and “Wall Street Survivor” can give children exposure to investing through games.
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Provide an allowance for children and teach the principles of saving, giving to charity, investing and allocating some money for spending.
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Help kids open a savings account to begin teaching the fundamentals of saving and investing. Explain that savings accounts earn interest because a bank pays account holders a small percentage of the account balance in return for holding money in the account. Tell kids that a savings account is a risk-free method of saving money. Mention additional savings options such as certificates of deposit, money market funds and savings bonds for saving money over specific periods of time.
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Mention allocating assets and diversifying when your child’s savings account begins to accumulate. Explain diversifying as a way of spreading a child's accumulating money among different savings and investing methods. Explain that people often decide how much money they wish to leave in a safe spot with no risk -- a savings account -- and how much money they wish to invest with more risk but a greater ROI.
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Introduce the stock market as an investment option for some of your child’s money. Keep it simple and explain that purchasing stock in a company is similar to purchasing a part of the company. A person owning stock in a company may earn dividends -- or profits -- if the company makes money. By using a discount broker, you and your child can even purchase stocks over the Internet. Try using a small portion of your child’s savings to purchase stock in a company that your child knows, and help your child track the stock market to watch what occurs with that company.
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