Teaching our children about personal finance is crucial in setting them up for a financially stable future. This includes guiding them on wise spending habits, budgeting, charitable giving, and saving. Investing is also a particularly important aspect of personal finance that we should be passing down to our children. It may seem overwhelming, but it's an important lesson that can benefit them in the long run.
In 2019, data from the Survey of Consumer Finances by the Federal Reserve indicated that only 53% of US families owned publicly traded stock. While fear stops many people from investing, most of the accompanying myths are false. Some of these myths include:
- You must be wealthy to invest
- You will lose all your money
- Investing is a huge risk
- It's too confusing and too time-consuming
Contrary to popular belief, investing is not as risky or difficult as many people think. Although there is a possibility for stocks to decrease in value, historical data has shown that the stock market always recovers. With some basic knowledge about how investments work, an understanding of the terminology, and just a small sum of money, anyone can invest successfully.
Here are four ways to introduce investing to your teen.
1. Invest as a family
You can get your children involved in family investments by including them in important discussions. Have them pick out companies that they are interested in investing in and talk about their reasoning, being sure to consider the company's performance history. Share the importance of diversification and stress the risks associated with putting all your eggs in one basket. Also, consider letting them come to any meetings with your financial advisors. Sitting in on these types of discussions will help give them some real-life experience.
2. Teach them to play the long game
It's wise to teach kids that first and foremost, investing should always be long-term. Stress to them that investing will not make them rich overnight and have them focus on the slow and steady. Teach kids the “buy and hold” approach to investing — a long-term passive strategy where investors buy stocks and hold them for a long period of time, regardless of short-term fluctuations — and share that in order to play the long game, it's important to invest only money that they don’t need in the short term.
3. Consider utilizing apps and resources
More and more today, there are helpful resources that parents can introduce their children to for hands-on learning. Apps like BusyKid and Greenlight® were designed to help teach kids real-life lessons in saving, sharing, spending, and investing money.
4. Make it habitual
Oftentimes, the best way to learn is by doing. One idea is to give your children a small amount of money to mark a special occasion or achievement, and then guide them in investing it. While there is always the possibility of making a mistake and losing some of the money, the experience will provide valuable first-hand knowledge. As they continue to receive or earn money from relatives, summer jobs, etc., encourage them to get into the habit of investing a portion of it.
At Moscaret Investment Advisory, I know that your family is your priority, and helping you to set your children up for a strong financial future is one of mine. If you would like to continue the conversation, reach out to me today.