Financial literacy is important to kids, as it will give them financial freedom in the future. Money is everywhere, so teaching them about responsible spending and saving money can help them navigate their finances’ potential ups and downs as they mature. Moreover, life can be unpredictable, so teaching them the concept of saving and investing can help them prepare for any financial emergency.
To help your kids grow into financially confident adults, here’s a full guide to the basics of investing for kids.
The Foundation of Financial Literacy
There are many reasons to teach your kids about money as early as possible. It can help them mature and develop with confidence. Moreover, kids emulate their parent’s actions, so they will likely copy your values around money as reflected in your financial behaviors.
Also, kids process learning faster. It means they can learn bad money habits as fast as they can learn good financial behaviors. If you continue to portray good money behaviors, kids will become familiar with it and can soon adapt it as a routine.
Lastly, if they have the necessary financial knowledge at an early age, you can be confident that they can understand the value of both saving and giving, making it easier for them to navigate the real world.
Some topics you can cover include creating a realistic monthly budget, getting easy loan approval and managing credits, building up savings, and starting an investment strategy.
What is Investing?
Simply put, investing refers to putting capital to use, potentially building wealth as its value increases over time.
Saving is a different concept from investing. When you save, you have a low risk of losing value since you only store your money in a safe place. However, when you invest, there’s a potential for higher returns and some level of risk, depending on your selected investment vehicle.
With a good investment strategy built around confidence, you can make money work for yourself by investing.
The Power of Compound Interest
Compound interest refers to the interest calculated on the initial principal. It covers all of the accumulated interests of previous periods. The power of compound interest is known as generating “interest on interest.”
Compound interest grows savings over time, depending on the given frequency schedule, like daily or annually. The bottom line is that you must teach your kids to start investing early. Advise them to start saving when they start earning. Compounding interest can work in your favor the earlier you start investing.
Even if you invest in small amounts, you can reap massive payouts in the long run. Tell your kids to get the maximum power of compounding by starting early and being consistent with their payments.
Types of Investments
You can teach your kids some basic investment options. Just make sure to use kid-friendly language when introducing these investment vehicles to them.
Stocks
When you own stocks in a company, you can be called a “stockholder,” meaning you are a partial company owner. It also entails that you have a claim on the company’s earnings and assets.
To give a practical example of how stock investments work, you might consider S32 stock price with your kids. It is a global mining and metals company, and tracking its stock price can provide a real-world context for understanding market dynamics and investment principles.
Bonds
Corporations and governments issue bonds when they want to raise money. When you buy bonds from them, you can expect repayments of the original amount of the loan plus the periodic interest payments, typically twice a year.
Mutual Funds
You can pool your money with other investors through mutual funds. You can use mutual funds to buy bonds, stock, and other investments. The pool of money is managed by a professional fund manager who decides which securities to buy and the right time to sell them.
Setting Investment Goals
Before telling them which type of investment would be best for them when they group, teach them about setting investment goals first. It helps them identify their financial goals when they are young. For instance, tell them to ask themselves their short-term and long-term goals, whether they want to buy something or save money for college so they don’t have to apply for student loans.
When they have determined their financial goals, you can help them assess how they can connect those goals with different investment strategies. This way, you can encourage a goal-oriented approach to investing, which they can practice as they grow.
Starting Small-Mock Investments
To put into practice whatever strategies or concepts you have taught your kids, create a mock investment portfolio with them. There are many virtual platforms you may use to simulate investment decisions.
Afterward, encourage them to track the performance of their mock investments and discuss how their investments can change over time. This way, you can turn simple investment experiences into valuable learning opportunities for your kids.
Conclusion
Introducing kids to investing means you care for their financial future. Early financial education has lifelong benefits, so encouraging your kids to start early can help them achieve financial freedom earlier in life. In discussing investing, empower your kids to make thoughtful, risk-aware decisions and foster a safe environment for them to learn from their mistakes.
