How to Teach Your Teen the Basics of Investing

Investing is an important aspect of financial planning and practicing good habits is important to ensuring long term fiscal stability for any professional. But what about your kids? Talking to your children about investing is a vital part of preparing them for the real world. As they become more exposed to money, credit and new financial concepts they will need guidance to navigate the world of investing to ensure they are smart with their money and avoid common mistakes.

Once your kids start to open bank accounts, you should make sure they understand the concept of earning interest and that checking accounts do not accrue interest while savings accounts do accrue interest. Then introduce them to other simple interest bearing investments such as money market accounts, CDs and savings bonds to get them started. These provide good, safe investment examples that will get them comfortable with the concepts and build confidence.

Also take the time to enlighten your children on the risks and rewards involved in investing. Knowing that over time an investment has the potential to lose some value, including the chance it loses all of it, is important in establishing that stakes involved. Additionally, this will help you teach the concept of return on investment (ROI) and things you can look for to try to estimate the gains a stock could make over time. This is a good segue into talking about stocks and the stock market, the process of buying and selling those stocks, as well as tracking your stock portfolio.

Now that they’re introduced to the idea of investing, start including them in some basic discussions about family finances to expose them to other concepts such as creating a portfolio and allocating assets. Let your kids know what stocks you own, and if there are any interesting or recognizable companies in your portfolio look into getting a copy of their investor relations material to provide a visual aid and help them understand the company and how you chose the stock better.

Selecting stocks together and tracking their progress can help familiarize your kids with the wild market fluctuations stocks can experience as well as get them ready in case they have to ride out similar peaks and valleys in their own investments. And if they’re saved enough money, you can even help them open a brokerage account of their own to get them experience managing their own portfolio on a small scale.

Most parents fail to seize convenient real-world examples to teach basic investing concepts to their children at a young age – before they’re teenagers – and miss out on easy opportunities to introduce these ideas slowly over time. Establishing a base of knowledge this way can help better prepare them to learn more advanced investing concepts later on. The details of everyone’s specific investing style can differ greatly, but whether you write books for investors or simply day trade occasionally, you can share enough insights on the basics of investing to help get your children started on the right track.