Raising Savvy Investors: Teach Kids the Value of Investing
We think one of the best lessons you can teach your children is not found in most classrooms: how to be a smart investor. Financial literacy, especially investing, is a powerful tool that can shape your child’s financial future.
It is common to teach kids how to save money. However, helping them learn why and how to invest may be even more important. This deeper understanding may have a big impact on their future.
Start with Money Basics
Before starting in the stock market, make sure your kids know the basics. We think they should understand budgeting, saving, and the difference between needs and wants.
Use real-life examples, like grocery shopping or planning a family vacation. These examples show how money is earned, allocated, and spent. Encourage them to save for something they want. This can help build patience and shows the rewards of disciplined financial behavior.
Use Simple Language and Concepts
When introducing investing, use simple language. You don’t need to talk about ETFs and P/E ratios right away. Start with the idea that investing means putting money into something today with the hope that it grows in the future. Explain how businesses grow and how investors can own a piece of that growth through stocks.
Analogies work wonders. For younger kids, compare investing to planting a tree. You put in a small seed (your money), care for it (give it time), and over the years, it grows (compounds). This sets the stage for understanding long-term gains and the power of compound interest.
Make It Real with Hands-On Learning
Think about creating a mock portfolio. Let your kids choose a few companies they know. They can track how these companies do over time. There are plenty of apps and websites that allow you to simulate investing without real money.
For older kids or teens, think about opening a custodial investment account. Let them invest a small amount of real money. This makes the experience tangible and shows them how emotions can play a role in investing.
Teach Patience and Perspective
One of the hardest lessons for any investor, especially young ones, is learning to be patient. Explain that markets go up and down, but the goal is long-term growth. Use downturns as opportunities to teach rather than panic. You may want to show historical data that illustrates how markets recover and grow over time.
You can also talk about the concept of risk. Help your children understand that all investments have some risk. Explain that diversification and research are important for managing that risk.
Talk About Values and Goals
Teach your children that investing isn’t just about making money - it’s about aligning your money with your values and goals. Investing can help you reach important goals. This includes saving for college, starting a business, or giving to charity. You can also introduce the concept of socially responsible investing and how values can influence investment choices.
Be a Role Model
Kids learn more from what you do than what you say. Let them see you planning, saving, and investing.
Share age-appropriate insights into how you make decisions about money. Talk openly about financial wins and mistakes. If you have a financial advisor, think about bringing your teen to a meeting. This way, they can see what that relationship is like.
Keep the Conversation Going
Teaching kids about investing isn’t a one-time lesson—it’s an ongoing conversation. As your children grow, their understanding will deepen. Tailor your discussions to their age, interests, and life stage. By consistently engaging them in financial topics, you're building their confidence and competence over time.
Bottom Line
Helping your children become savvy investors is one of the greatest gifts you can give them. It empowers them with the tools to make smart financial decisions, understand the world around them, and build a more secure future. It starts with simple conversations, small steps, and a commitment to teaching—not just telling.
Sources:
https://www.nerdwallet.com/article/investing/set-kids-brokerage-account
Disclaimer: Investing involves risk, including the loss of principal. The effectiveness of any strategy depends on an individual’s financial goals, risk tolerance, and market conditions. Different strategies may be appropriate for different investors, and past performance is not indicative of future results.
