3 Simple Ways To Teach Kids About Investing

Ms. Bels volunteering for Junior Achievement @ Parkside Elementary

As much as we want to believe our kids don’t comprehend certain concepts, during their younger years, the fact is they can. Child experts believe that kids can begin absorbing information as young as 4 or 5 years old. Many financial experts, too, believe this is true. Although terms and concepts such as investing, stocks, and mutual funds may take some advancement, there have been reports that kids under 8 years old understood this information quite easily. The only requirement was that the definitions and explanation of the terms be put in its simplest form.

This may seem like a hard task. But trust…it isn’t.

When explaining these most popular terms used when investing, financial advisors suggest that you use these words similar to the following:

Stocks – Explain that many companies they know and love (e.g., Burger King, Mattel, Disney) have many owners who own a small part of the company, called a share of stock. Consider giving a gift of stock of a favorite company, explaining that this stock makes the child an “owner” of the company.

Mutual Funds – Explain mutual funds in terms of sharing, with lots of people sharing all the interest earned on a big pool of money that’s being invested in things like stocks. Compare it to the family DVD player, for example: the whole family owns it, but it’s there to benefit each person.

Compounding – Explain that with the interest earned through a bank account, money can be used to make money. The longer the money is left alone, the greater the effect of compounding, as the new money earned earns additional interest on the original money.

Making the process simple is necessary for a young child. At a young when they can barely multiply and divide, it is imperative that you are aware of your child’s learning capabilities first. Once that is determined, start teaching them about money, how it is used, why it is saved, etc. Help them understand the overall value of money. From there, and as they grow older, use these examples to explain what investing is.

It is better to start early than late. The goal is to develop a child who is understands how powerful the dollar is and who is financially responsible.

Source: ING