Teaching kids about investing is a great way to develop their financial literacy and set them up for financial success later in life. Investing is a life skill and I believe that Sharesight is uniquely positioned to be an excellent tool to teach kids about investing. In this blog, I discuss some simple ways to explain investing to your kids, plus some hands-on strategies to give your kids safe and practical experience with investing.
Albert Einstein once said that compound interest is the eighth wonder of the world. It’s a powerful concept but difficult to comprehend even for adults. You can watch the wonder and amazement when the magic of numbers causes the balance to build up.
The table below illustrates how quickly compounding can work on a given amount of principal:
| Principal | $10,000 |
| Interest rate | 8% |
| Balance | |
| 1 | $10,800 |
| 2 | $11,664 |
| 3 | $12,597 |
| 4 | $13,605 |
| 5 | $14,693 |
| 6 | $15,869 |
| 7 | $17,138 |
| 8 | $18,509 |
| 9 | $19,990 |
2. Explain the meaning of investing
The purpose of investing is to generate a return that you get from buying assets that have the potential to grow in value over time or have the ability to generate an income over time, and ideally a combination of both.
While everyone invests with the aim of making money in the future, there are inherent risks involved as well, wherein, the value of what you invest in could also go down.
You can use the examples of stocks, bonds, investment property, FX, etc. to show how investing works.
3. Make it relatable
You can make it relatable by showing them examples from companies that they use every day. For example, the portfolio below has shares in companies that my 10-year-old uses.
The groups (also called Custom Groups in Sharesight) are useful to categorise the companies that kids are familiar with.
4. Start small
Encourage kids to start investing with small amounts of money, like a few dollars. This can help them understand how investing works without risking too much money.
ETFs and index investing can be good places to start to show the power of investing. There are a lot of investing platforms with the ability to set up kids’ accounts. However, it is wise to seek the help of a financial adviser and a tax accountant to explore the tax implications of such accounts.
##5. Use investment tracking apps
There are many investment apps available that allow kids to invest small amounts of money in stocks and other assets. These apps often have educational resources that can help kids learn about investing.
For example, using Sharesight as a portfolio tracking tool can help a child visualise the various components of a total return – dividends, capital gains as well as currency gains. Below is a performance report downloaded from Sharesight showing these return components in a mock portfolio of companies that a child can identify with.
Best of all, signing up for a Sharesight account is totally free. Your child can explore various parts and reports in Sharesight to learn more about returns and also about backtesting with the Share checker.
6. Encourage learning and research on companies and assets
Encourage kids to research companies or assets they are interested in investing in. This can help them understand the potential risks and rewards of investing.
The practice of researching companies that kids use on a day-to-day basis could be a good place to make them think and read more about the products and services they use. Making the link between their actions and how companies generate revenue will make them more conscious consumers as well as good learners of investing.
You can always relate these concepts back to the next time you are playing a game of Monopoly.
7. Be a patient teacher
Being a patient teacher as well as a patient investor can help both the parent and child alike. Start talking to them about investing and investments when you have discussions as a family. In the beginning, they may not pay much attention, but one message that’s clear from various financial literacy surveys is that kids need to learn about money from their parents and family.
The additional benefit of these lessons is that kids can get more interested in their maths classes and the practical applications of the concepts they learn in arithmetic.
Remember, Sharesight is free to sign up for and can serve as the family’s wealth-tracking tool for life.
- Track all your investments in one place, including stocks in over 40 major global markets, mutual/managed funds, property, and even cryptocurrency
- Automatically track your dividend and distribution income from stocks, ETFs, and mutual/managed funds
- Run powerful reports built for investors, including performance, portfolio diversity, contribution analysis, multi-period, multi-currency valuation and future income (upcoming dividends)
- Share your portfolio with your loved ones and make discussions about family finance a dinner topic of conversation
Sign up for a FREE Sharesight account to start tracking your performance (and tax) today!
Disclaimer: This article is for informational purposes only and does not constitute a specific product recommendation, or taxation or financial advice and should not be relied upon as such. While we use reasonable endeavours to keep the information up-to-date, we make no representation that any information is accurate or up-to-date. If you choose to make use of the content in this article, you do so at your own risk. To the extent permitted by law, we do not assume any responsibility or liability arising from or connected with your use or reliance on the content on our site. Please check with your adviser or accountant to obtain the correct advice for your situation.
FURTHER READING
- What are the advatages and disadvantages of family trusts?
- How to calculate portfolio turnover
- How to evaluate a stock
Product updatesSharesight product updates – April 2024by Ben Clendon | Apr 3rd 2024This month we wrapped up a number of long-term projects, including security enhancements, additional broker support and our new holdings page.Case studiesHow Nikky uses Sharesight to understand her true performanceby Stephanie Stefanovic | Apr 1st 2024Part of our Sharesight customer experience series, this blog features Nikky W., an investor who has been tracking her portfolio with Sharesight since 2020. Market insightsTop 20 NZX trades by Sharesight users – March 2024by Stephanie Stefanovic | Mar 28th 2024Welcome to the March 2024 edition of Sharesight’s monthly NZX trading snapshot, where we look at the top 20 trades Sharesight users made on the NZX.
FAQs
Keep Your Child's Attention
Get them into the spirit by teaching them about popular companies like Nike or Apple. Or, speak to their interests. If they're interested in planes, for example, introduce them to a company like Boeing. If you own stocks, consider showing them the companies that make up your portfolio.
How do you teach your child about investing? ›
Keep Your Child's Attention
Get them into the spirit by teaching them about popular companies like Nike or Apple. Or, speak to their interests. If they're interested in planes, for example, introduce them to a company like Boeing. If you own stocks, consider showing them the companies that make up your portfolio.
How to invest $1000 for a child? ›
Best way to invest $1000 for a Child
- Custodial account. ETFs and index funds. Individual stocks. Savings bonds.
- Other investment opportunities. Bank fixed deposits. Insurance policies. One-time child investment plans.
Start by explaining the basics of the stock market. You can explain that the stock market is a place where companies sell shares of ownership to investors, and that investors can buy and sell these shares in order to make money. Use simple examples and real-life scenarios to illustrate how the stock market works.
What are the 5 steps they suggest to start investing? ›
The following five steps should help you identify your needs, decide the most suitable asset allocation, and lead you toward your financial goals step by step.
- Assess your risk tolerance: selected.
- Diversify your investment.
- Do asset allocation.
- Assess investment performance.
- Rebalance your portfolio.
Keep it simple. The best way to get kids interested in investing is to speak their language. Start by explaining that investing is a means of using your money to try to create more money.
What age should I teach kids about investing? ›
Aged 4-7 (SUPER IMPORTANT AGE!!)
Research shows that we form many of our adult money habits by age 7. Therefore, this age is really important as we are helping our kids form brand new habits. After age 7, we have to re-program habits they have picked up which is harder.
Is $10,000 too little to invest? ›
$10,000 is enough to give you access to many investment options. Here are the best options for investing $10,000 through your brokerage, IRA or 401(k) account. Arielle O'Shea leads the investing and taxes team at NerdWallet.
Is $100 too little to invest? ›
Investing just $100 a month can actually do a whole lot to help you grow rich over time. In fact, the table below shows how much your $100 monthly investment could turn into over time, assuming you earn a 10% average annual return.
How much do I need to invest to make $1,000 a month? ›
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
To start investing in stocks on their own, your kid will need a brokerage account, and they must be at least 18 years old to open one. They can start earlier than this, but they'll need a parent or guardian to open a custodial account for them.
How to teach financial literacy to kids? ›
When they're little
- Introduce the value of money.
- Emphasize saving.
- Introduce them to investing.
- Encourage a summer job.
- Introduce them to credit.
- Consider a Roth IRA.
- Help them set a budget.
- Encourage them to stay invested.
Stock is a type of security that indicates ownership in a corporation and represents a defined portion (measured in shares) of that corporation's future success.
What does Dave Ramsey say to invest in? ›
What should you invest in inside your 401(k) and Roth IRA? There are many different types of investments to choose from, but Ramsey says mutual funds are the way to go! Mutual funds let you invest in a lot of companies at once, from the largest and most stable to the newest and fastest growing.
What is the 4 rule in investing? ›
The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
How to explain investing to a 6 year old? ›
Explain the basics of investing
To start, begin with the basics of investing, including explaining that a stock — or share of a company — allows them to have ownership in that company. If you have an investment portfolio, show your child how it's grown over the years through compounding returns.
How to teach kids about stocks and bonds? ›
To help your child learn about investing and grow her interest in personal finance, you may start by helping her buy one stock and one bond. She can track her investments and watch them fluctuate with the markets. This process can open up the opportunity for more in-depth conversations about investing.
Why is it important for kids to learn about investing? ›
Investing is a vital financial skill often overlooked in traditional education, but it's critical for kids and teens to grasp. It not only helps them understand the value of money and enhances their financial literacy but also teaches about risk, rewards, patience, and long-term planning.
