Many parents are overwhelmed at the thought of discussing investments and the stock market with their children; yet the younger this lesson is understood, the better. Investments area valuable resource for financial stability and success, yet a topic rarely taught until a later age.
For me, I was first exposed to investing at a young age alongside my grandfather. As his eye sight began to worsen, he asked me to read him the prices of the stocks he owned from the stock market section of the newspaper. This sparked my interest in the stock market at an early age and demonstrates how many opportunities are available to us in our daily lives to provide basic, kid-friendly investment lessons
By incorporating investment lessons now at home, parents have the ability to make a long-term impact on their children’s financial situation. Most individuals do not learn the benefits and lessons of investing until they are young adults are older, and by that time, they have likely missed out on several years of additional profits and knowledge. By learning this lesson from an early age, children are more likely to reap the financial benefits of investments and succeed financially.
Here are four fun and engaging ways to introduce your children to the basics of investing:
1. Ask your children about their favorite products, movies and other interests
The best place to start when discussing investments with children is with their interests. Whenever you see your child is interested in a particular product or brand, begin by asking them questions about the item such as, "Who makes this shoe?" Those conversations can oftentimes lead to more in-depth ones about the company. Take your child’s favorite movie, for instance. Help them discover the company behind the movie and explore the company’s current financial situation through annual reports and other resources.
Children are naturally curious, so by probing them, they are likely to dig deeper and discover more. Of course, when your children are researching something they are interested in, it is more likely they will become more involved in the learning process.
2. Have your children pretend to own a stock and track its performance
Once you’ve identified a publicly traded company your children have interest in learning more about, have them pretend to own stock in the company and track its performance. This is one of the ways my father helped me understand more about investing when I was in middle school.
As a family, we would frequently dine at Bob Evans, a restaurant chain founded in my home state of Ohio. To help me understand some investing basics, my father encouraged me to pretend I owned stock in the company. Our local evening news broadcast would share the stock price each night, which I would write down and track over time. This exercise lead to many valuable conversations with my father about the company’s performance. Because of this imaginary stock ownership exercise, I was more prepared when I did purchase my first very stock as a high school senior.
3. Teach children how to research a company
As I mentioned before, it is important to let your children take part in their own research when learning about companies. However, not all children will immediately know how to do so. This activity will also depend on ages and maturity. Parents should look for readiness in their children prior to educating them on this topic.
For younger children, learning about a company may mean only reading the first few pages of an annual report or letter to shareholders. For older children, this lesson may mean utilizing several resources to learn about the current business and financial situation of a company. Parents can show their children the many resources available online for potential and current investors.
Children should also be taught what things to look for when researching a company, such as profitability, current stock value, key competitors, balance sheets, potential red flags, sustainability and more.
4. Let your children buy stock – and don’t be afraid to let them fail
Ultimately, your children will get the most out of this lesson by trying it first-hand. Once you have determined the company in which to invest, there are several cost-friendly ways to invest. With the rise of online brokers, it is easier than ever to purchase stock at a low cost. Families can also choose to invest a relatively small amount into the market to minimize risk. Parents and children should also consider purchasing stock that pays a dividend. This will help children to realize the tangible value of purchasing stock. If you’re able to purchase a stock that does so, make sure the check is sent to your house and let your children spend it freely so they can quickly realize the many benefits of investing.
When I encourage parents to take part in this lesson, many are apprehensive to do so. However, this will mean more to children when there are hard dollars at stake. Many parents also ask me, "What if the company goes under?" While no one wants to experience that loss, it can also be an extremely valuable lesson to learn, especially at a young age. Children should understand that investments come with risk.
While investments can be a difficult and sometimes taboo topic for parents to teach, it is an important one for children to learn at an earlier age in order to reap more financial benefits in adulthood. To learn more valuable literacy lessons for children, you can request more information about my complimentary workshop, Raising Financially Fit Families, which I present to groups and organizations of all sizes.