Warren Buffet was asked in this interview featured on Forbes: At what age should we speak with our kids about being smart with money and investing?
Buffett: “It’s never too early to help kids understand about money. Whether it’s understanding the cost of the new toy they want, or the value of saving money. Kids are exposed to money matters from a very young age, so why not help them understand it and develop healthy habits early on?”
Explain How Investment is Different From Savings
To children, investment and saving may sound like the same thing. After all, they part with a portion of their money. We have to help them understand that savings gives almost no interest (nothing in addition to the original amount saved) whereas investment usually gives interest (getting something in addition to the original amount invested)
Here is an exercise for children aged 7 years and above to do. This will help them have more clarity about how investment is different from savings.
Click HERE to get the free and clearer “Investment or Savings?” printable
Introduce Them To The Concept of Risk and Reward
Investing is similar to planting seeds, there is a possibility that some seeds won’t grow into plants. Thus there is a possibility that the money we invest in something (a business, a stock, a mutual fund, etc) will give us zero returns and we could even possibly lose everything. That means not only will we not get a plant out of the seed, but we will lose the seed as well.
Talk To Them About Returns
Ideally, investments give higher returns over a longer period of time. Again, we can use the growing tree analogy. The first few years, we will not be getting any fruits as the tree has not matured. And when we finally start getting fruits, some years the tree will give more fruits than others. There is an up and down trend to fruit production depend on how favourable the weather and soil conditions are, but overall it’s an upward trend as the tree grows.
Investing in a company will also give an overall upward trend, if the company is constantly doing things to grow themselves e.g. coming up with newer and better products/services.
Most importantly, children need to understand that investment is a long-term thing and that they can expect to reap the returns only after many years.
No learning is sufficient until the student gets to partake in the said topic.
Get them to invest less than $100 on the company they’re excited about.
If they love Fortnite, they can invest in Tencent Holdings stock because this company has a 40% stake in the company.
Love Snap Chat? Then let them invest in Snap Inc.
If you stay in the United States, stockpile is one of the best places for your children to start their investing journey. Your children can start to invest with as little as $5.
If you are living in Singapore, the OCBC Blue Chip Investment Plan is suitable for parents and child to have a joint account. Investment can start from as little as $100 from 18 share counters to select from.
Make It Dinner-Table Conversation
After the initial investment, guide them in following up with the company they have their money in. Teach them to follow the news, track the growth and decide whether to put in more money.
Learning about investment is a long process and the earlier you start your kids, the more time they have to make mistakes and learn before the stake gets higher when they’re older.
Go for it and teach your children finance!