Should you help kids start investing as early as their childhood days? Yes, because it is great to get them started early in investing.
As kids grow more conscious of money and other financial ideas, it is good to help kids start investing and provide them with knowledge and tools they may use as adults.
Of course, children grow at various speeds, so it may take some time before they can handle topics like portfolio building and asset allocation. However, they can also learn the fundamentals of investing as early as five years old. Let’s get started.
3 Ways to Help Kids Start Investing
Discussing Financial Terms
Introduce the concept of stocks as a variable-risk, variable-return investment instead of the savings account your kid may already have. Stocks are often considered high risk, but they also have the potential for significant rewards. Explain how the value of a stock may fluctuate based on the company’s growth and profitability.
A bond is a kind of financial instrument that is a low-risk, low-return investment. Bonds often pay a tiny amount over the prime interest rate and are guaranteed by dependable organizations. You can purchase lower-rated bonds with higher yields, but they may default, and you can’t always rely on receiving the income when you expect it.
Maintain Your Child’s Attention
Help kids start investing by showing them what stocks you hold if you have them. Brand-name businesses such as Boeing, sports equipment experts such as Nike, and technology companies like Apple may capture their interest. Examine each company’s investor relations website together to discover more about what they produce, how much money they made that year, and how many people work there.
Then, ask your kid which business they want to purchase. Even if they are not aware of it, children often have preferences. Facebook and Disney, for example, are likely to be well-liked by the majority of youngsters.
While you select stocks with your children when they are young, they will see how markets go up and down; this will help kids start investing for the realities of market swings and help them make educated choices when they are older.
Allow Your Child to Invest
When your kid is older, you can explain stocks and other investments in more detail. You eventually want to allow a kid to purchase their supplies. They may have saved enough money in a savings account by the time they are ready to invest.
Don’t invest it entirely in bonds or the stock market; instead, help kids start investing in each and save the rest. Your kid will be able to compare the returns of various kinds of investments due to this.
Allowing your kid to make genuine choices and take real risks is critical to help kids start investing effectively. You may lose money, but the goal of the exercise is to acquaint students with investing, which includes understanding that investments have benefits and drawbacks. Whatever the result, the experience of tracking their assets and making and losing money—whether actual or fictitious—will be necessary.
If you have not started on your investment journey, maybe these reasons can convince you to start now!