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?