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Tips for Teaching Kids About Investing at Every Age

Adulthood might seem like it is a long way off for children in elementary and middle school, but it’s not too early for your children to begin learning financial skills that they can use throughout their lives.

Financial knowledge is arguably more important for today's youth than for previous generations. Issues like inflation, unpredictable real estate markets, health and political crises, and other issues have led to increasing worry about money.

It’s reported that 64% of Millenials and 54% of Gen Xers are concerned about their retirement security. Those now in secondary and elementary school will likely need the skills and knowledge associated with investing and saving to help them negotiate the uncertainty that seems to increase with each generation.

As parents, you can start equipping children for their financial futures by providing them with age-appropriate instruction and hands-on opportunities so that they are already savvy money managers when they reach adulthood.

Here are ways to show your kids financial fundamentals as they grow through different age groups.

Elementary School

Teaching young kids about responsible money management can help them establish good habits and lay the groundwork for more detailed instruction later in childhood. Here are three ways to introduce financial concepts to elementary-school kids.

Give Them a Place to Save

Children cannot usually open their own bank accounts, but you can open a custodial savings account so that they have a place to put basic financial concepts into practice.

Custodial accounts are available to children under 18. Parents ultimately make the final decisions about how to manage the deposits, but they can include the child in the process by showing them how to track their balance and teaching them how savings can grow through interest earnings. Children's savings accounts are another option. They give the child slightly more control, and some have tools, such as apps to set savings goals and calculate returns.

Either of these options is appropriate for teaching children the basics about disciplined saving and earning money with interest rates.

Incentivize Saving

There are several ways that parents can offer rewards for children who demonstrate good money management. Some children's savings accounts allow parents to match the amount that their child saves once the balance reaches a certain threshold. Even if a bank does not offer this feature, you can make a deal directly with the child to deposit reward money once they meet a savings goal.

Instead of a monetary reward, you can offer to purchase something that they want if they can save half the money themselves. For example, you can cover half of the cost of a video game console if the child saves the other half.

The goal of these incentives is to develop financial discipline, which kids can use to stick to their savings plan later in life.

Help Them Earn Their Own Money

School-age children may get birthday money or an occasional gift from a relative, but their "income" usually comes in the form of an allowance directly from their parents. You can attach the allowance to certain chores or household duties so that the kids have to "earn" it. You can also help them make money outside the home. Elementary school students can't get jobs, but you can help them sell their used items online.

For example, you could help your child sell classroom supplies or used books after the end of the school year. Depending on what you have at home, you may also give them a chance to find and make money off of old items. You may allow them to try their hand at selling old CDs or even selling DVDs that you no longer use.

This type of online selling lets children learn about the value of certain possessions, and it allows them to earn money independently.

Middle School

Middle school students can move beyond basic saving concepts to learn about investing and growing wealth. During their pre-teen years, children can get more hands-on experience through custodial investment accounts and stock market simulation games.

Practice With Virtual Stock Markets

Virtual stock market games simulate real market conditions. Investors can use these programs to practice without risking any real money. However, you can track your wins and losses using virtual currency.

Many online trading platforms offer these programs, and you can also find paid or free options from financial websites and other third-party providers. Ideally, you will use a simulation that uses real-time market data and prices.

Middle schoolers may appreciate the game-like challenges of virtual stock market programs. In addition to spurring interest in investing, these simulations give kids a chance to learn the mechanics of placing trades. This will help them have confidence later in life when they do the real thing.

Open a Custodial Investment Account

Custodial investment accounts are joint accounts in your and your child’s name. As a parent, you get to make the final decisions about what stocks or funds to purchase, but you can involve your child in the process.

For example, you can help them learn about concepts like portfolio diversification and strategies like purchasing underpriced stocks or trading stocks that offer quarterly dividend payments.

When they turn 18, the child can take over the account and trade on their own.

Invest in Companies They Know

Finance probably won’t be the most interesting subject for pre-teens. You can pique their interest by having them use their custodial account or stock market simulation to purchase stock in companies that they know.

For example, TikTok, Netflix, GameStop, and Meta (owner of Instagram) are publicly traded companies that middle schoolers are likely familiar with. Your kids might be more interested in learning about the financials of these firms because they use their products or services every day.

High School

When they reach high school, your children are ready to enter the real world of finance. During their teen years, kids can start earning their own money, managing it, investing it, and using it to save for college and their adult life.

Here is how you can support the last stage of your child’s investing education.

Start Saving For College

Parents can teach their teenagers about financial responsibility by encouraging them to save money for college. You can open a special bank account for the purpose and contribute money to get it started.

In addition to showing your high schoolers how to keep a portion of their earnings from a part-time job, you can encourage them to sell back school textbooks once they’re in college to continue to fund themselves.

Like the other financial education steps you can take with your teenagers, this one is focused on encouraging the discipline to save for a specific purpose instead of spending their income immediately.

Investing With Their Own Money

Older children can earn their own money through part-time jobs and online selling. Though they still need a custodial account to invest, they will be able to use their own money.

Because they are risking their own funds, high schoolers will gain a better understanding of the realities of risk and the need to carefully research and consider stocks before making purchases.

Buy and Hold Strategy

The buy and hold strategy is a passive investing approach that involves finding stocks that provide long-term value. You purchase these equities with the plan of retaining ownership for years and eventually profiting from the steady growth.

In addition to learning how to select stocks that provide long-term value, high schoolers can start investing without being distracted by short-term market volatility.

Open an IRA

An Individual Retirement Account (IRA) allows the holder to grow wealth tax-free until they reach the end of their work career.

It is never too early to start saving for retirement. However, before they reach 18, kids can only open a custodial IRA with the help of a parent. When they get to adulthood, your child can take full ownership of the account.

In addition to helping your high schooler develop financial discipline by making regular contributions to their IRA, the account can introduce concepts. For example, your child can become familiar with the different types of investments, including stocks, bonds, ETFs, mutual funds, futures, and options. This can help them grasp the components of diversified portfolios.

If you slowly introduce new financial concepts as your children grow, they will be prepared for investing and successful money management when they reach adulthood.