What money messages are you giving your kids?
Don’t rob them of valuable financial lessons they’ll need later in life by sheltering them from financial realities or thinking money talks are ‘too grown-up’.
It’s never too early to involve your kids with money and when it comes specifically to investing here are 3 great reasons to get started now!
They’ll learn smart, life-long money habits
Getting started early with investing gives your kids experience with foundational money management (and life!) practices such as goal setting and critical thinking.
They’ll also learn the powerful concept of how to make money work for them – that exchanging your time for money (working) isn’t the only way to build wealth.
Investing is about risk and reward. So are other aspects of life. By teaching your kids about investing, they’ll also be learning lessons for life. Weighing up the possible outcomes for each choice and how to think strategically.
Instill these habits early on and you’ll set your kids up with the key tools they need to be successful money managers as adults. They won’t rely on the ‘bank of mum and dad’ and will be able to chart their own journey to financial freedom and do what it takes to get there. What better gift can you give them?
And just as an aside, the statistics are now suggesting that the ‘bank of mum and dad’ is becoming more and more the only way kids can get started in the property game.
Time is on their side
Arguably this is the biggest reason to teach your kids as early as possible about investing – time is on their side!
The earlier your child starts investing, the more money he or she will have in years to come – the longer their money is working for them, the bigger the nest egg they’ll have. It’s that simple. Neither you nor your kids need to be super-savvy investors to reap the incredible benefits of compound interest.
Start by setting up an investment account for your child, at say, 9 or 10 (or earlier), explain how compound interest works, and contribute an agreed amount each month. Here’s what can happen with $100 a month.
As they earn their own pocket money they can contribute too and you can hand them over the responsibility of the monthly contribution when they begin earning their first wage.
Helping your child start early gives that money several decades to grow.
By starting at 10 years old, even if only $100 was invested per month until they hit 60, that fund would grow to just over $268,000 based on an interest rate of 5%.
For a total investment of $60,000 more than $207,000 would be earned in interest. For just $100 a month. Many people wouldn’t blink dropping $100 on dinner and drinks on a night out, never to see that money again but look what it can do over time.
Imagine if they grew to add $1000 a month?
This example goes to show you how small amounts can grow to serious wealth if you start early; this compounding interest is powerful stuff, wouldn’t you agree? I like to refer to it as the eighth wonder of the world.
I have a client who is only 16 years old, her parents recognised her ambitions and realised that financial literacy education was important to help her achieve those goals. With just a few months of part-time work she was able to pay her parents for the cost of the program and now, just another few months later, she has a five-figure stock portfolio. Imagine what that will be worth when she is 21, 30, or 40. You get the picture, right?
Grow their financial confidence
Your kids gain confidence the better they get at something. It’s almost impossible to grow in confidence or master something without actually practicing that thing.
Gaining confidence with money is such an important life skill but one that isn’t taught extensively at school. Especially when it comes to investing – for passive income, for dividends, for cash flow – these types of lessons are not part of the standard curriculum. So, it’s mostly up to us parents to teach our kids the fundamentals of money and investing and the lessons we teach them could set them on the path to a secure financial future.
Talking and reading about investing is good but actually showing your child how to put it into practice is better.
Let them play around on my calculator with a contribution amount and timeline to see the potential for their savings. What would happen if they invested that $500 instead of spending it on a new phone?
Or get them to research companies they know, like Telstra or Woolworths on the ASX, or S&P 500 like Facebook or Amazon, have them choose a couple of shares. Keep track of the performance and while they won’t know the ins and outs of industries this will help them get the hang of the basics.
Warren Buffet started investing when he was just 11 years old with the money he’d saved from working in his family’s grocery store. He grew to be one of the more prolific investors of our time, and a billionaire 100+ times over. I can’t think of a much more inspiring example of why to get your kids started with investing now!
What, if anything, is holding you back from teaching your kids about money?
To access my new book, How to Invest in a Downturn, click here.