Would you like to give your children a head start in money management? Investing can be complicated, but if you start from the basics, you can help your kids develop financial literacy and awareness from an early age. In fact, it’s never too early to start.
Read on for some steps you can take, according to our SHARE advisers.
Include them in the ‘money talk’
Before introducing your kids to some basic investment concepts, it’s important that they are comfortable with the concept of ‘money’ in the first place.
Rather than avoiding the money talk with them, it can be a good idea to involve your young children: even casual conversations are a great opportunity for them to understand things like savings, income, bills, and budgeting.
Just like crawling comes before walking, saving comes before investing. And saving often starts with a piggy bank. It’s an easy way to understand the value of money, reinforcing a ‘savings’ philosophy and helping children build positive financial habits.
You can start with one piggy bank and then add more, each with a different goal: saving, spending, and investing for example. Or one for day-to-day spending, a second one for short-term goals (e.g., an ice cream), and third one for longer-term goals (e.g., a present for a family member).
Using a piggy bank can be a simple way to teach your child about delayed gratification, and set the foundation for more complicated topics.
Explain the power of compounding
Once you’ve helped your children define and quantify their own financial goals, you can introduce new concepts to the mix, like the power of compounding interest or returns.
As you may already know, compounding interest/returns is at the heart of any investment strategy. But it can also be quite difficult to grasp for a child, so keeping it simple, visual, and fun is key. You may also use funny stories, or turn a boring lesson on compounding into a game.
A quick Google search will unearth plenty of activities and games to play. One example is the so-called ‘marshmallow test’. In the 1970s, Stanford University psychologist Walter Mischel ran a series of delayed gratification tests on over 600 three-to-five year-olds. In one of these studies, each preschool child was left alone in a room with one marshmallow, with the promise that they would receive another one if they refrained from eating it.
A similar activity could be a good lesson on how compound interest works.
Play the virtual share market game
Have you ever tried a share market simulator with your kids? Here are just a few examples:
- Wall Street Survivor uses realistic market trading, without real money of course.
- Best Brokers: Stock Simulator is a good option for beginners (available on Android and iOS Store).
- Investopedia Portfolio Simulator provides share analysis and trade challenges, and it’s easy to use.
And if these were not enough, you can find even more simulators here. Whatever option you choose, a share market simulator can help you children get a clearer understanding of the investment rules, and answer simple questions like ‘what is a company’ and ‘what is a share’ (or stock, as most games as US-based).
Like to discuss your own investment plan?
If it’s time to review your investment strategy, please don’t hesitate to contact us. Our SHARE advisers are here to answer any questions you might have: click here to find an adviser near you.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.