How many times have you heard adults express regrets that they didn't learn about investment planning when they were kids? Sometimes it can be a costly process of trial and error. That's why it's a good idea to provide your children with some investment insight at an early age.
Teaching your children about personal finances and how to invest can take many forms. Here are a few suggestions to get you started.
Match your child's contribution
If your child has the self-discipline to invest money received as a gift or earned from a part-time job, reward that enthusiasm by matching the investment. For example, for every dollar your child puts into a savings account, you can put in the same amount, or a pre-determined portion. Then, once the account hits a certain level, for example $500, that money can be rolled into a stock, bond, mutual fund, or certificate of deposit to demonstrate how to make money work harder.
Seek out kid-friendly investments
Many investments hold stocks that appeal to children, whether it is a favorite fast-food restaurant such as McDonald's or an entertainment giant like Disney. Children will be able to relate better to a company they can understand and that is familiar to them.
Set up a family stock-picking game
Although long-term investing is recommended for meeting financial goals, you can use an easy, short-term, stock-picking game to provide your kids with insight about the stock market and being a shareholder. Begin by having everyone in the family pick a stock and follow it for a month or so. At the end of that time, award a small prize to the person whose stock has done the best. You may also want to add some "qualitative analysis" by examining the different factors that may have caused the winning stock to outperform the rest. You'll want to keep all explanations fairly simple, but don't under- estimate your children's ability to grasp fairly sophisticated concepts. Remember, children love to learn - and they're often better at it than adults.
Remember that children learn by example
Often people keep money issues from their children. But the best way for children to learn about money and investing is from their parents. Talk with them about your goals and when you reach a target, such as saving enough for a family vacation or a new car, let them know. Tell your children how important it is to establish financial goals and then work towards them, taking steps such as regular contributions and avoiding impulse purchases that blow the budget. If you are serious about saving and investing, chances are, your children will be, too.
If you give your children the financial education they need, they will be able to cope with, and take advantage of many of the circumstances that may come their way in the future.
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