These starting points can help you set your child on the right financial path.
One of the more important things parents can do is teach their children financial knowledge and responsibility. It’s valuable knowledge that can make a lasting impression on them as well as set them on a path to financial success; a win-win.
If you’re looking to get your kids started in investing, look no further.
It all begins with budgeting
Before teaching your children the ins and outs of investing, laying the foundation with good budgeting skills is beneficial. Getting children used to budgeting will make it easier for them to get into the habit of setting money aside for investing.
Since your child likely doesn’t have any “real” expenses to worry about, you can use this time to teach them about the “pay yourself first” approach to budgeting. The “pay yourself first” approach emphasizes treating saving and investing as a non-negotiable expense.
Encourage your child to save a portion of their allowance, birthday money, part-time job income, or whatever else to put toward investing. Using a set percentage like 20% is a good place to start. For example, if your child receives a $10 weekly allowance, they’d set aside $2.
Getting your child in the habit of treating investing as non-negotiable can form habits that will benefit them for the rest of life.
Open a custodial brokerage account
A custodial brokerage account allows minors to own investments, such as stocks and bonds, under the supervision of an adult custodian. They can be opened at all major financial institutions and brokerages.
To open a custodial account, an adult (parent, guardian, or relative) acts as the custodian on behalf of the minor. Technically, the custodian is responsible for managing the account and making investment decisions until the minor reaches the age of majority. Still, a custodial brokerage account can be a great chance for you to get your child in the decision-making process.
Investments in a custodial brokerage account are considered the minor’s property, but they won’t have full access to them until they reach their respective state’s age of maturity (18 or 21). Once they reach the age of maturity, they’ll have full control over the investments to use as they see fit.
Show your kids the power of time
Convincing kids they need to invest and should set aside money now to benefit them years later is a lot easier said than done. I’m sure it goes without saying that kids are typically shortsighted. However, one way to possibly get your kids on board is by teaching them the power of compound earnings.
It’s relatively easy for a kid to get the concept of earning money on an investment, but it can be especially effective to teach them what happens when that money starts to earn money.
Hopefully, showing the power of compound earnings also shows your kids the importance of patience and not wanting instant gratification from their investments. The goal should be to get to the point where if they earn $10 on a $100 investment, they want to reinvest the $10 to keep it growing.
Get your kids to invest in things they care about
Part of what can turn kids away from investing is the idea that it’s boring. I’m not saying they’re right — but I’m also not saying they’re wrong.
It may be effective to encourage your kids to buy shares in companies of things they enjoy. For example, if your child likes shoes, they could buy Nike shares; if they like playing Roblox, they can buy Roblox shares; if they’re seemingly inseparable from their iPhone or iPad, they can buy Apple shares.
Ideally, getting your kids to invest in companies that produce items they care about gets them thinking about business in a different way. Maybe getting a new pair of Air Jordan shoes makes them think about Nike’s revenue, or buying Robux makes them think about Roblox’s business model.
A little effort can leave a lasting impact
There’s no guarantee anything will get your kids interested in investing, but I can confidently say sparking an “oh, this isn’t so bad” interest in them is a key first step. Nobody knows your kids better than you. You can determine if they’re motivated by fun, results (seeing their investments grow), or even sharing an interest with you.
Either way, never take for granted how slight effort can pay off tremendously for your child and have a lasting impact.
