Any day is a good day to start teaching children about saving and investing — but the sooner you begin the better.
As a parent there are steps you can take to teach children to save and plan for the future. Here are a few suggestions:
Explain the “three pools” concept. Encourage your children to divide their money into three pools: one for saving, one for spending and one for giving. The “spending” pool should be for fairly inexpensive purchases, such as small toys, whereas the “saving” pool should be earmarked for bigger purchases they may want to eventually make, such as video games or a new bicycle. You may want to suggest that your children use the “giving” pool to put aside money for birthday presents or contributions to charitable groups.
Exhibit appropriate behavior. Children may learn best by imitating their elders, so it’s important that you set a good example in the area of smart financial behavior. Take the time to explain to your children that, for instance, you’d like to buy a new car, but you can’t afford one now, so you are saving up for it. And look for similar opportunities to stress the connections between saving and reaching goals.
Simplify the concept of investing. You might think that young children can’t grasp the meaning of investing, but that’s not really the case. Just use simple terms and concepts, and they’ll get it. You might say: “Anyone can buy little parts of a company. These little parts are called stocks, and the more that people like what the company makes, the more stock they will buy, and the more the stocks have the potential to be worth.” You can then connect the potential growth of stocks with the achievement of very long-term goals, such as a new home or the chance to retire comfortably.
Make investing fun. You can make investing seem more real to your kids by playing a “stock-picking” game. Each member of your family could choose to follow the stock of a company with which the kids are familiar. You can create a daily chart of the stock’s prices, and at the end of a given period of time, such as three months, award a prize to the person whose stock has gone up the most. During this time, make sure to point out to your kids that stock prices will always go up and down and, in as “child-friendly” a way as possible, try to explain some of the key factors - demand for products, competition, basic economic forces - that cause stock prices to fluctuate.
If you have started an education savings account for your kids, share that with them and show them the progress. Explain why you are setting aside this money for them now. This can help them learn about investing while also reinforcing the importance of an education.
Children love to learn - so make sure they are learning valuable financial lessons. The benefits can stick with them for a lifetime. b