Talking to kids about investing: bite-sized lessons for every age
Getting started with investing can be daunting no matter how old you are. If you’ve never done it before it can seem complicated and out of reach. During my college years and early 20s, I assumed investing was something I would figure out when I was older or that I needed a certain amount of money before it would even make a difference. I wish I knew then what I know now.
If you want to teach kids about the power of investing, it has to start with the end goal, which is long-term growth. The key is explaining the idea that if you put money aside now it can become even more money later. This is the definition of delayed gratification. You may be familiar with the famous Stanford marshmallow experiment, which was among the first of many studies to link a child’s ability to delay a reward with more success and competence in adulthood.
Another reason why talking to kids about investing is so important is that it will make those first steps into adulthood a little more familiar. Early adulthood is a time when your money can realize the biggest gains from the magic that is compound growth. To put this into perspective, every $1 invested in your 20s can grow to $55-$85 by the time you’re 65. Unfortunately, many young adults do not have the foundational knowledge of the investment industry or the confidence to take advantage of it.
If you want to get your kids on a path toward investing confidence but aren’t sure where to start, check out my age-based suggestions below and you can make investing a topic of conversation in your family for years to come.
3-6 year olds: building the foundation
For this age group it’s all about laying the groundwork. Whether you want to try to replicate the marshmallow experiment just for fun or apply the concept in other ways, the key is encouraging kids to make a small sacrifice in the short-term for a bigger reward later. This doesn’t have to be limited to sweet treats! I do this occasionally with my kids and screen time (a true commodity in our house). If the kids are asking for time on their devices, I ask if they’d be willing to give up their screen time now in order to get extra screen time over the weekend, or at a later time that’s more convenient with the family’s schedule.
The key is to make it clear that they can choose to give up something they want now in order to get a bigger reward later.
How powerful can this be? Every $1 invested for your child at this age can grow to $400-$500 when they are 65.
7-10 year olds: teaching the basics
Kids in this age range can start to understand the basics of the stock market. A company sells goods or services and a stock is ownership in part of a company. If your child has an idea for his or her own business you can help them by investing in their company but also sharing in the profits just like a stockholder would.
Let’s say, for example, they want to set up a lemonade stand or sell friendship bracelets. Give them $10 to get started and to help buy the supplies, but explain that at the end of the day they will have to pay you back a portion of the profits (dividends!)
How powerful can this be? Every $1 invested for your child at this age can grow to $240-$330 when they are 65.
11-14 year olds: Modeling and collaborating
In the middle school years, kids are starting to pursue their passions and pay attention to brand names. This is a great opportunity to connect their interests to the actual companies that provide those products. Do your kids like the Marvel franchise? Start a conversation about Disney and all of the different brands that fall under the Disney umbrella like Pixar, ESPN, and Lucasfilms.
You don’t have to get them actively investing with real money yet, but even the simple exercise of picking a few companies to follow for a period of time or even adding those ticker symbols to a watch list can pique their interest and get them familiar with understanding how companies are valued. You can even make it a game for the whole family and see whose stock performs the best over the course of a month or two.
How powerful can this be? Every $1 invested for your child at this age can grow to $160-$220 when they are 65.
15 and up: Experiencing it themselves (with your help!)
By high school, kids are old enough to start working, which means they are old enough to start saving and investing. One of the best places to start is with a custodial Roth IRA. So long as your child has some form of earned income, which can be from a real job with a W-2 or small side businesses like babysitting and mowing lawns, they are eligible to contribute to an IRA (just be aware that this also means they will have to file a tax return, but the taxes due are likely to be low if not zero).
The great thing about custodial IRAs is that parents or other family members can also make direct contributions as a gift. Another option is to offer your own incentive program to your kids by matching a certain percent of their savings to really make an impact on the long-term growth potential. Because an IRA can be invested in almost any type of asset, this is an opportunity to make those investment decisions together while still letting your kids perform the actual trades.
How powerful can this be? Every $1 invested for your child at this age can grow up to $150 when they are 65.
What’s the takeaway?
If you want your kids to graduate from the piggy bank and build real financial confidence, it’s never too early to start. Talking about money and investing can happen at any age and the sooner you get them started, the more growth (personally and financially) they will see.