How to Teach your Children about Making Investments

Teaching your children about making investments is important for their entire life and you can best start as soon as possible. The concept of money is really important and teaching them the basics will help them to manage their money. They will develop spending habits and once they understand the real meaning of investing they know they can’t have everything they want immediately.

1. Teach where money comes from

You can maybe best start with teaching them where money comes from. There is a popular verb “money doesn’t grow on trees” which explains best that efforts are necessary to earn money. Children need to understand that money is not always available if they want to buy something. You need to teach them that people have to work to earn money and that they only can spend what they earn.

It is really important you teach them that they don’t spend every penny they earn. You need to explain how money really works. They will likely understand you can buy things with money but the concept of saving and investing is often a difficult issue. Try to explain if you save $10.00 in a savings account this will make more money. They receive interest for the money they deposit in their savings account. It is called investing; money makes more money and they need to save for various reasons in the future.

2. Teach your children to save and discover the benefits

Maybe you can start with a piggy bank. Let them save all the coins they receive or find in a piggybank. You can open a savings account for them and if they have saved a few dollars in their piggybank you can go to the bank with them and deposit this money in their savings account. Show them after one year that they have now more money in their savings account than the money they really saved with their piggybank.

3. Reading about investing

It is wise to buy some books of investing which are especially written for children. Maybe you can find also some suitable in the library but it is recommended these books explain easy the basics of investing. It has no sense to buy books about all kind of investment strategies, for example buying stocks or bonds, futures, options, mutual funds because children doesn’t understand this difficult matter.

It is even difficult for many adults; maybe it is best you search for books where they explain with easy examples how they can invest and all the economic factors which influences our money. If you do a little bit research you can find books which explain easy with some cartoons all the aspects of the value of money, saving and investing.

4. Teach them practicing the different aspects of money

Your children are still at school and have no income. It is recommended to give them tasks to earn money; this can be some household tasks, working in the garden, washing the car or some other easy tasks which may help you. It is not wise to reward them for every task they do for you because they will consider it as normal to receive money for every help. You just need to teach them to work for money with the purpose to save this money.

Spending is another aspect of money. It is a good idea to go shopping together and explain them which goods they need to buy. Explain the advantages and disadvantages of these goods and teach them to understand if they really need everything they want to buy. It is necessary they understand that they can’t spend all the money they have; a certain percentile needs to go to savings or investing to build up an income for certain goals in the future, for example buying a car, a house, unexpected expenses, an extra income for retirement, medical expenses etc.

You need to teach them it is best to save as much as possible but you don’t need to disallow to purchase everything they like for entertainment. They may buy from time to time a CD, a DVD, a book, a game or anything they like but they need to be aware that they have enough money to save or to invest.

5. Teach your teenagers to invest

Once your children become older and earn money through for example part time jobs or vacation jobs you can teach your children the different aspects of investing. It is best you explain first issues like inflation, deflation, demand and supply because it’s essential to understand why they need to invest.

You can explain the difference between stocks, bonds and other assets and the risk these financial instruments have. It is maybe not a good idea to teach them practicing buying stocks and bonds because the risks are too high for teenagers. It can be wise to teach them to invest a certain amount in mutual funds through systematic plans for mutual funds. This option is often the safest way of investing and can reach higher returns than savings accounts or buying one mutual fund at once. The advantage is that you don’t buy always on a peak price.

Teaching your children about how to make investments is one of the most important things you can teach your children. It is the basic for their future and explained by the words of Ben Franklin:” An investment in knowledge always pays the best interest”. You can best answer all the financial questions your children have and it is worth your time to help them and they will be thankful because you gave them the possibility to reap the financial benefits and avoid financial disasters.