Loved.com - Money for the Next Generation

How to teach kids to invest

By Nick Nolan January 18, 2021

How to teach kids to invest

Teaching kids to invest

As your kids grow up, understanding how money works will benefit them for the rest of their life. It’s best to start teaching them the basics of money, investing, saving, and spending early on. These can be difficult concepts for kids to grasp, so start with a few basic ideas.

Your kids don’t need to be experts on everything, but you can build a healthy foundation and form healthy money habits.

Today we’ll share some ways to explain investing to your children, teach them the importance of money, and help them start investing.

How to explain stocks to a child

Most people have a foundational understanding of the stock market, but understanding the ins and outs of investing is complex. That can make it challenging to explain buying stocks to your children. When your kids understand what it means to buy and sell stocks, they are more interested in learning and being involved in the process.

Teaching your kids about stock trading will set them up for a successful financial future. Your goal should be to help them understand the basics of investing to make educated decisions as they grow up.

What exactly are stocks?

A stock is essentially a tiny piece of a big company. The concept of buying stocks can be difficult to imagine because you won’t get a call from the CEO when you buy a stock or share in a company. As of September 30, 2020, there were 17.5 billion shares of stock owned by Apple shareholders. Even if you purchased 1,000 shares of Apple stock, you wouldn’t be anywhere close to owning 1% of the company.

To explain this concept to your kids, we recommend using a visual or story. You can think of buying a stock as owning a single Lego piece. You can’t do much with the single piece, but it’s one part of a giant Lego creation. There are hundreds of different pieces; some are bigger than others, and there are tons of different shapes and colors. You can think of one share of stock as a single Lego, which can help explain the importance of a diverse portfolio of stocks.

You can also think of stocks as trees in a big forest. There are hundreds of different trees of varying sizes, colors, and fruits. Buying a stock is like buying a tree in the middle of a big forest. Your kids can watch their investments grow over time, and they’ll enjoy the fruit of their investments as they get older.

Teaching your kids about money

Investing is just one vital part of financial health. You should also be teaching your kids how to earn, save, and spend their money wisely. Teaching your kids about money early on will benefit them for the rest of their life.

A great way to teach your kids about money is to help them start earning money. This will teach your children about the value of money and the hard work that’s required to earn it. You can begin with chores around the house and a weekly allowance, or check out our list of 10 first jobs kids can start doing.

Next, you can teach your kids about saving and investing their newly earned money. Of course, you should allow them to spend some of it doing something they love or buying a new toy or game. Because your kids don’t have any expenses or bills to pay, they should be saving most of the money they earn.

Remind your kids that they should have a big goal in mind, whether it’s a car, house, or a college degree. Reaching those big goals will take patience and consistency, but the reward will be much greater than spending money on candy or a game they play for a few weeks.

Setting up an investment account for your children can help because they can see the growth, and there’s less temptation to make impulse purchases. Having a piggy bank full of cash on their bookshelf makes it difficult not to spend on something they really want. Make sure to explain that they won’t be able to buy everything they want. Saving and investing is the best way to reach their big goals like buying a house.

Can kids invest in the stock market?

In general, investing apps and brokers require you to be at least 18 before opening an investment account. There are a few different options that allow younger people to make some investing decisions.

To help your kids start investing, we offer a custodial account. Anyone over 18 can open a custodial account for a child, whether that’s their parent, uncle, aunt, or grandparent. Once the account is opened, you can let any friend or family member contribute to your account. Your kids can have their own unique login to monitor the performance and celebrate when they reach their investment goals. Their access is secured for your account's protection so they can’t transfer money or place trades.

A Loved custodial account gives you the chance to save and invest for your child’s future, and at the same time, choose investments in things you’re familiar with. You and your kids can decide together which companies you want to invest in, whether it’s Apple, Disney, Facebook, Berkshire Hathaway, or a variety of futuristic tech companies. There are plenty of options for you and your kids to choose from.

Custodial accounts can also be called Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts. UTMAs are the accounts we use for Loved because they offer more flexible investment options than a UGMA, providing you with the most benefits.

While your kids can’t do all of the investing on their own, opening a Loved Custodial Account can help get them involved, provide a great visual and learning opportunity. Open a Loved Account today to help your kids set goals and build a portfolio of the companies that reflect their future.

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