Many parents avoid conversations around money with their kids. They believe they are protecting their kids and allowing them to enjoy the charms of childhood. But in just a few years, the kids will live on their own, armed only with the lessons you taught them and their own judgment. A basic education in finance and investing is among the most valuable resources you can give them as a parent. It puts them on the path to long-term financial success. Here’s why your teenager should learn about investing and some tips on how you can get them started.

Importance of Teaching Kids about Investing

Teaching children about finance and investing has several advantages, including:

More Time for a Portfolio to Compound

Having your kids start investing at an early age and keep score gives them a chance to see what can happen firsthand. It’s better than simply narrating to them how you started with an X amount of money at a certain age, and now you have this amount of money, 12 years later. Kids want to see actual results otherwise they will lose interest fast. By teaching teens about investing, you can show them concrete and indisputable evidence of the power of long-term investing.

Expand Their Thinking

Teaching kids about investing can make them think several steps ahead. Investing comes with its risk, but they develop the skills to engage in many types of research on different topics and industries. As they learn about how money works, stocks, and different companies, they discover more things, including how to think outside the box. They will have an adventurous spirit and take risks without fear of failure.

Improves Their Decision-Making Skills

Kids who learn about investing while young have more time to learn about best practices, research, and investing techniques. They also develop emotional intelligence that helps them make rational decisions. There is a high chance they are not going to learn most of these things in school, so you would be filling a gap no one else would.

How to Teach Kids about Investing

Here are tips to get you started:

Begin with the Fundamentals of Investing

Teach the kids about different investing terminology and concepts. Break down complicated words and concepts into simpler terms. Let them understand the concept of bonds, stocks, and other securities.

Start with Companies They Know

Challenge the kids to design a collection or portfolio of the companies they know. Then challenge them to explore the habits of consumers in different industries. It can help them see the trends that create demand for new products and how consumer desires can impact investing opportunities.

Stress the Importance of Diversification

Emphasize the importance of diversifying the different types of investments. You can let them think about the old expression of putting all eggs in the same basket. Kids should learn that diversification does not guarantee profit or protection from loss, but can help balance risk and reward.

Teach Them about Compounding

Kids have one valuable asset on their side i.e., time. Allow the kid to familiarize themselves with an online interest calculator and see what they can get by making regular investments at reasonable returns. You can even teach them about the Rule of 72, which helps determine the number of years it would take to double an amount of money at a particular interest rate. The rule number (i.e., 72) divided by the annual interest rate will give the number of years it takes for the investment to double. For instance, if the investment earns 4%, dividing 72 by four gives 18, to mean the investment will double in 18 years.

Guide Your Kid about Investing

Kids will learn about finance and investment in one way or another. But let it not be from an uncontrollable spender on social media or sources that won’t offer full guidance. You have the chance to be the guiding voice and the positive example they need. Getting them started with the right steps will help your child make wise money decisions and gain financial independence sooner.