When it comes to investment lessons, it’s never too early to start. You might have realized it yourself as you grow older that saving for your retirement is not as easy as you’d expected. If you already have kids, it’s time you start teaching them about investing in the real world but in methods they will understand. This will empower them with practical knowledge about saving, ensuring that they don’t struggle as much as many adults do today in investing for a comfortable retirement. Here are some useful money investment tips you can start teaching your kids:
#1. Starting off early
By teaching your kids about investment at an early stage, you’re already teaching them a crucial investment lesson. In fact, it could be considered as the most important investment tip you could provide them. There will be a huge difference in results for two people who start investing at age 20 and age 30 respectively. That is even if they each save the same amount every month until they turn 60 and they get the same return on investment.
#2. Teach them about priorities
Children should learn early on that they can’t have everything they want. You will need to teach them about making priorities and weighing their decisions based on how each decision would affect them in the long run. Have them write down a list of the things they wish to spend their money on and then help them consider each item on the wish list.
When you examine the items on their wish list, try to point out the benefits of each item so they can easily weigh their decisions. Maybe instead of saving for a video game, a laptop would serve them better in the long run even when they get to high school or college. Help them understand how each decision could have an impact over the years.
#3. Teach them about consequences
While you educate your child about different decisions and their consequences, make sure you don’t force them to take a certain decision. They have to make the decision on their own so that they can learn to face the consequences each decision can have. They will gain a practical experience on why they need to spend and save wisely.
Maybe your son decided to go on a spending spree with his Christmas money, but he end up being unable to afford the video game that he really wanted. This would teach him about the consequences of making rash financial decisions, helping him save up for things that he really wants before spending the money.
#4. Teach them about back-up plans
Another important investment lesson you should teach your child is not to put all their eggs in one basket. Explain to them about the risks involved in focusing their investment in one place. Let them know about the possibilities of failure and how having a back-up plan can cushion their fall.
You need to teach your child to diversify their investment plan. Make it clear that diversification won’t necessarily give them higher returns but will reduce their risk. You can use an example of having one piggy bank in which they save all their money. Tell them that the single piggy bank could end up getting lost or stolen, meaning they’ll end up losing all the money they’ve saved. But if they have about 2-3 piggy banks in which they divide their savings, they will still have some money left even if they lose one piggy bank.
#5. Teach them the concept of ROIs
Your kid should realize that there are plenty of benefits to saving money. While the fact that they’re able to save enough to buy what they want can be rewarding enough, teach them that there’s more to this. You can give them rewards for saving money.
The reward could be in the form of a percentage increase in their saving, which will be most practical for them in the real world. For instance, if they save up $20 every month for three months without spending any of it, you could reward them with another $20. This won’t just motivate them to practice making investments but also teach them that saving money has multiple rewards on its own.
#6. Teach them about the consequences of credit cards
Every wise investor knows that credit cards can be dangerous. Once your kid turns 18, it’s likely they’ll get hounded by salesmen offering credit cards. If you don’t teach them early on about the consequences of debt, they could end up being another victim. Teach them why spending money you don’t have is a bad idea.
Good parenting is about prepping your kids for the real world. When you give them the responsibility of managing money at an early stage, there’s a better chance of them spending their money wisely as adults. By teaching them the wise investment and budgeting lessons, you’ll be providing them with valuable and practical ideas that will guide their investment decisions in the long run.