How to Teach Your Child About Investing
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Since there is no subject in school that teaches financial literacy, it is our job as future parents to teach our children the importance of investing at a young age. While most adults now do not understand basic finance themselves, this can be a scary task for most parents. Fortunately for you, you do not have to go to a hedge fund to learn about investing. And most importantly, you do not have to be an expert in investing in teaching your kids. This article will give you some tips to teach the basics of investing for your kids as early as Kindergarten.
- Set Expectations
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Since we are not trying to teach our kid to be the next Warren Buffet, we should not set too high of an expectation for your child since it puts way too much pressure on both you and your son/daughter. Investing can get very daunting quickly, so keep it simple that a kindergarten student could understand.
2. Start With A Savings Account
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We can illustrate this as you should crawl before you walk – savings always comes first before investing. If they do not have a savings account right now, you should open it together at your local bank. After making this account, you should encourage them to put the money they earn into that savings account. Also, show them the interest rate and use a calculator to illustrate how their money can make money over time without doing anything.
3. Explain What Investing is
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Investing can be put as a means of spending money to make more money in the future. The easiest way to see this is by looking at their savings account, which makes a small percentage annually. Then explain to them another way to invest their money is by purchasing stocks. Here I will give you a simple script that you can use. “You know all that gadget that you have used in the past? They were all made by a certain company in silicon valley called Apple. Apple needs money to make all of those gadgets. One way they can get this money is through selling their stock.”
Your child may ask what a stock is? You can tell them that a stock is a piece of paper representing ownership of that company. Each stock is worth a certain percentage of the company according to the amount of money you invested. For example, if a company has 100 shares, then each share of stock represents 1% of the company. If you own one share, then you own 1% of that company.
References:
https://abisgajian.id/article/mau-mengajari-anak-investasi-lakukan-dengan-7-cara-ini
https://www.investopedia.com/articles/pf/07/childinvestor.asp#the-bottom-line
https://www.fool.com/investing/2021/03/26/how-to-teach-your-kids-about-investing/
Image Sources:
https://www.pexels.com/photo/teacher-asking-a-question-to-the-class-5212345/
https://www.pexels.com/photo/man-in-black-suit-holding-dollar-bills-3831181/
https://www.pexels.com/photo/mother-giving-her-daughter-her-allowance-4968395/
https://www.pexels.com/photo/blue-and-yellow-graph-on-stock-market-monitor-159888/