Teaching your kids the tricks of the trade when it comes to investing can give them an edge later in life. Simple lessons could enable them to become better investors when they themselves have money to invest. Encouraging saving and budgeting habits in children is commonplace, but there is less emphasis on investing for children. Read on to learn how to introduce your kids to the stock market.
Investing in children early in life can improve their financial success
Investing for children at an early age can be one of the best investments parents make. Not only does this help set them up for financial success later in life, but it also reinforces good habits and teaches them essential money management skills while they’re still young.
By starting to invest for children when they are young, parents are able to reap the benefits of compound interest on their investments, which can amount to a significant amount over time. Investing early also helps parents set a good example for their children, demonstrating that money can be used to build wealth and achieve financial goals.
Children’s investment accounts
Before you begin stock market lessons, you’ll want to make sure that an investment account is the right choice for your child.
Save or invest
If you want to wait until your child has some money to teach them about investing, you can help them open a savings account. This would allow them to practice managing their money while working to save for investments in a few years.
On the other hand, money invested yields higher returns than money saved, although there is an element of risk involved in the former. If you think your child is ready to handle this concept of risk, or has enough money set aside to learn it on their own, now might be the time to teach them about investing.
You can also use debit cards to teach your kids to spend wisely. These days, kids can manage their money using something like the Greenlight debit card. As a parent, you can sign up for a Greenlight card, give it to your child, and deposit money as needed.
Your kids use the card like any other debit card, and they can easily access their allowance, money they’ve earned through work or childcare payments, and more. Greenlight also offers budgeting and financial education resources. Kids learn to do more than just deposit and spend money. Parents never have to worry about wasting money and kids have as much buying power as adults.
Asset Classes for Kids
There are several avenues or asset classes for investing, such as stocks, bonds, commodities, currencies, and entire categories of derivatives. The easiest asset class for kids is stocks or stocks.
Stocks, however, are relatively risky compared to bonds, commodities such as gold and some safe-haven currencies. However, children may connect better with stocks because of their association with companies whose products and services are familiar to children.
How old do you have to be to invest in stocks?
At age 11, prolific and shrewd billionaire investor Warren Buffett bought his first stocks with the money he saved working at his family’s grocery store.
He did odd jobs during his teenage years and used the money he saved to buy shares in local businesses. Buffett’s first experiment in investing was in 1941. Things have changed between then and now, especially with well-informed children via modern communication devices.
Depending on the type of brokerage account you open for your child, there may be an age limit on whether they can invest. This is brokerage specific, but parents can usually open a custody brokerage account for children under 18.
How Kids Can Start Investing
Investing should be done as a family business. Kids can participate in discussions about the companies that make up their portfolio, the movements of those assets, and more. When parents discuss their holdings with their children, they should help them understand that investing in stocks is a risky business and therefore requires thorough research and a clear strategy to avoid or minimize potential losses.
Step 1: Describe the investment in simple terms
Explain to them that this is simply a form of deploying the money they have saved into something, which can earn you additional returns. You can also take the children to the annual meeting of shareholders of local companies to interest them.
Step 2: Ask them to make a few headline choices
Include them in stock picking by asking them which shares of the company they would prefer to own. Children may not have full knowledge of the full range of industries and sectors. At least they will be familiar with companies such as Disney, Nike, Nintendo, etc. whose products they know. With these nascent stages, although children do not understand everything, they are sure to acquire the basics.
Step 3: Practice with a simulation
Before they’re ready to go, you can have the kids play stock market simulation games using paper money. At this point, you can do whatever the kids would need, teaching them the basics of investing. Once children have become familiar with watching parents invest and accumulating money to invest, parents can explain the concept of portfolios, which serve to diversify and minimize risk.
Step 4: Open an online brokerage account
For kids who are going to build a simple portfolio and hold that position for several years, a young beginner account is a great way to go.
Discover more of Benzinga’s favorite brokers for opening an investment account.
It’s never too early to plan for the future
Investing is an amazing way to teach kids about the importance of money and how our economy works. If you are looking for helpful educational resources to explain these topics, you can start with how the stock market works.
Frequently Asked Questions
How to create wealth for children?
The key to successful long-term wealth building for children is to start early and teach them how to manage their money properly. One of the best ways to start building wealth for kids is to open a 529 college savings plan. These plans allow parents and guardians to save for future tuition and other fees. study cost in a tax-advantaged account. Moreover, contributing to a Roth IRA or a traditional retirement account is another great way for kids to start investing early.
At what age can a child start investing?
Although there is no specific age at which a child can start investing in the stock market, there are some important factors to consider before making this decision.
For starters, children under 18 are not legally allowed to open or operate their own brokerage accounts.
Should a 12 year old invest?
When it comes to investing, there are no hard and fast rules as to when someone is ready. That said, it can be a great way to teach kids the basics of financial literacy and money management. For a 12-year-old, this might include learning about different types of investments, understanding the risks and rewards associated with them, and how to track their performance over time.