As a parent, you’d expect subjects like history, mathematics and science to be taught to your kids in school. The one subject which should actually be taught in school but is unfortunately not offered as a formal class is personal finance management. Surprisingly enough, even children as young as three years old can already grasp the concept of how to manage their funds – but it is something that you should teach them yourself at home.
Here, we will take a look at how you can teach kids about money depending on their age, and which top ten investment lessons you can impart to your children.
Start ‘Em Young: Teaching Kids about Money by Age
Before counting down the top ten investment lessons that you can teach your kids, let us first take a look at how you can develop their money management skills, according to age:
3 to 5 years old
Financial experts say that children as young as three years old can already grasp money-related concepts like saving and spending. The earlier you start teaching your kids about money, they deeper their foundational skills will be – something that they can use once they grow old. For kids aged three to five, the lesson that you should be highlighting is delayed gratification. Tell them that they would have to buy something they want, especially if it’s not necessarily a need.
When you’re buying a gift for a niece’s birthday, for example, and you need to bring your daughter to the store with you – tell her that your budget is only for the gift you’re going to buy. Just because you’re entering a store does not mean that your daughter will get something, especially if it is way beyond your budget. This is also the age when you can make money jars labelled Saving, Spending and Sharing.
If your daughter’s grandmother gives her money to buy candy, teach her to put it in the Saving jar instead – and when there are enough funds in there, she can actually use it to buy a toy.
6 to 10 years old
Making intelligent choices about how to spend money is the lesson that you should teach your kids at this age. Highlight the importance of being wise in making money-related decisions because once the dollars are spent on something, they’re gone.
When going grocery shopping with your son, explain to him why you’re choosing brand X instead of brand Y – because brand Y costs a lot less and the taste is pretty much the same. Or, you can give daughter $5 for two days’ worth of snacks at school so that she can experience how it is to handle her own money.
11 to 13 years old
At ages 11 to 13, kids can already grasp concepts like compound interest and understand the importance of setting long-term financial goals. For this, you can use apps that teach kids how to calculate compound interest rates, how to save a certain amount within a specific time frame, how to budget, etc.
14 to 18 years old
Your kids are almost off to college, and these are the most challenging years that you will all have financially. The best way for you to cope as a parent is to be with your child every step of the way. Make your kid realize that no matter how high tuition fees are at a college or university, the long-term results of the investment will be well worth it in the end.
18 years old and up
This age is all about college, and as a parent, you should not necessarily be sacrificing your retirement fund just to get your son or daughter the right education. There are many financial options available out there and if you got a good head start at saving up for college when your kid was just a few years old, then it should be easy for you to look for supplemental funds.
Top 10 Investment Lessons to Teach Kids
Next, here are the top ten investment lessons that parents can teach their kids:
1. The earlier your start investing, the better.
This is a lesson that you can impart to your kids, and live out as a rule for yourself. The earlier you start, investing, the better. With investment instruments that have compound interest, for example, the amount of time that you are putting in towards the investment will affect your return of investment.
You can start by getting your kids to put coins in money jars as early as three years old. Tweens and teens should be encouraged to save money to buy something they want, especially if it’s a luxury that is way out of the household budget. Teach them about delayed gratification and the importance of working hard for whatever it is that they want to achieve.
2. Investing is a way of getting your money to work for you.
Whether it’s a five or fifteen-year-old kid that you have, the number one rule that you need to teach them about money is that investing is a way to get money to work for them.
3. It’s important to prioritize.
If you’re a couple who is just starting a family, you should have no problems at all teaching your kids about the value of money through prioritization. Tell them that it is more important, right now, for you to be able to afford paying for a roof over your heads than buying your kid the latest gaming console or mobile phone. They should easily get the point of the lesson.
4. It’s important to build credit.
Your freshman kid can get pre-approved credit cards and give in to the temptation of spending money that they haven’t even earned yet. Before your son or daughter heads over to college, make sure to highlight the importance of building credit and managing debt. They would have a hard enough time as it is to pay for student loans later on, so unnecessary credit card spending should be a big no-no.
5. It’s important to live within your means.
For this, budgeting and prioritizing the things that need to be spent on are the lessons that you should be able to teach your kids. Use your life in the house as an example. Give your kid a glimpse at what the household budget looks like and help him or her create the same budget for a week’s worth of allowance. If the money does not allow for luxury items to be bought, tell your kid that there’s a need to work hard to get the extra things in life.
6. You should invest for the future.
Kids might not necessarily be thinking about retirement during their teenage years, but they will definitely look as far ahead as going to college or buying a house and a car. In order to achieve these immediate goals, they need to invest for the future – and this is where the money management skills will come in.
7. You should invest a small amount of money.
There are conservative investors and there are investors who are willing to take more risks. This is a trait that you can discover in older kids who can already understand the concept of risks when it comes to investing money. A good rule of thumb to follow is to not let them invest an amount which is more than what they’re comfortable with – a rule that you can also follow suit as a parent.
8. There’s magic in compound interest.
Next, why not explain to your kids the magic of compound interest? With a $10 bill that’s invested in a compound interest account, the amount will double in about every ten years. Essentially, saving over time is productive so the longer your money stays in a compound interest investment, the more it will earn.
9. Learn about the concept of college and retirement accounts.
Again, young kids may not necessarily think way in advance about retirement – but there will always be their college years to deal with. Is there a specific school that your kid has in mind for college?
If the tuition costs there are extremely high and you do not have that much college fund investments to start with, what’s the backup plan? Remind yourself that the same thing holds true for your retirement funds. The earlier you start saving up for it, the better off you will be financially during your golden years.
10. You should learn how to comparison shop.
Finally, being wise with spending is also a part of investing because this is where the money goes. When going grocery shopping, teach your kids how to look for lower-priced brands with almost the same quality as a pricier brand. When hiring a service, get different price quotations first and comparison shop. The same thing holds true when shopping for things online.
By teaching your kids these ten investment and money management lessons, they should be able to handle their own money well in the future.