Teaching a child the basics about what investing is about might be tough at first, but finding ways to make the subject accessible to kids can help them understand it.
First, start talking with your child about investing sooner rather than later. Many parents find it awkward to discuss stock investing with young children because some parents don’t feel confident about their ability to do research. But what I’ve discovered is that the discussion with young children helps less-confident parents become better stock investors. The conversation also raises the bar for parents and children who are willing to learn.
Although there are several milestones along the way, the adventure with your child begins with four steps:
1. Build excitement. Creating passion around the process of investing is important. Begin by talking with your child about brand loyalties, which start at an early age. When I was young, I remember driving my parents crazy with my demands for the latest Hot Wheels car or G.I. Joe action figure. And I would eat only Kellogg’s Frosted Flakes, not the store brand.
What product is your child passionate about?
Create short-term activities to build interest and set a deadline for completion. For example, have your child keep a journal of the products and services she likes or uses. Then, have her track the price of those items online or at local stores. Remind your child that the family is excited to hear about her research and plan a family meeting to talk about it.
One family created a big event around the journals. The children selected their own notebooks and personalized them with money-related stickers. The kids paid for the supplies out of their own allowances, which created a stronger connection to the project.
2. Plan a family discussion. After your child shares her research journal at a family gathering, expand the discussion to include the products and services your family purchases or uses each week. From soap to shoes, batteries to bandages, everything is open for investigation and nothing is off-limits as your child builds a research list.
3. Watch what you say. I’ll never forget when my uncle, who was a specialist on the floor of the New York Stock Exchange, explained how I had the ability to own part of a large company. I was hooked: How could a poor kid from Brooklyn own a piece of McDonald’s?
The language used around stock investing is important to help your child gain a healthy perspective and a sense of pride in her selection and in the investment experience. The phrase “buying a stock” is confusing when compared with “ownership in a company,” which is what you’re trying to help your child embrace.
The concept of “stock” is difficult for a young child to comprehend, so it’s best to keep the language simple. If you use words to connect ownership to investing, this helps create a long-term investor mindset. You don’t want your child to focus only on stock-price movement; it’s best to provide perspective, which helps her build discipline by focusing on the long-term value of a business.
4. Talk about sales. It’s a good idea to introduce one simple concept before you begin specific stock-research homework. I’ve found kids relate well to the concept of sales. Whether you’re talking about Girl Scouts cookie sales or school-related fund drives, children have the uncanny ability to understand that sales lead to personal reward. It’s the same for businesses. Generally, the more goods or services sold, the more favorable it is to the stock price.
You don’t need to work through these initial four steps alone. Partner with a financial advisor to help guide the discussion or use books, apps and other resources to jump-start the process.
“Growing Money: A Complete Investing Guide for Kids,” by Gail Karlitz and Debbie Honig is an easy-to-understand book for children ages 8-12. Other options include NerdWallet’s seven great money apps for kids, including my favorites: Virtual Piggy and Bee Farming.
You don’t need to wait for verbal cues from your child to begin talking about investing. You can start a dialogue earlier than you think.
In the next report, I’ll take the investing discussion to the next stage. Until then, begin the conversation, start the journal and ignite your child’s passion for investing. Your child will never forget.