How To Best Teach Investing To Your Kids

Hi Ryan,

I'm only 26 and no kids of my own, but I can tell you a few things that my father did to help me with this and has really set the tone for how I will pursue a strategy to teach my own child some day about investment.

In cases a child wants something, give them a positive and negative option which they must chose with consequences on both:
i.e. You can but the toy now and you don't get any money to spend on something else for the next month or you can save the money and buy the toy in a months time and still have a small amount of money left over to buy something else.

When a bit older, they will have a sense of value of money due to the above, so really push the idea of money management and total loss, you need to show them a form of gambling, in which they can lose everything, or manage the risk so that if they do lose, they are not hurt with the option they have made.

Hope these tips come at some use, personally it did the trick on me…

Cheers,
Miike

Hi Ryan,

I've got a 4.5 year old son.

To get him started on his investment education, we've started playing "Monopoly". I let him play the way he wants it, but in the process he becomes aware of the role of bank, holding properties to get rent, auctioning the property to get cash etc.

Its just a beginning…Will definately incorporate Mike's suggestion as he grows older.

All the best.

Cheers,

Kumar

Hi Ryan.

I am a former teacher and mother of four, from twenties down to twelve.  All advice so far is great, but I know you'll find that each child is VERY different! Hence, role model, play monopoly and teach delayed gratification with each one, and I am pretty sure you'll still get a different result!!  One possibility is that they may react against what they see their parents doing, whatever it is.  While my oldest is great with money and already investing, the next one sees money as a way of acquiring clothes and travel.  On a cheerier note, I realized she had absorbed a lot of useful knowledge when a boyfriend's mother was about to enter into a poor investment – she thoughtfully recognized the pros and cons.

The most interesting thing I can share are findings from research by W. Danko (I think, The Millionaire Next Door fame, someone will correct me I am sure) that discovered that (almost) no matter what occupation a person had, they ended up less financial if they had received 'economic outpatient care' (money help) from their parents along the way!!!  So I think the message there is to teach children to expect less, and to work for what they want.  It is very hard in this consumer society.

I am sure you will do well as you are already aware and interested.

G

While I don't have kids of my own, and appreciate that every kid will react differently to the same experiences and teachings, I could at least share my experience when younger.

As a kid, 'Rich Dad, Poor Dad' and the Cashflow game were probably the most influential things for me, both of which were introduced by my Dad. But before that I already had some early experience. I got a little pocket money each time for daily expenses, an exam well done etc. In essence I learned to 'earn' money off my parents, but I also had to spend my own money on the toys and luxuries I desired.

It didn't take me long to realize that money could be easily spent in greater sums than it could be earned and my parents weren't going to give me anymore unless I absolutely earned it, so I had to save and learn delayed gratification, but I needed some other ways to make money quicker, otherwise it'd be years before I could buy a desired toy.

My Mum quit her job and spent much time at home to ensure my brother and I were studying. And during that time I would frequently see her watching the stock market. I was curious about all the numbers and my Mum taught me how to interpret that, which got me started with a fairly small amount of money. My parents also taught me that while saving money, that the bank would pay me interest, or shares would pay dividends. In essence this appeared to me that money makes more money. If I saved or invested more, I would earn more even when I wasn't physically working for it, whereas that toy I just bought wouldn't earn me any money and I couldn't sell it either.

And many years later both my parents encouraged me to buy a house, rent it out and move back with them, which I did, and now I'm looking to acquire a second one…the rest will depend on what happens in the future.

There's no 'best way' to teach kids I suppose, but even from the responses in this thread thus far it appears there are some similarities. The key things appear to be early experience, stimulating and easy to understand games/ books on the concepts of money, and support from parents. Naturally, a little ambition helps. If someone wants something badly enough and is willing to earn it morally, they will surely get it eventually.

Hi Ryan, first up congratulations on becoming a new dad. Its great that you're positive about teaching her about financial freedom and investment. I believe its one of the reasons why so many people don't achieve it … we're not taught basic budgetting skills as children (or in school) … and its so important.

I have two daughters. We've taught the girls' about putting money into their bank accounts and they've really enjoyed seeing their savings grow. I put their pocket money into the account every pay day and give them a balance every now and then. If they want to buy something they know it has to come out of their pocket and that means the balance will be less. I don't believe in giving them everything so I think its important that they learn a work ethic and that's what pocket money is all about. Just recently (as they're getting older), I've started offering money for other jobs, ie. wash my car (works for me! LOL) and I'll pay you $5. My youngest usually takes up the offer and puts the money into her 'piggy bank'.

As for investing, the girls' have watched my husband and I buy our first and then build our second investment properties. They can see first hand how the process works in the buy/sell and how the tenant/landlord relationships. My girls' came through properties with us when we were buying, they watched the whole building process happen, they were with us when we reviewed tenants and celebrated with us. We took it on as a whole family project and explained that it was for their future as much as ours. We outline the steps as we go.

Basically, they live it with us so the message is passed on … your daughter will do the same. Look at the children of the wealthy who take over the businesses because they've been raised on it … Lachlan Murdoch, James Packer, etc.

As a paramedic, I see lots of the low end of life. My general observation on this is (please excuse my crassness) that stupid breeds stupid. The children I attend are very often from families who probably haven't been taught the basic skills (or encouraged, or simply don't want to know) so they have nothing to pass on to the children and it becomes a perpetuating cycle. My heart breaks for these children because they're an open canvas with no direction and its such a waste. We can do better!!!

When the time comes, we'll be encouraging our girls' to be financially savvy and to invest but all we can do for now is instill messages and lead by example. Create a good work ethic, teach them about the value of money, basic budgetting and the importance of financial security … the rest will be up to them. You'll do fine … you're switched on, motivated and smart … I'm sure she'll be a chip of the old block!

I started my 6 year old off with $2 worth of coins. She then had to divide into 4 equal piles. Then place 50c into the 'Big Girl' box – for deposit into her bank account at a later stage (to access when she is 18), 50c into her 'Help' box – to donate to RSPCA or anything else of her choosing, and $1 into her 'spending' box. She then saves her money to buy a toy of her liking (which does take a few weeks).

It gives her a sense of what I think is important – saving for the future, helping others and receiving goods when she has enough  money. Its working a treat!

I have two young children and agree with what has been posted so far.  You will know your kids better than anyone else and really are in the best position to teach them what type of person you want them to be (much easier said than done!!).  Our eldest is 4 and we encourage her to pay for things when at the shops…this gives her an appreciation that things cost money and once the money is gone there is no more spending.  She is also encouraged to save (she has a piggy bank) and we get her to put money in tins for charity when we see them.  What you do with yours will depend on your own values and whatever you choose will need to be right for you and your family.  We are also very open and talk about money and our situation  (my parents never did this with us and I think it was a mistake).  You do you need to be very careful, you don't want to stress them out with problems…that isn't their job to worry about, but I think that it is important for them to understand that there is only a certain amount of money and things that have to be paid before you get to spend on whatever you want.  We also involve them as much as they want with our property investment.  I don't want to put them off by forcing it (I know they are only little, but I am practising for when they are older), so I answer any questions and let her look at whatever she wants and I try to explain what I am doing and why I am doing it.  Kids learn (I think) much more by seeing what we do, rather than us telling them what to do.  All you can do is your best and then hope for a good outcome!

Good luck with everything and enjoy being a parent…it certainly is a fun experience!

dbliss