Teaching children not to waste on every stupidity they see in advertising is an important milestone in financial literacy. But it's definitely not the only thing you should pass on to them.
Basic financial literacy can include areas such as the value of honest work, the value of money, education, the benefits of a modest lifestyle, and knowledge of the benefits of saving. If you add investment to this, you will help your children to significantly better financial literacy than the majority of our population.
First teach children to save, then also to invest
A savings account can be an interesting starting point. Children will learn from it that money can also exist in its virtual form, which is an element of knowledge in today's age of credit cards and mobile payments. In addition, instead of spending the entire pocket money, they can also save something on the account for later. Most children understand this system easily and adapt to it.
Once your children have mastered the concept of saving and prudent spending, the question of investing (appreciation) arises. In this way, they can store in advance, for example, on a bicycle, apartment equipment, the first car, college (dormitory, tuition), etc.
Can children understand how all investing works?
You may be surprised, but even for small children, it is relatively easy to understand this concept if you give it to them correctly. It is necessary to formulate it all simply, not to go into too much detail, and to avoid complicated deadlines. It's always good to show them visually as well - for example, to draw.
Do not explain the principle of compound interest to young children. Rather, just say that investing money makes more money, it's simple and they can understand it. It will be more difficult to explain the risk that will be necessary later.
Greenlight is trying to teach young teenagers how to manage their money effectively and they are going to start investing in their application, where children under the supervision of parents could invest in stocks from the age of 10. Basically, they should learn by doing so.
World-famous investor Warren Buffett said that his father was a great inspiration for him and that he developed the right habits from an early age. He thinks that the biggest mistake many parents make is that they teach their children financial literacy too late and they could start in kindergarten.
And he's right. According to a study by Cambridge University, children are able to understand the basic concept of finance between the ages of 3 and 4. Within 7 years, they then adopt an approach that influences their future financial decisions.
According to T. Rowe's surveys, only 4 percent of parents start discussing money with their children before the age of 5, and 30 percent wait until they are at least 15 years old. The sooner you start, the better.
Tips on how to teach children to invest
If you've never invested yourself, learn it first. Then you will be able to pass on the experience to the younger generation. To help your children learn financial literacy and investing successfully, we have some specific tips for you on how to do it.
Let them work
Young children should help their parents. It's better for the elders to find a part-time job. It's not so much about what work they will do, they will always learn responsibility, the value of work and money, and they will be more advanced overall. You can find some useful tips on earnings for minors here.
Teach them to save and invest
It is good to teach children from their first earnings to save at least a small part of their money and not spend everything right away.
Once your child gets used to putting aside money for later purchases, you can try looking for easy ways to invest the money you save. When choosing your own investment, talk to your children so that they know what, how and why you are choosing.
Investments are a long way off
You need to make it clear to children that nothing is happening right away, and in the world of investing, this is doubly true. Patience brings roses.
Just as much as you can afford
Everyone (children included) should only invest money that they will not need in the near future. Otherwise, they could get into financial trouble - in the sense that they will lose their savings and not be able to buy a favorite magazine, for example.
Teach children to share the expenses
If they want to buy something more expensive, insist that they contribute at least part of the price. For example, if they rent your car, it is advisable for them to again at least partially participate in fuel, insurance or other costs. Show them that nothing is free.
Once children are forced to reach for money out of pocket, they are much less impulsive and think far more carefully about what they want and need.
Talk to them about money honestly
Learn to talk openly and straightforwardly with children about money, investments and your family's financial situation and possibilities. It is a pity that for most parents, the debate over money is as unpleasant as the debate over alcohol, drugs or sex. At the same time, these are often the most important conversations for children.
Invest together
A very interesting way to arouse children's interest in investing is to involve them. Thanks to this, children will understand the concept of long-term wealth building.
For example, you can sit down with the children and choose shares of companies whose products they know and use (online game platforms and the like). Involve them in how you speculate on their prospects and try to make money as a result.
Don't forget to diversify
While you're likely to be severely constrained by a low budget investment, don't forget the importance of portfolio diversification, which can significantly reduce risk. Robert Johnson, director of the American College of Financial Services, advises parents to maintain a portfolio of about 10 shares. Of course, it is also necessary to diversify assets from other sectors - commodities, forex, cryptocurrencies, etc.
Lead by example
As in many other aspects, children look to their parents in investing. Therefore, be good role models for them and lead by example.
In addition to your personal role model, you can also show them celebrities and big investors, such as Warren Buffett and his "buy and hold" value strategy. You will definitely find a number of other (much younger) investors on the Internet who will be more interesting for your children.
Try trading dirty first
Many brokers offer a demo account where you can try trades just like that (without real money, but in the real market). XTB broker, for example, offers trading on a demo account. Show the kids how it works.
Start small
Start with caution, in smaller amounts and on less risky investments. Also, watch them evolve and learn from mistakes. Discuss with children the consequences not only of good decisions, but also of unsuccessful ones.
Don't be afraid to start early
As we have already mentioned, the concept of money is able to understand children as young as 3 years old. Don't delay until puberty.
Make investing a habit
If you get enough interest in investing in children, they may even be interested in investing themselves, looking for new stocks or continuing their education in any way - it will become a routine, a habit.
This situation is very beneficial, as they will be ready to handle all future financial challenges. They will benefit from their knowledge of financial literacy for a lifetime. Despite the fact that early investments can partially secure them in the future.
Be patient
Do not push on the saw. Gradually, everything will give in and they will definitely succeed, but you have to go slow, be understanding and give it your time.
Teaching children what money is and how to treat it is not easy. But it's definitely one of the things you should put a lot of emphasis on. It is important to talk about it. If your children have a positive attitude towards money and excellent financial literacy, it can make their lives much easier
