Basic Investing Principles to Teach Kids
Once kids understand the basics of earning, saving and spending, introducing them early to the concepts of investing is beneficial, and often overlooked. My brother and I bought our first shares when we were 10 years old. We invested $500 and whilst the shares didn't do particularly well, it meant that each day we were checking the stock market for share prices, seeing if there were any articles in the newspaper about our share and we got to understand how the share market worked. What’s more, we weren't afraid of it when we wanted to invest later in life.
Investing in its simplest form is reward for risk. Most commonly the higher the risk the higher the reward. Knowing how much you are willing to risk is something you have to understand and be comfortable with. This is an important part of becoming an adult and can also help children to understand the risks associated with gambling. At the low risk end of the spectrum, encouraging kids to put money in interest bearing accounts shows them they can earn a reward for keeping money at the bank. Encouraging them to paper trade with the sharemarket again is another way to show them how the sharemarket works as well as its volatility. To paper trade, ask your kids to choose 5 shares that they like or know something about. Pretend they have $10,000 or $2,000 per share to invest. Buy the shares on paper equalling as close to the $2,000 as possible. Get them to monitor their shares at the end of each week and report on whether they are making money or losing money. You can even get them to research why – is it because of the share itself or because of the market? After 3 months, 6 months or even 12 months, see what the shares are worth and why the outcome was the way it is. This costs nothing but gives kids an insight into shares. Property is another one to discuss. Explain to them the cost of property and what it means to rent and earn money for property or explain that over time you can get more money for your property than what you originally paid for it as housing market prices have risen, or that you can lose money if the housing market declines. Just like shares, buying in certain areas is more volatile than others. There are many other investment vehicles, but it is best to seek financial advice for your particular situation if you are looking to invest. Here, I wanted to raise that the concepts of investing are something worth teaching. |
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