It is never too early to become acquainted with investing. Some children may not be thrilled by the idea of waiting years for a reward; after all, we all like the idea of making quick money to spend. However, kids who learn about investing will grow up prepared and with the knowledge to manage money productively. They may even be eager to invest once they learn how their money can grow.
Investing is a long-term commitment, and no one is in a better position to start than a child. Let’s dive into why you should buy stocks for kids and how you can begin to teach your child about investing.
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Why Buy Stocks for Kids?
Investing isn’t rocket science like it may seem on the outside looking in. A solid understanding goes a long way toward finding success in the venture. The sooner you educate your child, the sooner they’ll be able to take advantage of it and set themselves up for a successful financial future. Children will be overall more financially responsible as adults if they learn how to save and invest now.
For long-term monetary stability, kids have to know how to get used to investing their funds so that when they grow up, they have a source of funds when inflation happens. While the stock market is erratic and changeable, Matt Krantz, USA Today’sToday’s financial reporter, commented that holding a stock for a long time can lead to profitable returns.
Historical statistics reveal that stocks held for many years have obtained 9.3 percent per year since 1928, despite the recession. Therefore, educating your children about the basics of the stock market can help them keep their finances secure all through their lives.
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Stocks for Kids: 8 Ways to Get Them Acquainted
The biggest question is where to start with stocks for kids. The investing world is enormous; right now, you don’t need to worry about advanced topics like day trading techniques or VTSAX vs. VTI. Here are some of the basic concepts you should go over with your child:
Statements from Brokerage House
If you invest yourself, perhaps you get a monthly statement that offers a summary or outline of your accounts. Find time to show your kids the statement and let them understand its importance and how to read it correctly.
Of course, there is no need for you to go too in-depth; however, this will act as a good brief overture of diverse kinds of investments like bonds, stocks, and certificates of deposit. You can also inspect together whether you have gained or lost money in different kinds of investments.
Instill Healthy Habits
You can educate your child about healthy spending and credit habits by setting them up with a credit card while living with you. A lot of people who get themselves overwhelmed with credit get there one procurement at a time.
Teaching your kids the difference between wants and needs and instant gratification can go a long way to keep them free from money issues in the future. It’s also important to stress that while money can’t buy happiness, it can prevent a lot of stress and burden derived from financial instability.
The online world holds an array of interactive and useful resources for newbie investors and traders. You can search for the meanings of investing terms on different websites like Investopedia. You can also benefit from the regulatory bodies’ websites or brokerage organizations such as the Securities and Exchange Commission and the New York Stock Exchange.
A lot of these online resources provide educational information made for both elementary and high school kids. For instance, the New York Stock Exchange website has an explanation of stock tables. Introduce your child to these resources so they can learn at their own pace and find answers to their questions when you’re not there.
Mock Investment Accounts
If you think your little one is not yet ready to invest cold cash, consider getting him or her an online mock account. These programs replicate the process of investing, often with bond information and real-time stock data.
Mock investment accounts are a good approach for young kids to get used to the ups and downs of investing first hand without needing or risking any money. It is a particularly good way to educate them on how simple it is to mislay cash with a poor investment.
Start with a Small Investment
If your child seems fascinated in investing, give her or him some cash to invest, perhaps in place of a gift for their birthday or Christmas. You can let them decide where to make a small investment. Watch with thrill and anticipation as the cash grows.
Try buying some shares or partial shares of stock via ShareBuilder. Many mutual funds have low minimum investments. You can open an account for your kids for as low as $100 and a $25 automatic monthly investment. You can also try the one-time $1,000 deposits. Some mutual fund providers offer educational materials that can help kids learn more about this process.
Introduce Children to Your Stock Brokers
In case you are working with a physical stockbroker, it may be a good idea to bring your kid in to your stockholder. Besides seeing what stockbrokers do firsthand, your child will also see the trading system that the stockbrokers utilize.
Bringing your child closer to the source may spur further interest. Surely, the stockbroker can impart tried and tested tips in investing.
Utilize the Power of Statistics or Data
Suppose your child seems to like to take the quantitative learning method and has a small knowledgeable foundation. In that case, it may be helpful to give him or her a copy of the Stock Trader’s Almanac. This is a chart packed with historical trading statistics, notable times in the stock market, and much other vital and useful information.
Allow Your Kids to Invest
If your kid is older, you can give them a more profound explanation of the stock market as well as other forms of investments. Sooner or later, you want to allow them to purchase a stock. Your child might have a sufficient amount of money diligently saved up by the time he or she is interested in investing. Avoid putting it all into the stock market or bonds; rather, invest some in each. This will give your child the opportunity to evaluate the return of diverse kinds of investments.
If your child does not have enough funds, you can utilize your own money to open a brokerage account for them. Alternatively, you can involve them in your own investments for the learning experience.
Other Tips on Teaching Kids to Invest in Stock
- Track the price of the stock market daily. Part of educating your child about the stock market is explaining that fluctuations are a normal occurrence. If the price of a stock changes, share with them what would occur if they sold the stock at that moment. Also, discuss the significance of holding onto an investment. Selling stock when it is high signifies a gain, and selling it when it is low indicates a loss.
- Help your kid set up a simulated account, so they are able to practice online stock trading without risking money. Some brokerage companies, as well as other websites, provide this kind of practice trading. Your child can pick stocks and experience failure and success. Such websites often utilize an interface that is user-friendly for kids.
- Allow your kid to choose stock if they are ready to boost their holdings. As a parent, if you believe that your kid is making a wrong move, objectively explain why. Give them some choices you believe are good choices and provide details of your reasoning. This method will help your child develop the problem-solving skills they need to invest on their own.
What Are the Best Stocks for Kids?
Consider buying your kids some stock shares in a business that gets them excited, such as McDonald’s, Coca-Cola, or Disney. The more intrigued your child is by the prospect of investing, the more information they will retain.
Tell them that they now have ownership of a small part of this company. Children sometimes believe that having stock brings many perks, like free food at McDonald’s or free trips to Disneyland. Explain that they share in the company’s profits, not any of their products or services.
The Bottom Line
It is vital to let your child make real choices and take risks in order for them to learn. They may lose money along the way; however, the exercise’s objective is to get kids used to investing and understand its pros and cons. No matter the actual investment outcomes, their experience and education will be invaluable for their financial future.
Author Bio: Samantha uses her BS in Finance and MBA to help others control their finances through budgeting, saving, investing, side hustles, and travel hacking. Due to following the FIRE Movement’s principles, she was able to quit her high-stress job in the financial services industry in July 2019 to pursue her side hustles. She is now a full-time entrepreneur, freelancing coach, and blogger.