The common misconception is that kids may be too young to be taught about how to handle their money. But the danger behind this is we assume that children will not be able to understand what saving means even after we have taught them. So instead of actually teaching them earlier, we wait a couple of more years when they are almost an adults to teach them the importance of delaying gratification.
Turning investment into a family activity
Obviously, you cannot start their financial literacy lessons with terms like diversified portfolios and mutual funds. Start with the basics like saving money. Simply telling them saving money does not mean you get to spend it all in one go. While it is important to buy things that will add value or generally make you happy, it also pays to delay gratification. What this means is if they want a toy now, they would have to forego buying sweets for a couple of weeks so that they can buy the toy and still have money left in their piggy bank.
When you see improvements on how they handle the money you give them that is when you slowly give them an idea about what investing means. Tell them the difference between saving money and making it grow by investing it. You can tell them that investing is one of the ways they can make more money out of the money they have now. Maybe you can start with simpler concepts to grasp like stocks — which is buying a tiny piece of a company, and then telling them the importance of being on top of that company’s performance.
Adapt to your children’s learning style
Some kids get bored when you simply define terms to them, especially on a topic like this. The best way to deal with this problem is knowing your children’s preferred learning style. Some kids understand concepts more when there are stories involved. Maybe you can talk about your experience with saving and investing money, the first time you chose a company to invest in and the day-to-day tracking you are doing to make sure they are performing well.
Some kids are more visual, which means they might want to see graphs and pictures while you are explaining. What you can do is pick a company that they might be interested in from your own portfolio, print out the latest reports , and then show it to them. There are kids who would like hands-on experience, and for this one, you have two options:
- If you are already thinking about buying stocks again, let them do it. Just instruct them on what to do and explain what happens in each step.
- Open their own investment account and ask them which company they want to start with. Preferably, start with companies that are already in your own portfolio since you know how those are performing in the market.
Use everything that you have as tools for teaching them like videos, apps, pictures, and so on.
One of the most effective ways to keep them interested is to start involving them in your investment transactions. Explain to them the concept of risks and rewards, show them that there will be times when it seems like an investment is losing money, and tell them what you do as a countermeasure. Learning financial literacy is important no matter what age; it is best that you start teaching them now.
