Some of the most powerful men in the world began investing when they were just kids. Warren Buffett bought his first stock (with his own money) when he was 7 or 8 years old. By investing, he quickly became interested in how the economy and the investment market worked. Why does a stock go up or down? How could he benefit from something that he believed would happen in the future? By getting your children interested in the compounding nature of money, they too could become the most powerful men and women in the world. So how can you start instilling this in your children? How can you get them interested in investing?
Use the Interests That They Have Already
Kids are natural balls of energy. They can do 50 different things in one day and still be bouncing off the wall. So, when kids are very young, they begin to understand their likes and dislikes all by themselves. Some kids are fascinated with video games, others enjoy shooting baskets outside, and there are some that enjoy curling up on the couch reading a mystery book that they recently picked up from the library.
There are very few kids that will naturally ask you about the stock market and how they can invest their $20 to grow and compound over time. This just isn’t going to happen. However, you can use their natural interests to teach them a little bit about investing and growing their money (which could then buy them more of their favorite things perhaps – instead of putting their hand out and asking you for money all the time).
Alright, so let’s say that your kid is interested in a Spiderman video game. It is his absolute favorite. If you would let him play it every day for a week, he would definitely take you up on the offer. When you are ready to teach this child about the world of investing, use this game to your advantage. Sit them down and tell them you are going to teach them how to be rich in the future. Through investing, they will be able to buy all the things they always wanted. It takes some time, but by investing, they will be able to afford many toys, bikes, cars, and maybe even houses (or whatever it is that they are excited about). Their eyes might get big and they will no doubt ask you how they can make all this money. You tell them that by investing in companies, they can earn money, which will then earn them more money.
To show them how this works, pick up that favorite video game of theirs and ask them where that game comes from. Ultimately, this game is likely made by Mattel. You can then explain what the Mattel company does and how they allow people to invest money into their company. Then, let your child know that you will pay them money for doing some chores so that they can invest money into this company, which you will then watch over a period of weeks, months, and years.
Give Them Some Power
In order for children to learn, you have to allow them to make some mistakes along the way (heck, that’s how we all learn best). Without a doubt, your child is going to want to sell some stocks and use the money the buy gumballs or something. Let them (to a reasonable extent anyway), but continue to track what their initial investment would be worth had they left that money in the market. If the stock price jumps 5 points in a day, show them the report and let them know that they would have a ton of money today if they would have left their money invested.
If they want to sell some stock and invest their money in another company, let them. Teach them about transaction costs along the way and show them how much that new company value is going to have to go up for them to recoup those transaction cost “losses”. When kids realizing that you are actually allowing them to make their own decisions in the “adult market”, they will feel incredibly responsible and adult themselves. They will want to make the right decisions and make you proud of them.
By allowing your children to invest their money, you might just be developing a very powerful and wealthy individual in the not-so-distant future.
Will you let your kids invest their money?