Here at Investor Junkie, we’re always reminding our readers that the sooner they start investing, the better. After all, the younger you are, the more time you have for compound interest to work its magic. So getting your kids (or grandkids, nieces and nephews, etc.) to invest is ideal for them, right? But how do you get them started on a lifetime of safe investing?
When I was growing up, my mother never had a single conversation with me about investing. Talking about money just wasn’t something we did in my house. We talked about sports and school and who would empty the dishwasher. As a consequence, I didn’t really understand the stock market until I was in my 20s. And I didn’t start investing until I was 27. (You can read about my financial “wake-up call” here.) I wish that this hadn’t been the case and that I’d been more financially literate earlier in my life. I could have been even further ahead in my retirement savings!
It might seem tough to get kids interested in stocks and bonds when there’s Minecraft and soccer competing for their time. But don’t be discouraged! Here are a few ways you can get your kids started with investing. They may even have fun in the process!
Talk Openly and Consistently About Investing
Setting an investing foundation under your kids starts with explaining to them what this investing thing is all about. Don’t limit this to a one-time conversation. Keep the door open for future chats about money in general. When the stock market is in the news, talk about how that affects your holdings. Ask your children for their thoughts to help them start thinking critically about how investing works.
Skip the jargon and go for the big picture. Outline basic terms like “stocks,” “bonds,” “returns” and “portfolio” to give your child a broad view of how investing works. The more you can make it relevant to their life, the more engaged they’ll be, so don’t shy away from explaining how investing generates money to pay for things like their soccer team or the house you live in.
Here’s a great story your kids will love to hear about: A couple of years ago, Motif held a competition among university investing clubs to see who could create the best motif. (Motif is a popular online discount stock broker that specializes in investing based on themes. You can create your own “motif” by picking up to 30 stocks or ETFs.) What those college teams didn’t know is that a group of 6th graders from Fargo, North Dakota, entered as well… and beat the pants off everyone else. The team, “Carlson’s Math Minions,” realized a return of 21.6%. The second-place winners, from the McIntire Investment Institute, got 18.5%. And during the same time frame, the S&P 500 realized only 10.2%
If your children want to have a go at creating a kid-powered basket of stocks, why not have them help you design a motif too?
Keep It Real
How did those kids from Fargo beat the market so soundly? Maybe it had to do with the fact that they took a page from Warren Buffett’s book and picked companies that they knew — like Netflix and Under Armour.
A great way to keep your kids excited about investing is to keep relating it to their lives. When they’re 8 or 10 and you’re just beginning to talk about money and investing as a concrete topic, use toy companies like Hasbro and Mattel to explain the basics of it all to them.
When they’re teenagers, you might switch your examples to film companies that are creating the movies they go see with their friends or Netflix (the couch-potato teenager’s best friend) or their favorite hangouts, such as Dunkin’ Donuts or Starbucks.
You can help your kids purchase shares of many of these popular companies through Stockpile. Stockpile is a broker with a really cool concept: It allows you to purchase stocks or fractional shares through gift cards. The company was actually founded by a guy who wanted to buy stocks for his nieces and nephews at Christmas but couldn’t figure out a good way to do it. Now you can choose from hundreds of household-name companies like McDonald’s and Amazon. It’s a great idea to get kids interested in investing.
Open a Custodial Account
Besides Motif and Stockpile, there are many other online brokers that offer a way for parents to invest alongside their kids.
They do this with something called a custodial account. The child is the owner of the stocks purchased, but the adult has the legal responsibility of the investing account. When your child reaches 18, the account becomes fully theirs.
With this kind of account, you can get your child involved in investing on their own. Not only is this a well-designed way to educate your child, but you are also handing them wealth that will someday be theirs. You’re handing your child the opportunity to learn and get a head start on investing.
Here’s a list of the brokers we’ve reviewed that have custodial accounts:
- Ally Invest
- Capital One Investing
- Charles Schwab
- Fidelity Investments
- Merrill Edge
- TD Ameritrade
It may seem tough to get kids excited about investing and saving money for the future, but it can be done.
Creating a home where talking about money is encouraged is one of the best things you can do for your children. Taking the mystery out of money is a gift. Money will be a fact of your children’s future life, so the more they know about it, the more they’ll be able to use it as a tool.