One of the best gifts that we can give our children is the gift of a healthy financial foundation. From teaching them to spend wisely and adhere to a budget, to instilling the importance of charitable giving, to helping them save, the world of finance is vast and multifaceted, but one of the most important personal finance lessons we should be passing along to our children is investing.
Data from the latest Survey of Consumer Finances by the Federal Reserve showed that only 53% of all US families owned publicly traded stock in 2019. While fear stops many people from investing, most of the accompanying myths are largely false. Some of the most common myths include:
- Investing is a huge risk
- You will lose all of your money
- It’s too confusing and too time-consuming
- You have to be wealthy to invest
In fact, investing is not nearly as risky or difficult as people tend to believe. Sure, just as stocks can rise in value, they can also fall, but history has shown us that the stock market always bounces back. With just a small sum of money, some basic knowledge about how investments work, and an understanding of the terminology, anyone can invest successfully.
Here are four ways to introduce investing to your teen.
- Teach them to play the long game
First and foremost, investing should always be long-term, and it’s wise to teach this to kids from the very start. Stress that investing money will not make you rich overnight and that it’s important to instead focus on the slow and steady. Teach children the “buy and hold” approach to investing — a long-term passive strategy where investors buy stocks and hold them for a long period of time, regardless of short-term fluctuations — and share that in order to play the long game, it’s important to invest only money that they don’t need in the short term.
- Invest as a family
Involve your kids in family investments by including them in important discussions. Have them select companies that they are interested in investing in and discuss their reasoning, being sure to take into account their performance history. Share the importance of diversification and stress the risks associated with putting all of your eggs in one basket. Also consider inviting them to meetings with financial advisors. Sitting in on these types of conversations will help introduce them to real-life experience.
- Make it habitual
Oftentimes, the best way to learn is by doing. Consider gifting your children a small sum of money to celebrate a holiday or milestone and then helping them to invest it. Sure, they might make a mistake and lose some of the money, but they will gain priceless first-hand knowledge from the experience. As they continue to receive or earn money from relatives, summer jobs, etc., encourage them to get into the habit of investing a portion of it.
- Consider utilizing apps and resources
Increasingly, there are helpful resources that parents can introduce their children to for hands-on learning. Apps like BusyKid and Greenlight® were designed to help teach kids real life lessons in saving, sharing, spending, and investing money.
At The Humphreys Group, we know that your family is your priority, and helping you to set your children up for a strong financial future is one of ours. Continue the conversation with our team today!