An Age-by-Age Guide to Teaching Kids How to Invest
By Stacey L. Bradford
Investing can be child’s play. A little wisdom now can lead to long-term gains for your kid’s future.
UNDER AGE 9: As soon as your child grasps the concept of a dollar, start talking about saving and delayed gratification.
1. Implement a weekly allowance. While some parents use it as a reward for completing chores around the house, it can also be a teaching tool to show that earning money is a separate and important skill, says Joline Godfrey, author of Raising Financially Fit Kids.
2. Help kids create a simple budget. Explain the benefits of putting money aside for toys, ice cream outings or other things Mom and Dad usually pay for.
AGES 9–12: Tweens are mature enough to appreciate the concept of using money to make money, says Godfrey.
1. Once your child has saved $100 from his allowance, take him to the bank to open a savings account. Allow him to fill out the paperwork so he gets comfortable interacting with financial institutions, says Carrie Schwab-Pomerantz, a senior vice president with Charles Schwab.
2. Consider gifting your child one share of a publicly traded company that he likes, such as Walt Disney, Microsoft or Coca-Cola (share prices range between $30 and $70), suggests Justin Fulton, a principal at Signature in Norfolk, Virginia. Show him how to monitor the stock’s price online.
AGES 13–15: Teens are ready to grasp more complex financial lessons and may ask if investing is risky. While there’s no guarantee stocks will increase in value, over the past 10 years the stock market as a whole has appreciated 2%; in the past 20 years, 4%. Investing is also the best way to beat inflation, says Schwab-Pomerantz.
1. When your teen has at least $100 that is not earmarked for something else, open a custodial brokerage account and invest the money in an S&P 500 index fund. Buying this sort of mutual fund limits risk (you’re investing in a diversified basket of holdings). Review the monthly account statement with your teen.
2. Evaluate one of your own investment portfolios together. If you’ve been saving for your teen’s education, for example, share that account so she can see the choices you’ve made and how your -money has grown, recommends Fulton. It also helps her understand how much you’ve saved for her college years.
AGES 16–18: Let your teen manage her portfolio. It’s okay if she makes mistakes—the point is for her to get comfortable so she knows what to do when she’s eligible to contribute to a retirement account.
1. Arrange a meeting between your teen and a grandparent, friend or colleague who is knowledgeable about the market, says Fulton. Ask that “expert” if he would be willing to mentor your teen and touch base semi-regularly about her strategy.
2. Encourage your teen to invest in one or two companies or mutual funds. She should research potential investments online—your brokerage firm may even offer free tools.
schwabmoneywise.com: Topics include saving, credit cards and investing, plus definitions of terms such as stocks, bonds and exchange-traded funds.
oneshare.com: Purchase one share of a company for your kid and he’ll receive a framed stock certificate and starter kit.
orangekids.com: Planet Orange, ING Direct’s interactive, space-themed game, teaches kids in grades one through six how to earn, spend, save and invest.
weseed.com: Kids can create virtual stock portfolios and track the real market’s returns.
investopedia.com: From market basics to sophisticated strategies used by day traders, this comprehensive site offers tutorials, definitions and news.
Have you taught your kids to invest? Tell us how in the comments below.
Financial expert Stacey L. Bradford is an award-winning journalist and author. When she isn’t writing, she’s busy teaching her kids the value of a dollar.