Teaching Your Kids To Become Great Investors

By: ispeculatornew
Date posted: 05.30.2012 (5:00 am) | Write a Comment  (4 Comments)

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As a soon-to-be dad for the first time, I have a lot of questions regarding how things will go, what I should expect, etc. While my first few months will probably be spent about much more basic things, I do expect and hope to reach the point where I start trying to get my kids as educated as possible about money.

One Of My Most Important Teachings?

You could certainly argue that there are many many more important things to teach about than money and clearly, I would agree. I do however think that our society has grossly underestimated the importance of learning about money. About making, spending, saving, planning and investing it. It can make a world of difference yet most of us spend little to no time in school learning the most basic notions. I could probably write a full book about this, I’m sure many have already done so, and if you have any books to recommend, I’d love to hear about them. Personally, I would split lessons into the following:

-Make Money

Understanding the value of money comes in different ways. I think that getting a weekly allowance is good but so is doing extra work (not the normal chores that you should ready be doing) and making money for it.

Even better of course is teaching the basics of building a business, no matter how small (lemonade stand?) or how big.

-Spending

In my opinion, spending is as important as everything else. Being a smart shopper can make an incredible difference. Part of it is planning bigger expenses and saving for them. Taking notes to know where my kid has spent his money and looking back at those a few months later can also send a clear message. Sometimes, it comes as no surprise but in other cases the result can be rather shocking.

-Saving

I am a very strong believer in setting up an Automatic Savings Plan. Setting money aside as soon as I get it has worked incredibly well for me. It doesn’t have to be that much. I’d rather give my kid a bit more but force him to save part of it every week in a different place or bank account. As years go by and revenues increases, so should the amount that is being automatically saved every week.

-Planning

This lesson might be a bigger challenge because apart from planning bigger and longer term expenses, there is very little that a young kid would need to plan. Maybe buying a small gift for his parents, brother and/or sister, etc. It would be shorter time planning but I guess it gives you an idea.

-Investing

This would clearly be the most interesting lesson for me as a parent. I think the most critical part would be to explain the compounding effect. It is not easy and I guess the best way is to amplify the effect for the first few years. For example if you gave them a very high return on whatever they have saved away, it could certainly help to explain the concept.

Another very interesting lesson would be buying a dividend stock. Why? Because a quality dividend stock will help in understanding investing basics on so many levels. I think that seeing money come in would be of great help.

Do any of you have tips or experience teaching money?

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4 Comments

  1. Comment by Zavi — May 31, 2012 @ 6:57 am

    Contrats!! I don’t have kids, but if I would I think that investing should be a family activity hehehe! Get involved your spouse!

    I find it really interesting for a kid to understand what is investing. But you need to explain the relationship between risk and reward.

    If you can pick stocks together, that would be the best. And yes dividend stock can be a possibility! But what can also be an idea is that you get your kid’s attention, choose stocks like Disney, Sony, Nike, etc.

  2. Comment by IS — May 31, 2012 @ 5:19 pm

    @Zavi – True, maybe buying such stocks would help understand the concept of owning shares, etc

  3. Comment by SB @ One Cent At A Time — June 3, 2012 @ 7:13 pm

    The most important aspect to teach a young kid is the dynamics of money and how it grows over time.

  4. Pingback by Keeping upto date | WiseStockBuyer — June 6, 2012 @ 9:21 am

    […] Pierre from Intelligent Speculator posts Teaching Your Kids To Become Great Investors, […]

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