There’s no better time to learn about investing than at an early age. The earlier the better!
Although investing is not rocket science, a solid foundation can go a long way. It’s important to educate your children about the pros and cons of investing so that they can determine what role investing will play in their lives. Plus, educating kids about investing is an excellent opportunity to spend some quality time together, while supplementing financial information your children are learning elsewhere.
But where to begin when trying to teach a child about investing? The investing universe, after all, is huge, and, most likely, the youngster doesn’t even know what a stock or bond is! The best place to begin is at the beginning, and you can do that with these six tools:
Statements from Your Brokerage House
If you do some investing of your own, you probably receive a monthly statement that provides you with an overview of your account(s). Take some time to sit down with your child to browse the statement.
You don’t have to go too in depth, but this can serve as a good cursory overview of different types of investments such as stocks, bonds, certificates of deposit. Plus, you can check out together whether you’ve lost or gained money in various types of investments.
The Internet holds a variety of interactive resources for beginner investors. You can look up the definitions of investing terms on various web sites such as Investopedia, or take advantage of the web site of your brokerage institution or regulatory bodies such as the New York Stock Exchange or Securities and Exchange Commission.
Many of these websites offer educational materials designed for middle school and high school students. The NYSE website even includes a poster-size explanation of stock tables.
Mock Investment Accounts
If you don’t feel your child is ready to take the plunge by investing cold, hard cash, there’s nothing wrong with opening a mock account online. These programs simulate the investing process, often with real-time stock and bond information.
Just search Google for “mock investing account” to start one of these fun programs. These accounts are a great way for a child to learn about the ins and outs of investing first hand. It’s an especially great way to teach them how easy it is to lose money with poor investments!
If your child seems interested in investing, give him or her some money to invest – maybe in place of another gift for a birthday or holiday gift. That way, you can let your child choose where to make a small investment, and watch with excitement as the money (hopefully!) grows.
Try purchasing a few shares or fractional shares of stock through ShareBuilder. Some mutual funds, like Monetta Young Investor, have very low minimum investments. Children’s accounts can be opened for as little as a $100 deposit and a $25 automatic monthly investment or a one-time $1,000 deposit. As a bonus, young investors get a kit full of helpful educational materials.
Introduce Kids to Your Stock Broker
If you work with a “brick and mortar” stock broker, it might be a great idea to introduce your child to your stock broker. Not only will the youngster see what a stock broker does first hand, but he/she can see the computer trading system that the broker uses to execute trades.
This may serve to get the child closer to the actual source and become more excited about the prospect of investing. Certainly, the broker will be able to impart some tried and true investing tips that will help get the youngster on his/her way.
Use the Data
Finally, if your child seems to want to take the more quantitative approach to learning and already has a small knowledge foundation, a copy of the 2011 Stock Trader’s Almanac — a calendar filled with historical trading data, notable moments in the markets, and much more — might be very helpful!
The key is to start early. By the time these youngsters become young adults, the sky is the limit!
Published or updated April 3, 2013.