In a nation steeped with debt, and the fact that many Americans have little to no savings, encouraging teens to learn the important principles of saving and investing can benefit them for the rest of their lives. Entitlement programs like Medicare and Social Security, with consistent gridlock in Congress, cannot be relied upon when they reach retirement age. They are going to need to sock away some money on their own.
On the bright side, teens have the advantage of time when it comes to building wealth before retiring. However, it’s only an advantage if they utilize it properly. As many investment gurus believe, the younger you learn about investing, the sooner you have the ability to experience a comfortable, quality lifestyle.
The most important thing in order to teach your children about investing is to spark their interest about it. They don’t have to be math prodigies or financial experts to accumulate knowledge about investing. They just have to make the first step and continue to learn more as years go by. So, here are some tips to teach your teens about investing:
1. Be Financially Educated.
In order to instruct your kids successfully, you have to be financially literate yourself. One of the best ways to teach is leading by example. That can only be achieved by knowing and implementing sound investment strategies and maintaining an acceptable savings rate. They’ll be watching what you do and many times, without even a word spoken, will learn what should and shouldn’t be done when it comes to investing.
2. Have fun with investing:
A good way to peak interest in your teens when it comes to investing is to make it fun. Technology makes this a whole lot easier with stock market games. This way it’ll be less like a discipline or chore and more like a fun hobby.
The Kapitall app allows users to invest with virtual money creating a practice portfolio just so they can get a taste of what to expect when investing. There are other stock market game apps available as well like Stock Wars, StockFuse and even MarketWatch has a virtual stock exchange game that can allow investors to test strategies to see what works. When they’re even younger, the iAllowance app is good for younger children as it helps them sync chores and allowances with their parents. This teaches them the basic fundamentals of saving and earning.
3. Explain the wonders of compounding:
One of the most magical things about investing is compounding. Compounding is the secret that every wise investor knows about. No need to hire a good stockbroker or financial advisor for this tip. With the right teaching method, your kids can learn the basic concepts of compounding very easily. The fact that the money you save earns interest on the principal and the ability to earn interest on that interest plus the original amount is a very convincing reason to save.
4. Index funds are a great subject for your teens to learn:
Knowing about Index, mutual and exchange-traded funds are good investment options every teen investor should be aware of. They can learn about management fees and expense rations and will be able to compare both fund styles based on their costs and their investment strategy.
Investing in a market than in a single company helps with diversifying a portfolio and is a good principle for teens to understand. Also, let them know how to limit costs when investing by understanding the concepts of a stock broker salary and how commissions they earn from buying and selling shares on your behalf can reduce how much money you have to invest. ETFs can vastly limit those costs.
Of course, when it comes to teens, the things that inspire them are usually new, exciting and cool. And anything a parent recommends can usually be considered the opposite. The only thing you can do is try your best and be an example. After all, when you approach retirement, the last thing you want to worry about is being a financial burden to your son or daughter as that can ultimately be the hardest lesson to teach and learn.
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