When it comes to kids and investing, you don’t have to be a financial wizard to teach them the basics. All it takes is a little time and patience to help provide the necessary groundwork for a lifetime of learning and financial decision-making.
The opportunities are there. Kids can often earn money by helping out around the house, through summer jobs or baby-sitting. The concerns become how they spend it and their lack of financial knowledge. It’s crucial to teach kids early on about proper spending and how to take control of their finances.
Some good times to spur a discussion may be before school lets out for the summer when many get summer jobs, or around the holidays or a birthday when they might receive money as a gift. Wherever and whenever you address the subject, remember to make it fun and educational.
Set a good example. Children tend to imitate their parents’ behavior. This can be especially true of your finances. Are you living paycheck to paycheck? Do you carry large balances on your credit cards? Do you follow a budget and contribute regularly to a savings or retirement accounts? Your actions today can leave a lasting impact on your children as they plan for their own future.
Create opportunities for your children to earn and manage money. Establish an allowance for doing chores around the house, or help them find odd jobs around the neighborhood, such as mowing lawns or baby-sitting. Kids also may receive money for birthdays and the holidays. Regardless of the source, any of the money they earn or receive can be used to establish a savings account, where they can make regular contributions.
Help them establish financial goals. Illustrate the difference between short- and long-term savings. For example, your child can choose to save for a new toy next week, or a bicycle next summer. After determining a goal, help them develop a plan. How much money will be needed? How much will they need to sock away each week or month?
Educate your children about the basics of investing. There are many easy-to-read books and articles tailored to young investors that address a variety of financial subjects. Kids also can browse Internet investment sites designed specifically for them to help apply real life situations to their finances and better understand the value of saving.
Build a mock portfolio. Sit down with kids and brainstorm companies that interest them through things they see at school, the mall or around the house. Have them pretend to invest a set amount of money in several companies, and track their performances every week to calculate gains and losses. The exercise can give them a better understanding of the stock market.
Money and investing is a subject often overlooked by kids, evidenced by the increasing number of kids and young adults with high debt levels and low savings rates. There is no better time than now to sit down with your child and discuss how the financial decisions they make right now will shape their lives today and tomorrow.
Jim O’Neil is an investment executive with Dain Rauscher Inc., a member, NYSE and SIPC. These answers are for informational purposes only and should not be considered a recommendation to buy or sell any security. Send investment questions to Investor’s Forum, The Herald, P.O. Box 930, Everett, WA 98206, by fax at 425-339-3435, or via e-mail at economy@heraldnet.com.
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