How to Teach Your Child Investing
As a parent, you always want the best for your children. Though you are willing to do whatever it takes to ensure their success, it can often be challenging to figure what “the best” thing you can do to help them is. A common mistake among eager-to-help parents is that they assist their child in optimizing for the short run, while not providing them with any long-term, sustainable skills.
It is often best to follow the famous mantra, saying that “you can give a man/woman a fish, and you feed him/her for a day. Or you can teach a man/woman to fish, and you feed him/her for a lifetime.” In this frame, you will always be thinking of long-term value adds you can pass along to your children without compromising short-term helpfulness.
One of the most valuable, enduring assets you can imbue upon your child is the knowledge of investing. Even the most basic understanding of financial markets and stock investing will, over time, prove to be an extremely valuable resource. Though it can be intimidating, especially when you are not extremely familiar with the material yourself, teaching the fundamentals can be super simple.
Here are 5 actionable tips for teaching your child investing:
1. Keep things simple
Before diving into any of the technicalities of investing, you want to make sure you are talking in a vernacular that your child can understand. It is very easy, even as a parent, to get wrapped up in the financial jargon. Stick to the basics, and the basics only, to make sure your child is comprehending what you are teaching them about.
2. Let them explore for themselves
As a parent, it can feel like the right thing to do to assign a bunch of work and readings to your child to make sure they are getting all the right material. While this approach may turn out okay, it is often best to simply pique your child’s curiosity and give them the tools necessary to go on a journey of their own.
Realize that your child will only go on to learn about investing, or any other subject for that matter, if they are intellectually curious about it. You can only give them so much information before their mind goes into the do-not-disturb mode. So rather than pile on the coursework, allow them to explore the world of finance and investing for themselves.
Luckily, there are so many different emerging areas of the financial world. From uncovering a guide for finding the best bitcoin exchange to unearthing markets in developing countries, there are infinite places for your child to look!
3. Start with understanding risk
A foundational component of any financial market is the basic components of the risk and return model. Risk drives returns, and investors are compensated for taking the appropriate risk on investments. In other words, make sure they realize there are no riskless, get rich quick schemes available on the market.
An elementary mistake you can make, as a parent, is give a sense of false confidence to your child. Investing is hard, as it should be! If it were easy, everyone would be extremely wealthy. Drilling down on this notion of risk will establish a sense of seriousness and respect that your child should always bring with them when approaching the world of finance. This nuanced, powerful understanding is extremely impactful for your kids view of investing.
4. Use lots of graphs, pictures, and videos
While finance and investing are all about numbers, there is often nothing more clarifying than a simple picture describing a situation. Many children are visual learners, so it is important you play to their strengths. There are a ton of different educational resources available freely online that you can use to teach your child everything from the fundamentals to advanced topics.
Furthermore, there are many excellent video series, produced by different universities, that go over everything your child would need to know about investing. Many of these digital courses are available for a very low price or are often even free to consume.
5. Use a simulator
Learning investing in real money is not only intimidating but also can be very costly. Rather than play with real capital, use a stock investing simulator. Simulators are free to use and, as they are called, simulate the real process of investing in the financial market. Your child can easily try out the software, invest in different types of assets and watch their stocks rise (or fall). There are a wide variety of simulators on the market that offer everything from simplistic to advanced viewports for your child to try out.
This is a riskless way to get the vibe of what real investing is like, without having to worry about capital losses. Once they are ready for “the real thing,” it is very easy to help them onboard into a fresh, live account.
We hope you enjoyed this promoted piece as much as we did!