One thing that children learn at an early age is the concept of money. It doesn’t take children long to understand that money is something they want, that having it is good and not having it is bad. Even at an early age, as your child’s awareness of the value of money grows, it is vital that we teach our kids how to effectively manage their money.
It’s a family affair
Let’s face it: for most people, learning about investing and economics and money management is not the most thrilling activity they can think of. Children become aware of money at an early age but that doesn’t mean they’ve developed an appetite for supply-side economics or portfolio creation.
Teaching children about effectively managing their personal finances can test a parent’s creative talents. Make the task easier by turning it into a family affair. Teaching the basics of money management and investing can take the form of family game night. Bring out the Monopoly game, gather everyone around the table and make a night of it. No television, no cell phones, no video games. Just good family fun that doubles as a lesson in basic economics.
A difficult thing for children to grasp is the concept that actions have consequences. This is a vital truth that they need to understand in order to function successfully in the world. Nowhere is this more obvious than in financial situations. Children need to learn early that not properly looking out for their money can leave them in a world of hurt.
If we teach children at an early age that saving for the future is a good thing, they will carry that habit into their adult lives. Saving for a rainy day, saving for retirement, saving for a specific purpose such as higher education — all of these are habits that will serve our children well if we teach this to them young. Teaching this can start with something as simple as a cute little piggy bank.
Watching the world
Observe what is going on in the world, then discuss these things with your child as he or she matures enough to understand it. Show them how events in the United States can impact markets in other parts of the world. Let them see how emerging markets can make a difference in economies on the other side of the globe. Pick your investing topics for discussion to supplement the lessons you’re teaching about effective money management.
Go with what they know
Teaching your children about investing can become a game. Give them a simple overview of how the stock market works, then show them how to find a few companies they know. Show them the logos on the boxes of their video games or toys.
Let them make a few “pretend” investments in the stock of these companies and help them track it over a period of time. You can make a poster for the wall where you can build a tracking graph over the coming weeks to illustrate how their pretend stock is doing. As they get older, this simple exercise can move into real investing.