How to Explain Investing to a Child [Create Child Investors]
If you want your child to be financially responsible, then talking to them about investments is an important step. It can seem intimidating at first, but learning how to explain investing to a child doesn’t have to be complicated or difficult.
With enough exposure and explanation, you can equip them with the financial literacy they need for adult life. This means understanding things like: - The stock market - How to think about companies as investments - What risk you take on by investing - Where to get the funds to start investing
1. Include Kids in Financial Conversations
Kids learn best with examples. When sharing information about your personal finances, you don’t necessarily need to share actual numbers, though your illustrations should entail sharing financial concepts with your values around money.
2. Talk About Stocks and Bonds
Start first by explaining the value of a stock can go up and down, and this depends on a number of factors. Most importantly, a stock’s performance depends on its growth prospects and its profitability.
3. Start with a Savings Account Before an Investment Account
A child’s financial journey begins with saving money, but investment is the next step. You should tell your children the difference between saving and investing, and what risks and rewards to expect from each.
4. Teaching Your Kids Money Management with Stories
You can describe your own savings and investment ideas to children and explain why you’re saving, whether for short- or long-term wants and needs.
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