Offering lessons about investing to your child at a young age makes it a familiar concept and regular part of life, instead of something scary that they won't want or know how to deal with in their later years. There are as many ways to help your kids become comfortable with the idea of investing as there are G.I. Joe figures and Barbie dolls to buy, but here are a few ideas to get you started.

No.1 - Teach Kids to Save
If you don't save first, you won't have any money to invest. What's more, as an adult, you know that you should have plenty of money in an easily accessible savings account for emergencies before you do much investing. That's why it makes sense to teach kids about savings accounts before you teach them about stocks.

Many personal finance experts recommend that you have your kids save 10% of their gift money, allowance money, and whatever other money they receive. While this advice may be analogous with the adult rule of saving 10% of your income, consider teaching your children to save more. Otherwise, since kids don't usually have to pay for their necessities, you're unwittingly teaching them that it's OK to spend 90% of what they bring in on toys. If you teach them to save more, they learn that when expenses are low, it's wise to save extra so you can use it for something more important later. (Learn to steer clear of financial potholes at a young age in 5 Common Mistakes Young Investors Make.)

No.2 - Teach Them About Credit Card Debt
Consumer debt is one of the biggest barriers to investment for many people, because they are saddled by monthly debt payments instead of having that extra money to save or invest every month. When they have emergencies, they have no savings to fall back on, and they go further into credit card debt and further from the kind of financial security that sound investments can bring. When you make purchases with plastic, explain to your child that you have to pay for that purchase as soon as the bill is due, and that there are serious consequences for not doing so. This is also a great time to teach them about interest - how it's good when you're earning it, bad when you're paying it, and how it compounds.

No.3 - Teach Your Child how to Set Up a Simulated Portfolio Online
This way, he or she can learn about investing without the risk of putting actual money into play. If each member of the family sets up a simulated portfolio, you can turn it into a game and create an opportunity for everyone to discuss how they chose their investments, how they performed and why. This is also a great opportunity to teach kids about the different kinds of investments available, and the potential risks and rewards associated with each.

Of course, you don't want your kids to think investing is just a game with play money. Once they understand how it works, have them invest a portion of their real-life savings so the profits and losses become tangible. Don't worry if they make mistakes, just be glad that they're learning now so they don't make those mistakes when more money is at stake and their time horizon for recovery is shorter. (Learn to use the power of compounding - not pennypinching - to profit in Young Investors: What Are You Waiting For?)

No.4 - Set Working Children Up with Retirement Accounts as Soon as They are Eligible
Everyone who has ever picked up a personal finance book to learn about investing for retirement wishes they had started earlier, as soon as they see those compound interest charts. Do your child a favor and let them be one of the lucky few whose stomach doesn't start to churn when they get to that page in the book. Even saving and investing small amounts of money makes a big difference, when you start young. It also starts an important habit at a young age, and teaches them to stick with it through times of financial hardship (like paying for college or being between college and that first full-time job).

No.5 - Don't Stop Teaching Your Kids About Money, Ever
They can use your advice at all stages of life. Once they've left the nest, they'll have questions about things like company retirement plans, buying a house and saving for your grandkids' college educations. If you've been through these things before, you can make life easier for your kids by passing on your wisdom. Even if you can't answer all their questions, you can offer your support and suggest they pick up some books on the topic.

Parents want their kids to live at least as well as they do, if not better. Remember that even if you don't have much money to give your kids, it's OK. In fact, even if you have piles of money, sharing it with your children will be useless to them in the long run if they don't know how to manage it. Give your kids the gift of investment knowledge, on the other hand, and they'll be on the right track to living a comfortable and perhaps even abundant life.

Related Articles
  1. Professionals

    Top Financial Planning Issues for Older Parents

    Clients who have children later in life present an opportunity for advisors. Here are the key the financial planning issues that need to be addressed.
  2. Budgeting

    The 5 Most Expensive States for Child Care

    To get a better sense of how child care costs can fluctuate, here's a look at the costs of child care across the country.
  3. Professionals

    How Advisors Can Help Expectant Couples

    Bringing a child into the world makes parents more acutely aware of their finances. Here's how advisors can help expectant couples prepare.
  4. Retirement

    Advisors: Broach this Topic with Grandparents

    Talking to older clients about financial planning for their grandchildren may help secure a new generation of clients.
  5. Personal Finance

    Hiring a Nanny? 20 Questions to Ask First

    How to find a caregiver who'll fit into your family – and which questions you can't ask.
  6. Retirement

    What is Cohousing and How Does it Work?

    Originally a Danish concept from the 1960s, modern cohousing communities can be found in the U.S., England and China. But how exactly do they work?
  7. Personal Finance

    Six Agencies to Find a Caregiver for Your Child

    Hiring a caregiver for your kids can be tough. Here's a cheat sheet on how and where to find your personal Mary Poppins.
  8. Professionals

    Top Family-Friendly Companies to Work For

    Today's workplace is tough on women and families. One of the most important steps to changing that is paternity leave. A few companies are leading the pack
  9. Savings

    Flexible Spending Accounts: Dependent Care Rules

    If your company offers it – and you meet the criteria – a dependent care account can help you save on childcare and care for other dependents.
  10. Savings

    What Does A Flexible Spending Account Let You Buy?

    A healthcare FSA will help you pay your medical expense with pre-tax dollars – just not all of them. Here's how to tell which costs are covered.
RELATED TERMS
  1. Credit Card Authorized User

    Definition of an authorized user of a credit card.
  2. Millennial

    A name given to the generation born between 1982 and 2004. The ...
  3. Mompreneur

    A slang term describing women who run their own businesses while ...
  4. Social Welfare System

    A social welfare system is a program that provides assistance ...
  5. Nanny Tax

    A federal tax that must be paid by people who hire household ...
  6. Dependent Care Flexible Spending ...

    A flexible spending account (FSA) designed to provide tax-exempt ...
RELATED FAQS
  1. How do alimony and child support factor into my taxable income?

    The Internal Revenue Service, or IRS, applies a different tax treatment to alimony than child support. Most forms of alimony ... Read Full Answer >>
  2. What are some examples of common fringe benefits?

    The majority of employers in the private and public sectors offer their employees a variety of benefits in excess of stated ... Read Full Answer >>
  3. How can I start an IRA for my child?

    The Roth IRA is hands-down the most attractive retirement plan available for people with at least 15 or more years until ... Read Full Answer >>
  4. Can someone who is not yet of legal age open a brokerage account?

    An underage person cannot open a brokerage account on his or her own. However, it is possible for an underage person to have ... Read Full Answer >>
  5. Can I contribute to both a 529 plan and a Coverdell education savings account?

    You can contribute to both, and when your child is ready to attend college, as colleges do accept payments from both. There ... Read Full Answer >>
  6. What is the best way to save for private school expenses? A 529 plan, a Coverdell ...

    If the goal is to put the money in the plan towards private school expenses, then the Coverdell Education Savings Account ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!