Back to School: Investing
It may sound crazy to start talking to your child about investing – but it’s a powerful financial tool that everyone should use and understand! The sooner they learn, the more beneficial for their future. Help your children understand that the goal is to buy when things are inexpensive and sell when they are worth more. Investing is often done by buying stocks, and as an example, the stocks are worth more when the company is doing well and less when the company is struggling. Since you own part of the company, you may also get payments when that company earns a lot of money. As the child gets older, you can touch on more complex aspects of investing.
If investment accounts can earn more interest than savings accounts, it may seem silly to put money in savings accounts. It is important for you to also teach your children the risks of investing, a major reason why a lot of parents don’t even get into investing. The risks are higher, but the rewards can be greater. It is important to note that investment accounts are not insured by the bank, while saving and checking accounts are.
Track the Stock Market: Have your child pick a few brands that they like such as their favorite cereal, sports equipment, soft drink, or gaming company. Once they’ve picked two or three, go to the company websites or a general financial site and show them how to track the stocks. You can also point out news articles about the company and have them predict how that will affect their stocks. For example, if a sports equipment/apparel company decides to sponsor an athlete, you can discuss how that may lead to a drop or rise in their stocks. Track how the stocks change to see if your child’s guesses were right or wrong.
Start Investing: It’s never too early to get your child actively involved in investing by “selling” some of your shares to them. For example, if you’re planning to buy 200 shares of a particular company and you have two children, buy 202. Sell the extra shares to each child either at the price you paid or a discounted price if it’s too high. You can keep track of the children’s shares in a separate register so they can follow what happens and earn some money if the stocks do well. You can have them make decisions on when or if to sell, but help them make informed decisions and be willing to buy the shares back if they prove disappointing.
In the last lesson, we spoke about Custodial Accounts. These are simply accounts managed by parents/guardians for a child while they are a minor. Contributing monthly to this account for your child can set them up well for their future! Additionally, you can have them contribute, and that way they don’t have access to spend this money until they are old enough to manage it. Custodial accounts can be savings or investment accounts. Investment accounts will have higher yields, traditionally, but are not insured by the bank. Savings accounts will have smaller interest rates, but don’t carry risk like an investment account does!