|
 Investing for Kids is a pretty popular topic for two reasons. First, there are lots of parents trying to teach their kids about the value of money. Second, the kids themselves are looking for the investing information. That's good new because teaching kids how to invest is a lesson that will last them a lifetime.
Allowance Money for Kids
Children learn the value of money very early in life. They learn this at the store when a parent tells them that three pennies are not enough to buy a new toy that costs $20. The interesting thing about kids is that they are quick learners and by the end of first grade most are pretty good at recognizing and even counting money.
If you are serious about teaching your child to invest, then you should consider giving them money so that it is a little more "real" to them - this means a weekly allowance. Some parents like to set up rules for an allowance - kids may need to do chores to be eligible each week. That is a parenting decision.
Here we are talking about teaching kids about investing and a good rule of thumb for a child's weekly allowance would be one dollar for each year of age, starting around the age of six. If you start an allowance before age six your child may not understand the concepts of money itself or of its value.
Budgets for Kids
Once you've started giving your child a weekly allowance, the next step is to make sure that they actually save some of that money. If you child is only six years old, that's pretty easy because they are probably more excited about the thought of saving money then spending it. But this love of saving will quickly change to the need to spend the money so at some point a budget becomes a necessity.
Remember, the end game is to provide your kids with enough guidance so they can start investing their own money. To make that a reality, then they need to learn to save some money first. A child's budget can be pretty simple, after all they don't have to worry about a mortgage payment or utility bills. The best way to budget for kids is to set aside a certain amount of the weekly allowance. So the budget might be something like this - your child needs to save at least 25 - 50% of their weekly allowance each month.
Bank Accounts for Kids
You can make sure that your kids are saving their money by opening up a savings account at a local bank. If you start giving your kids an allowance early in life, then they will save a sizable amount pretty quickly. By the time they show some interest in investing, your kids should have enough money in their bank accounts to start a small investment portfolio of their own.
How to Get Kids Interested in Investing
Remember, our end game is really to get our children interested in investing, or those that are already interested in investing to help them to get started investing their own money - not yours. So to summarize what we've accomplished so far:
- We've provided our kids with an age-appropriate weekly allowance.
- We've set guidelines for monthly savings using the simple concept of a budget.
- We've opened up a bank account for our children so that they can watch their money grow and also start to understand the concept of return on investment.
Now all we have to do is wait because we've provided them with a good foundation and as the money in their account starts to grow, we can slowly introduce more complex concepts of investing.
Investing Words for Kids
Many things seem to come naturally to children; unfortunately the importance of the capital structure of a Fortune 500 company is not something that comes naturally. Giving them money for their allowance may have been painful but it was pretty simple to do - just reach inside your wallet. But as they journey down the investing road, you are going to have to start to teach them about investing concepts and some of the words they might hear or read.
We've put together an investing dictionary, but may of the terms there might be too much for kids just starting down the investing road. Here is a short list of investing terms that you might want to consider talking over with your child including links to their definitions:
Investing Games for Kids
There is no doubt that kids love to play games and investing games are no exception. Before they invest real money in stocks or while they are waiting for their bank accounts to grow, kids can play investing games. There are many websites that allow registered users to create "pretend" portfolios.
We've covered this topic pretty thoroughly in our article on stock market games, which contains names of both board games as well as online websites offering investing simulation games.
As a parent, you should always consider pre-screening these sites for your kids and creating an account along with your child. Most websites consider investing an adult game and you might want to make sure the advertising materials they are exposed to are appropriate.
Investing Articles for Kids
After you've gone over some of the investing words that older kids might read about, the next step is to find some investing articles that they understand. We've put together at least three articles that might help to give them some ideas:
- Investing for Dummies - A good starting place that covers the basics we have put together on investing.
- Stocks for Dummies - Another good starting place for kids interested in investing in stocks. That article covers both how to go about researching stocks and how to find a broker.
- Investing in Mutual Funds - If your kids are considering investing in mutual funds, this is a good place to start their research.
Stock Portfolios for Kids
When your kids are ready to start investing their money in stocks, you can take one of two approaches. If you've read our articles on mutual funds before then you probably understand our standard warning about market risk and the risks associated with an individual company.
If you're going to create a portfolio of stocks, then you really need around $40,000 to do this efficiently ($40 / share x 100 shares x 10 companies). Chances are that many kids will not have enough money to create to efficiently create a portfolio of stocks. So you really have two choices:
- Allow your children to create their own stock portfolios anyway - even if it's inefficient. Since this is a lesson in investing, you might want to consider having them assemble a portfolio even though they might be paying higher commissions and fees.
- Take advantage of the benefits of mutual fund investing. It is very likely that the total returns on a mutual fund will be higher than that of an inefficient portfolio. You can still get your kids involved by having them figure out which mutual fund to invest in and they can follow the progress of some of the stocks in the mutual fund portfolio.
Having Fun Investing with Kids
Finally, the most important lesson you can teach your kids is to have fun. Yes, investing is serious business. But if you take all of the fun out of it, then your kids are likely to resist getting involved, or staying involved, and that defeats the purpose of teaching them this important lesson. If you make it fun, then they are likely to think back on this lesson with a smile on their face - and that is what is important in life.
About the Author - Investing for Kids
Copyright © 2005 - 2007 Money-Zine.com
Investing Resources on the Web |
Home 
