One of the important roles a parent takes on as the kids start growing up is helping them to make good financial decisions. Parents can help them learn to create a budget, track their spending, and set specific goals for saving for things they want to buy and for their future needs. Saving for big expenditures like a bicycle, game console or a car is an important concept to teach them. But so is saving for their future needs like college, marriage, and a career.
For these long-term savings needs, parents and their children should consider investing in stocks.
“Really?” you might think. “My kids investing in the stock market at their ages? I don’t think so.”
Savings by prudently investing in the stock market and in specific stocks can make a big difference in our children’s return on their long-term savings and can help them be financially ready for the big events yet to come in their lives. And investing in stocks can be interesting and dynamic, helping kids get more engaged in watching their savings grow.
Many parents don’t invest in stocks because they see it as too risky, too time-consuming or just too complicated. Maybe they save in a bank account, retirement accounts or mutual funds. But carefully investing in stocks can be a good strategy as well, providing we follow some good basic principles. Helping our kids have a good experience in buying and selling stocks can prepare them for smarter investment decisions later in their lives.
Encouraging Our Children to Save and Invest
Starting early teaching children to save – for emergencies, desired items, and long-term growth – is one of the important keys to success. Dan Schatt with Stockpile.com suggests that as parents we begin teaching our kids about savings as soon as they receive their first cash gift.
He also suggests that we teach children to put 10% of their income into savings. “Ten percent is a good amount – it’s easy to help your kids compute and really does add up over time.”
Kids often have the mentality of saving their money just to buy the hottest toy or the item that is at the top of their wish list. Dan recommends that we overcome this tendency by helping them develop what he calls an “ownership mentality.”
“Developing an ownership mentality really helps. Help your kids understand the value of owning a toy store versus owning a toy. They benefit from every toy the store sells. Every dollar they spend, they, they will need to work hard to earn back. Every dollar that’s saved/invested can turn into more money in the future without lifting a finger,” Dan suggests.
Why Invest in Stocks?
Stocks as a saving strategy may, as indicated early, seem a bit intimidating to many parents. But there are some good reasons for putting much of a child’s long-term savings into a stock account.
Stock investments often grow faster than other savings strategies. Between 1928 and 2014, the average stock market value increased an average of 9.8% annually. That is a very competitive rate of return.
Obviously, the past is not always a good predictor of the future, but it does suggest that it is worth exploring further as an investment tool.
Stock investing can give personal rewards as well. Dan Schatt suggests one good reason to invest in stocks with our kids is that children can direct their money into companies in which they are interested. Maybe a girl that loves the Disney princesses would be interested in owning stock in Disney. Or maybe your soccer-loving child would want to invest in Nike. Dan suggests that buying stock in companies our kids are interested in makes investing “much more enjoyable if kids can invest in companies that they know through the products they own and use. You’ll find your kids following their companies on the news, and observing what events and factors cause swings in the stock price.
That’s a big part of becoming an informed investor.”
Help Them Have a Strategy
Investing in stocks is usually most successful when those investments have a specific strategy and stick with it for the long haul. Dan Schatt suggests some strategic options.
- Buying and holding – finding a company you and your kids like and then staying with it
- Dollar cost averaging – staying with the preferred company and then buying small amounts of additional stock every month at the going price
- Buying on the dips – tracking companies that you think are good and then buying stock when the price dips
- Buying undervalued stocks – watching companies for times when their stock price is low and then holding the stocks waiting for them to come back and increase in price
Good Resources for Kids About Investing
Stockpile.com is an excellent service for families and children wanting to invest in stocks. Unlike many other companies offering stock accounts or brokerage accounts, there is no monthly fee. Families can invest a minimal amount, buy shares or partial shares of stock in the companies they choose and only pay a small trading commission each time stocks are bought or sold. One unique feature of stockpile.com is that they have a gift registry where kids can have a “wishlist” for stocks and send a link to friends and relatives allowing them to buy the specific stock as a gift.
Time for Kids article on investing – Time Magazine has a special edition for kids and this article offers some excellent insights into investing for children written in their language
TheMint.org – TheMint.org is a kids-oriented site about savings and investing provided by Northwestern Mutual Insurance Companies. For kids of all ages and their parents, there are tons of resources and information about money and savings at TheMint.
The Opposite of Spoiled – This book by the money columnist for the New York Times is a sensible and practical guide to teaching kids about the value of money and the importance of savings and investing.
It is a great guide for parents about how best to teach their kids to develop an appropriate relationship with money.