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Last year it seemed as if the stock market could only go in one direction – up. However, 2018 has undoubtedly become the year of risk as volatility returned to the market with a vengeance. As parents, this uncertainty represents an opportunity to teach your children not only about the value of money but also the importance of knowing how to invest.
But investing can be difficult to understand – even for adults. A big reason for this is the variety of options. These include run of the mill treasury bonds, stocks, and index funds as well as more exotic instruments such as municipal bonds, emerging market funds, forex, and even cryptocurrencies like Bitcoin. And we haven’t even gotten into real estate and private equity.
As you can see there is no shortage of choices, but how can you get your kids to take an interest in the stock market? Well, this article will give you some pointers to ensure your kids are on the road to financial independence for the rest of their lives.
Teach Your Kids to Value Money
It might be unfair, but kids have no memory of the days before the internet. Back when everyone needed to pile into the family car to go shopping and when movies were watched in a theater and not in the palm of one’s hand.
One unfortunate aspect of these developments is that many kids don’t appreciate the value of money. Sure, as a parent you are working harder than ever but for kids, they have come to take everything we have in life today for granted.
This creates a challenge as the first step to becoming a successful investor in the stock market is to appreciate the value of money. As Kenny Rogers famously sang, “you’ve got to know when to fold ‘em and know when to hold ‘em.” While this song was about a gambler the lesson applies to investors as they must keep their head even when the rest of the market is losing theirs.
Set Up a Site Where They Can Learn About Investing
Let’s face it, today’s kids are digital natives and when it comes to investing one of the best ways to get them to learn is to either find online tools geared towards them or to set up a set on your own.
If you choose the latter, then the good news is that you don’t need to reinvent the wheel. In fact, you can easily set up a site with a WordPress Child Theme. While the goal of this site would be to teach your kids about investing, you could also give your kids the opportunity to take over management of the site.
This is because websites with a child theme inherent their attributes from a “parent” and as such your kids can manage the website without your worrying that they have overwritten key parts of the site. Another benefit of this approach is that your kids can use the site to teach others as well and this could easily turn into an opportunity to share their enthusiasm about investing.
Get Your Kid a Brokerage Account
Sure, they are minors and they won’t be able to execute trades on their own. However, several brokerages offer self-directed accounts, and this is a great way to allow your kids to research stocks and then execute trades under your supervision.
Doing so, not only helps you to guide your kids through the process but it will make investing a family affair. Beyond this mentoring, it will also give your kids an opportunity to see first hand the impact of their investment decisions and this will reap massive benefits later in life.
Start Small and Build from There
The last thing you want your kids to do is to act like a hedge fund manager; after all, they are not day traders trying to make a quick buck. Instead, you want to reinforce investment behaviors which will serve them well in the future.
This includes starting small and building from there. One way to make this happen is to steer your kids towards low-cost index funds as they will yield stable returns without the risk and costs associated with constantly executing trades.
Another way to start small is to teach your kids how to properly develop an asset allocation strategy. This is important as the common misconception is that younger investors can take risks. However, this is not the case as tweens and teens need to be just as cautious as older investors – sure, they want returns, but they also need to ensure they have some of the funds needed to pay for college.
Make it Fun
Remember, what goes up will come down. As such, the key to being a successful investor is to not get too tied up emotionally – risk is part of the game but you don’t want it to lead to ruin. When it comes to interesting your kids in the stock market, make it fun and they will stick with it no matter what the market is doing.
