It’s never too early to learn about financial literacy, and investment education is an important part. Teaching your children about financial responsibility includes learning how to spend and save. Financial goals like saving up for their first car or paying for their college tuition are a couple of benefits your children can reach when they know the power of investing.

In this article, we’ll go over 5 ways to educate your kids about investing and how to get started.

5 ways to educate your kids about investing

Include your children in financial conversations

Whether it’s as simple as allowing your kids to help build this week’s grocery budget, or as complex as calculating how to pay a bill, involving your children in money talks is a great way to introduce them to financial health and investing.

The goal is to allow them to be comfortable with money and making decisions that involve money. Because investing can be a complicated subject for beginners, we recommend showing them the basics of finances, such as earning and saving an allowance.

Teach them the difference between savings and investment accounts

While the two types of savings accounts are similar, there are major differences between a standard savings account and an investment account that your children should be aware of.

A few key differences to teach your kids are:

Savings accounts are created at your bank while investment accounts are created through a brokerage.
Savings accounts yield generally low returns while investment accounts have the potential to grow.
Savings accounts are best short-term (less than 5 years) financial goals and investment accounts are better for long-term (5+ years) financial goals.

Knowing these differences shows your children which type of savings account is better suited for their financial goals.

Tell them the benefits of investing

As we mentioned earlier, investing is a great way to reach certain financial goals, such as purchasing their first car. Ask your kids about their goals and how creating a financial plan can help them achieve them.

Inform your kids about the benefits of investing like compounding interest. This subject may be a bit complicated for younger children, but you can break it down for them with this simple chart:

Explain risk and healthy financial choices

There are many types of investments and they all come with taking a certain risk to gain financial reward. Teach your children about these risks and how to navigate the market to make healthy investment decisions.

For example, explain how low risk investments may yield lower returns, yet those investments can still benefit their overall financial goals. The best way to help them learn their risk tolerance is to manage a real investment account with real money so they can get a sense of how their risks can affect their investments.

Help them open an investment account

When your child is comfortable and ready to invest, teach them about the different investment accounts they can manage and how to open them.

Types of Investment Accounts

Brokerage accounts like stocks and bonds
Education accounts like 529 plans
Employer-sponsored retirement plans like 401(k)s
Individual Retirement Accounts (IRAs) like traditional or Roth IRAs

How to Open Each Type of Investment Account

Brokerage accounts: Must be 18-years-old with a minimum investment set by the brokerage. A popular and easy-to-use brokerage application for beginners is Robinhood.
Education accounts: Best options for kids planning to go to college. You can apply for this state-sponsored investment account through your bank or brokerage with no minimum investment required if you set it up with automatic deposits.
Employer-sponsored retirement plans: Once your child is legally old enough to work, their job may offer 401(k)s. In this case, they can open their account through their employer and manage it with the provided resources.
Individual Retirement Accounts (IRAs): Your child can apply for Roth IRA at any age through a brokerage or bank program.

Family finances made easy

Showing your children the importance of financial health helps them make smart money and life decisions as they grow older. If you’d like assistance creating a family investment plan with your children, we’re here to help.

Sources:

Adams, R. C. (2022, July 19). 8 Savvy Parenting Tips To Teach Your Kids About Investing. Young and the Invested. Retrieved October 21, 2022, from https://youngandtheinvested.com/child-investors/
Baker, B. (2022, September 13). Investing basics for kids: How to teach children to save and invest in 2022. Bankrate. Retrieved October 21, 2022, from https://www.bankrate.com/investing/how-to-teach-kids-about-investing/
How to Teach Your Child About Investing. (2021, December 28). Investopedia. Retrieved October 21, 2022, from https://www.investopedia.com/articles/pf/07/childinvestor.asp

How To Teach Your Children About Investments