Most parents start planning for their child’s future even before the child comes into this world, while it’s a great idea to prepare and plan silently for their future, its ideal that the child also learns lessons of financial independence on their own as he or she grows up. Generally parents don’t expect their children to save and invest until they stand on their feet, but the fact is that the earlier they start the more time they have to reap greater returns as well as learn from their mistakes.
Teaching your children about money and investing is one of the best ways to help them prepare for a solid financial future. Parents don’t always know how to communicate with their kids about investing, so it can be difficult to find the best way to educate them. In this article I’ll share a few pointers about introducing your children to investing and spurring their interest in good financial practices.
If your child is very young, get them started with saving first. Saving is the first step towards investing, and ingraining the habit of saving money early on will put your child on the right track to financial freedom later in life. Different routines may work for different families, but I encourage you to teach your children to save a pre-determined percentage of their pocket money, gift money, or any other money they receive. The amount they save should be significant enough to be a little bit uncomfortable, but not so much that it becomes a punishment.
When your child has saved enough money, it’s easy to open up a saving account for them to start investing. Open the account with your child and talk to them about how investing can help their money grow much more than just putting it in the piggy bank. This is an important distinction because as I mentioned in my articles earlier saving is about keeping a certain amount of capital while investing is about long-term growth. This could be illustrated by talking to your child about his or her own short term and longer term goals. While putting aside cash might be enough for that new cricket bat, investing is a better way of achieving big goals, such as buying a car, or a house.
While there’s a lot to discuss, the key to talking about investing with kids is to keep it simple, make it real, and give them ownership. Sometimes incentives can help. For example, you could make a deal with your child that you’ll contribute a percentage of whatever amount he or she puts into an investment account. It acts like a quasi-provident fund for the child, and would go the distance in motivating them to save consistently.
One of the most fun ways for slightly older kids to grasp the true power of investing and learning about compound interest is to offer them a hypothetical job where they get to choose how they want to be paid for the first month: a flat fee of a half-million rupees, or Re 1 on the first day and doubling it every day thereafter for 30 consecutive days. Most kids will naturally go with the former and once you show them why they made the wrong choice, I promise you they’ll never forget it.
In the midst of all this process of investing, you can also gauge their aptitude and style of investment, for example you may find that your child has little interest in investing, or perhaps is very risk-seeking or very conservative. This is great to know! The more your kids can learn about themselves and how they want to manage their money early in life, the better.
Just remember that the end goal is to instill certain key priorities in their minds, such as the value of saving, the importance of goals, and the power of sticking with an investment plan. Even if your child is already well into the teenage years, don’t miss out on the opportunity to incorporate saving and investing into his or her life. These are lessons that could help provide financial security for a lifetime.When it comes down to effectively teaching your kids the benefits of saving money, there are lots of creative strategies you can consider. Just remember, whatever you do, make sure to save the economics lecture for the college.
