Scrabble investing and future

Learn about investing so that you can teach your kids

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by Tsh

Tsh is the founder of this blog and lives in Bend, Oregon with her husband and 3 kids. Her latest book is Notes From a Blue Bike, and believes a passport is one of the world's greatest textbooks.

The following is a guest article from Mike of ABCs of Investing.

Every parent wants to do the best they can for their children – to provide a good home and a loving atmosphere, to give them the best possible opportunities in life.  Teaching life skills is one of the most important ways we parent.

Most moms do counting games with their little toddler, multiplication tables with their grade schooler, and calculus with their teenager (okay, maybe the calculus is optional).  Everyone should have basic math skills, so that they can adequately teach their kids.

Most of us take basic language and verbal skills for granted, which are easily taught since young kids learn by repeating everything we say.  (Unfortunately, I’m sometimes reminded of this in the car when my two-and-a-half year old son repeats some of my suggestions for other drivers, word for word.)

Invest in a skill for the future

But what about financial skills?  Most parents have basic financial skills like budgeting and paying bills, but many don’t have even the basics when it comes to investing.  Wouldn’t it be great to teach your teenager how to invest their savings with their first part-time job?

Talk to them about their financial goals, and determine the most suitable investments.  Most purchases on a teenager’s radar are fairly short-term (iPods, video games), so putting their money in a high-interest savings account is a logical bet, since their investment time horizon is very short.

But if they want to save the money for a longer-term goal, like college, they can afford a bit more risk.  They’ll need to figure out their asset allocation – if they are planning to use the money in five years, they could have most of the money in bonds, with some in stocks.  They could buy some mutual funds, or perhaps a target retirement fund, with a retirement date corresponding to the date they need the money.

Investing is everywhere

The investing lessons are endless! Are they interested in individual stocks and dividends?  Do they have an interest in stock markets and their fascinating histories?  Most parents can teach their kids about delayed gratification and saving (like not eating all your Halloween candy at once), so why not take the next step, and discuss intelligent options for savings?

You might think that an investment account for a 14-year-old is a lot of hassle, seeing that they won’t have much money.  Consider it an investment in their future.  It may not matter exactly how they invest the $300 they made mowing lawns – what’s important are learning the lessons about saving and investing that will take them into adulthood.

This is too far in the future to worry about

“But my child is only 9-years-old/in first grade/learning to talk/learning to walk/a newborn as of yesterday/we’re expecting next month.” It doesn’t matter – the earlier you start learning, the easier it is to understand.  You don’t have to be an expert in investing to teach the basics to your child – there is no time like the present to start learning the basics of investing.

Any creative ideas on how to teach younger children how to think like an investor?  What are everyday ways we can instill wise financial stewardship to our kiddos?

top photo source


Mike writes at ABCs of Investing, a brand new site for novice investors, which offers two short-and-simple investing posts per week.  Feel free to subscribe to the feed.

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Comments

  1. Thanks for publishing. Great photo! :)

    Mike

    ABCs of Investing´s last blog post…Hello Simple Mom and Mighty Bargain Hunter Readers!

  2. Well my kids hear a lot about investing and the stock market whether they want to or not b/c my dh is a registered investment adviser and CPA.

    My kids are 9 and 6. One way that we work at showing them the benefit of investing is through their allowance.

    We came up with the purpose of the allowance interest plan first – to teach the benefits of saving and growing money. And in order to teach them about money, we had to first provide them with some money.

    This is what we do. Each month the children receive their allowance. The money is given to them in cash. Then they have the option of depositing the cash into “The Dad Bank” (DB) aka “Fridge Money”. Any money that remains in the DB at the end of the month, we give them an additional 5% interest on that amount. The kids can either take the interest in cash or deposit it back into the DB, thereby increasing their interest the next month.

    When we are out shopping and the kids want a treat (a toy or book or ice-cream etc) they know it comes out of their DB account – and if that money decreases, there will be less interest that month. If they want to buy presents for the rest of the family on birthdays, or Christmas – this is where there money comes from. Most of the time physical money is not exchanging hands – but is all kept track of in a spread sheet (kind of like a credit card system).

    Each month the children are informed of their savings total in the bank, their allowance and their interest for that month.

    Not only does this method teach the children about interest, but also to be responsible for some money and to have to be the one to decide whether or not it’s a “wise decision” to take out some money from their DB and spend it.

    Edi´s last blog post…A Trip to the World Food Store – Finally!

  3. When I look back, I feel squeamish thinking about all the money I had spent as a teenager and how it would have looked invested in mutual funds. But don’t you think it would be a little hard pressed to convince a 14 year old t0 contribute to the investment you have created for him/her rather than spending on the latest fashion clothing trends? With all their increased hormones, I would believe that they are thinking more about the opposite sex than their long their long term financial status.

    Marvyn´s last blog post…Gift Wrapping Tip

    • I’d say that if you start right at 14, then yes, it might be difficult. Not impossible, but difficult, yes.

      It’s an entirely holistic experience – it has to do with an entire lifestyle, not just what you verbally teach them about money. If as a family, you have a culture of saving, being a blessing to others, etc. etc., then perhaps it’s not so foreign.

      Now, starting when they’re young… Then you have the advantage of instilling the importance of saving from the get-go.

  4. Great article, Mike!

    The biggest lesson I want to teach my kids is that even the smallest amounts matter when it comes to saving and investing.

    Emily@remodelingthislife.com´s last blog post…Link Love: I’m Overwhelmed Edition

  5. What a great article . . .

    My parents never taught this stuff to me, just like it was never taught to them. My experience with money has been worse off because of it and I am having to teach myself all these things as an adult. I plan on breaking this cycle with my children!

    As far as money goes I am going to drill into my son’s head the concept of saving and never borrowing. I don’t want him to live with the debt pressures we live with.

    Lucie @ Unconventional Origins´s last blog post…Tapping the Gold Mine – Reader Questions

  6. I read Motley Fool’s Guide to Investing for Teenagers and it was about the only book on investing I’ve ever been able to grasp. I hate thinking about all the money I squandered. But yeah, even in my twenties you could not have convinced me that saving for retirement was important.

    Angie (from over at http://www.HalfAssedKitchen.com)

  7. It’s one of the most important lessons we can teach, and one that isn’t getting taught nearly enough. I’m a HUGE believer in teaching children about money. I wrote a children’s story called “The Eighth Wonder of the World,” about compound interest. Dorky but true.

    Writer Dad´s last blog post…Writer Dad in Rough Draft

  8. A great way to teach supply and demand/economy is by using the game Settlers of Catan. We can’t wait until our kiddos are old enough to play with us so we can use it as a tool as well as a family fun night.

    I think we can also tie in investing as we teach our children about investing in eternity. As we teach our children to have an eternal perspective about how we invest our time, resources, etc., we can then turn that into using our money wisely and how investing can produce good if we are wise about it.

    Thank you for the resources!

  9. Dave Ramsey has a version of FPU for kids that is on my wish list. It is amazing how much kids can pick up. I buy and sell stocks using an on line brokerage account and invited my (then) six year old grandson to watch streaming data (admittedly on an up day.) He could see in real time the increase in my account as a stock rose.

    On his next visit, he wanted something and I asked him how we could afford it (I never say we can’t – I always ask how.) He told me to go to the computer room, open my account and trade a stock!! (which to me was a better answer than “go to the ATM…” or “write a check for some money”)

    Mary´s last blog post…Consider adding a taste of Savannah to your Thanksgiving menu …

  10. Awesome ideas, everyone!

    To add to the nerdiness, here’s how to build a simple compound interest calculator on Excel, which could be a useful tool for teaching older kids.

  11. This hits home for me, both as a father of two kids, and as a son who didn’t get a great grounding in financial principles. I have tried to broaden my horizons so that I can teach my kids more abou the world of investing.

    I’ve used a little game to teach my kids about the power of compounding with great success. I’ll do something I don’t normally do and include the link below.

    http://frugaldad.com/2008/04/11/how-to-teach-compounding-interest-to-kids/

    Frugal Dad´s last blog post…Cyber Monday Frugal Gift Ideas

  12. SOOOOO important- I wasn’t taught ANYTHING as a kid so I’m on my own now and have the mistakes to prove it!! Makes me value every thing I teach my kids!

    Amber´s last blog post…SALE and GIVEAWAY!

  13. Yes, many 14 year-olds (and I’ve got some good evidence) think about other things…investing isn’t the top of their agenda. But I also think sometimes the best method of teaching kids early about money, is letting them fail…having major buyer’s remorse, or that yucky feeling of an empty wallet, teaches more lessons than anything else. Brainwashing early about credit cards, reminding them constantly of advertising scams (they belive EVERYTHING!), and encouraging them by making some kind of game or competition out of savings/investing works too.
    Great post.

    sarah´s last blog post…Ode to Uncle Joe (Captain Uncle Joe that is)

  14. My family has always been wise with investing. My grandparents put several hundred dollars in mutual funds for my brother and I when we were born. 25ish years later we each used that money for down payments on each of our first homes. (there was enough for a 20% payment). I sold my home (which I had bought with a friend. . it worked out great for us, we had a lawyer draw up an agreement and it enabled us both to get into the crazy So. Cal. real estate market) and made a sizeable profit (we sold right before the markets tanked.) Net/Net is now in my early 30′s because of my families (and my husband’s too) generosity and understanding of the power of the stock market and mutual funds, my husband and I own a beautiful home with no mortgage payment. So teach your kids to invest, it really does pay off!! I can’t even begin to calculate what the return on that original investment when I was just born has been!

  15. Growing up my dad had a simple plan to entice us to save and think long term. When we each got our first allowance, or job, my dad would take us to the bank to open a join savings account. If we saved over 50% of what we made, he would give us a 50% match.

    For instance, when I would babysit, if I earned $40 and put $30 into my savings account, he would add $15. However, if I put less than 50% ($20) in the bank, he would add nothing.

    The best part was getting the bank statement each month and realizing how fast money could accumulate and grow!

    He knew well that in real life you investments/money doesn’t always bring you such great returns, but he used this exaggerated benefits system to teach my sisters and brother and me that saving your money brings more rewards than simple spending.

    However, the plan worked! Each of my siblings and I were prepared to buy ourselves our own car and pay our portion on the insurance when we were able to get our driving licenses. It cost my dad a few bucks along the way, but was far better than us asking for handouts as teenagers! It also cleverly prepared us for our first monthly bills while still in highschool!

    Shannon´s last blog post…Dillon Ashlyn

  16. I remember my Aunt giving me bonds for Christmas and I could not understand why I got such a “lame” gift. Imagine my surprise when it was time to cash those in and it was deposited into my savings account! I loved it and it was the best present ever!

  17. Crown Financial Ministries offers a number of resources to help parents teach their children sound financial principles, including workbooks and curriculum. They even have an ABC bank–A for Giving to church and/or charitable organizations, B for Saving for the future, and C for Saving for spending on needs. You can take a look at their resources at crown.org (then click on Buy Resources, scroll down a bit and click on Children’s Resources). Crown also has some fantastic resources for grown-ups, too. It’s a great ministry.

    Sandy´s last blog post…Doing Your Husband Good

  18. I just started an allowance with my 7 year old. She has the potential to earn up to $5 a week. Noticed I said potential. If the chores are not done, the pay gets reduced. She is still expected to perform certain tasks that she doesn’t get paid for like picking up after herself, making her bed, getting herself ready for school. Some day I won’t have to give her so many reminders. And, she gets a bonus if ALL chores were completed for the week.

    OK, onto the investing portion. When she gets allowance, 10% goes to God and 10% goes into her savings. She can choose to do more, but that’s the requirement from us at this point.

    Life skills and responsibilities along with care and love go a long way!

    Paula, Stuff 2b Organized´s last blog post…Just For Fun

  19. What great information. And so timely. Thank you .

  20. I feel that it is never too early to teach your kid the value of money and how to invest in it wisely. I started my elder boy saving when they were two and now at 4yrs old and being able to do simple calculations I think its time I introduce him to investing prudently. Great article :)

    Dominique´s last blog post…Learning to read(Part 2) – the A-Z way

  21. This is so true – my mom had me open my first checking account when I was in the 4th grade (how old are you then…8 or 9? It’s been a while..haha) She explained to me the importance of saving your money so that it would be there for you when you needed it (her explanation was much more in depth than that, but that was the gist of it) So over the next few years, whenever I would get money for doing my chores or as a gift at Christmas or birthdays, I would always put a good portion of it into my checking account. After a while, it was second nature for me to put part of whatever money I earned into the bank – I did this all through middle school, high school and college. As a result, I am 24 years old with absolutely no credit card debt, I own my own car and my own house, and I still have a good chunk of change invested in money markets that I am saving for whatever the future holds. I know without a doubt that I will do the same thing with my children that my mother did with me. She helped prepare me at an early age for what life would hold, taught me the importance of saving, and helped me turn my life into what it is today (thanks, Mom!)

  22. I really agree with you. I remember when I was kid, my mom always told me not to spend all of my weekly pocket money. And from that simple thing I learn much about managing my own money, until now. Having a managed savings really helped me in my rainy days…. ;)

    Tasya´s last blog post…Educating the Children Starts with Educating Yourself

  23. Preparing younger children for financial good sense doesn’t have to be all about money.

    A lot of investing is about habits of thought and action, like deferring gratification, planning ahead, diversification, constancy, self-discipline, the power of time, how to accept advances and reversals of fortune, how to learn from mistakes, how to recognize and resist marketing ploys, how to resist panic and euphoria (i.e., peer pressure).

    They can learn things like that from activities like gardening or other projects that have long-term lead times and build incrementally, chores, meal planning, hobbies, participating in the saving, planning and research for a major household purchase (new car, new refrigerator, vacation trip, whatever), team and individual sports, and other activities of normal life.

    Once children are older, running a small business (babysitting, tutoring, lawn mowing, etc.) is a great way to teach about marketing, branding, balance sheets, banking, profit and loss, fixed and variable costs, return on assets, cash flow, debt, etc.

  24. Great post! I wish my parents had taught me more when I was young – I think I could have stayed out of all that credit card debt I got myself into during college if they had. This is so important to tell parents :-)

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