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Teaching Your Children How to Invest Their Money

Chapters

  1. Discuss the value of money with your kids
  2. Explain how savings work 
  3. Break the topic down using examples they will understand
  4. Consolidate their understanding with interactive resources
  5. Books on investing and finance
  6. Introduce real-life examples to your explanations
  7. Try out investing together

 

GoStudent plays host to a wonderful network of tutors who are experts in their field. In our GoStudent Expert series, you’ll find tips, guides and information from some of our very own GoStudent tutors. Find out what our learning experts have to say right here...girl with notebook thinking about investing

GoStudent Expert Evelyn's Guide to Investing

As jobs become more precarious and joining the property ladder becomes harder, achieving financial stability has never been more difficult. 💰Investing, if done well, can generate greater returns than money sitting in a bank account. We recommend the following resources and tips to help your children learn about investing. 

Discuss the value of money with your kids

Firstly, ensure your children have a solid understanding of the value of money and how a strong financial basis will benefit them when they’re older. 

Practical lessons are the best way for your children to learn about money, so why not start giving them pocket money for the chores they complete? You could even allow them to take responsibility for managing their own pocket money, teaching them to save a bit of it each month.

You could also turn your money lessons into games. Many children enjoy planning and cooking meals — so why not let them budget for them too?🍳

Other challenges could include how much their unspent lockdown pocket money might be worth at age 30 if invested with a 5% annual return? Percentages and the compounding of growth on investments and fees are something many adults struggle with, so this is a great time to put those foundations in place.

Once they’ve got to grips with the value of money, you can move on to teaching them about savings, which is one step closer to investing. 

Explain how savings work 

Saving is the first step into the world of investing for your children, so make sure you explain how saving works.

One thing you could do is open a savings account or a Cash ISA for them. It’s a practical way of encouraging them to save their pocket or birthday money, whilst also showing them how their pot of cash grows over time. 💸

Once they understand the importance of saving and the interest they could earn from it, you can then begin to delve further into the more intricate areas of investment. 

Break the topic down using examples they will understand

Investing can be hard to understand, but many parents find the lemonade stand a classic analogy that children can make sense of.

In order to sell lemonade, you would need someone (an investor) to give you the money to buy the stand and the ingredients to make the lemonade in the first place - in this case, parents. 🍋

After setting up the stand and selling your first few glasses, you would have the chance to give some money back to your ‘investors’, as well as making some money for yourself, all while having some money left over to buy more ingredients for more lemonade! 

This simple life lesson tells them exactly how investing works - people will give money to companies and buy shares in the hope of making a gain later in the future.

Consolidate their understanding with interactive resources 

For younger children, investing can be a hard topic to grasp. You can reinforce their understanding of investing by introducing your children to more engaging and interactive learning tools. 🎮

Here is a list of recommended resources they can use:

  1. The Game of Life is a great family board game for lessons in investing. This game requires players to make their way along the path of life, making decisions as they go, as well as creating a family, earning money, investing in property and collecting rewards along the way in order to win.
  2.  Wonder Forge Big Money Game is a board game where children start off with an asset in this game. The game features kid-friendly investing opportunities as they choose how to build their portfolio, like being able to invest in a grocery store, or a candy factory. Students are also thrown into situations as the game progresses, such as bubble bursts. The player with the most cash at the end, wins.
  3. How the Market Works - A game consisting of a virtual stock exchange, where you and your children can have a go at trading and investing.You get $100,000 in virtual cash to build a portfolio. If you are a teacher, you can create your own custom contest for either your classroom, or with a group of students.And by custom, they mean you can create your own dates, commission structures, security types, and more. You get to set your own rules! The game also has an impressive collection of free investment lesson plans.
  4. Bulls and Bears: The Game of Booms and Busts- This game takes stock market investing to a whole other level.It’s so robust – think the complexity of Monopoly, but with the goal of teaching investing – that you might want to help your child to review the free online guidebook provided. Lessons built into this game include the importance of diversification and current events’ influence on the market

  5. Animal Crossing -  In the game, players upgrade their homes and pay off debt by doing various things, such as selling fish or weeds. The price of goods changes from day to day, which could spark a discussion on commodities and the stock market.
  6. Cashflow - An educational board game built upon the lessons from the New York Times best-seller in personal finance, Rich Dad Poor Dad. The award-winning personal finance game uses the best components of stock investing games, business building games, and real estate investing games to challenge your children’s perception of how to generate and sustain wealth.
  7. SIFMA Foundation's Stock Market Game™-. Through The Stock Market Game (SMG), your child will gain a fundamental understanding of investing whilst practising the content and skills they’re taught at school. Most importantly, The Stock Market Game will help them develop positive money habits. 
  8. Stock Exchange Game - This board game is fun for the whole family as you simulate investing with the goal of retirement. There is no prior stock knowledge needed to have a great time!

  9. Build Your Stax - Your child is given the mission to grow their wealth as much as they can in 20 years.Then, they go through various decision-making points throughout those 20 years in this game — both savings opportunities, investing opportunities, and major life transition costs (such as getting married). Crashing stocks, a computer that plays against you using index funds, and many other characteristics of this stock market game make it a memorable one.
  10. Fantasy Stock Exchange - This stock market game has a cute interface that is geared towards younger kids, and also starts at a lower cash amount – £100 – which also is better for a younger crowd. Your child gets access to 10 shares with their £100 in PIGGYBANK®Cash, and can track them on the “My Portfolio” page. This stock market game also gives your children the ability to compete against others by creating a game.


Books on investing and finance 

If your child is a bookworm, try discussing financial themes in the books they are reading. 📚

You can explore how the Wizarding World’s economy works in Harry Potter. If your child doesn’t like Harry Potter, you can try:

  1. The Little Red Hen- A fictional story telling the tale of a hen who invested a lot of time and effort over the long-term, to turn wheat into bread. This is perfect for introducing younger children to the world of investing.
  2. How to Turn $100 Into $1,000,000: Earn! Save! Invest!-This is a child-friendly and thorough introduction to finance from the people behind BizKid$, How to Turn $100 into $1 Million includes chapters on setting financial goals, making a budget, getting a job, starting a business, and investing smartly - and how to think like a millionaire. This book also includes a one-page business plan template, a two-page plan to become a millionaire, and a personal budget tracker.

  3. How to get rich before 30 -In this guide, your teenager can learn what it takes to start building and growing wealth, regardless of where you’re starting from. Inside, they will discover topics such as how to start investing money now, even if they only have a few dollars to spare and how their erroneous beliefs about money are limiting their potential for wealth. 



Introduce real-life examples to your explanations of investing to keep your child’s attention 

Saving is the first step into the world of investing for your children, so make sure you explain how saving works.

One thing you could do is open a savings account or a Cash ISA for them. It’s a practical way of encouraging them to save their pocket or birthday money, whilst also showing them how their pot of cash grows over time. 💸

You can also look into child savings experts such as KidStart that will help you earn money back on your online shopping. They work with thousands of well-known retailers and once registered, a percentage of what you spend online will be collected and put into a savings account for your child free of charge! 

Once your children understand the importance of saving, you can then begin to delve further into the more intricate areas of investment.

Try out investing together

When your child is older, you can provide a more in-depth explanation of stocks and other investments. Eventually, you want to let a child buy their own stocks. 

They may have enough cash diligently saved up in a savings account by the time they are interested in investing. Don’t put it all into bonds or the stock market; instead, invest a third in each and keep a third in savings. This will allow your child to compare the returns of different types of investments.

If your child doesn’t have money to participate in the learning process, you can use your own cash to open a small brokerage account where your child can make investments. 

There are several ways to open a brokerage account for a minor. Before you start, check with a tax expert for the best option. Another thing to decide is whether you want to introduce your child to investing through one of the many online brokers—here are some that we think are especially good for beginners:

 Depending on the rules of the firm, an adult may be able to open a custodial brokerage account in the name of a minor and give that minor the right to trade in it online. The adult would remain the official custodian.

📈For a more adventurous lesson, why not start investing with your child? With a Junior Stocks and Shares ISA (Stocks and Shares JISA), you can invest up to £9,000 every year (subject to change) in a tax-efficient way - this is their JISA annual allowance. The money within the account is owned by your child, meaning nobody can dip into their savings. Your child’s funds are also locked away until their 18th birthday. Once they’re 18, they gain full control of their money and their account will automatically become a Stocks and Shares ISA.

Thanks to robo-investing platforms,  opening a Junior Stocks and Shares ISA is a lot easier than you might think. All you need to do is choose how much to invest and the level of risk that suits you and your child. From there, the hard work is taken care of by investment experts.

Paying into a Junior Stocks and Shares ISA is a great way to teach your kid how to take responsibility for their own money and it allows them to put what they’ve learnt about investing into practice.

Educating your children on investments may be a challenge, but it makes sense to plan ahead and invest for your children’s future, whilst also teaching them habits that’ll set them up for a financially stable life. 

Investing is vital to financial success and teaching that lesson to younger people improves the rest of their lives. 

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