How To Teach Your Child About Investing
Have you taught your children about investing? As your child becomes more aware of money and other financial concepts, it is vital that you arm them with some important investment knowledge. Read on to find out how to impart some investing smarts to your children. If you don't have the basic knowledge required for investing, and need to learn more yourself, read Investing 101: A Tutorial For Beginner Investors before we start.
Investing Should Be a Family ActivitySome parents are guilty of not discussing personal finance with their children, and almost all parents are guilty of not discussing investing with their children. Investing should be a family activity. Children mature at different rates, so it may take some time before your child is ready to tackle concepts like portfolio creation and asset allocation; however, the basics of investing can be taught quite young.
Risk and RewardBefore you have your kids spending Saturdays at the library using the internet to check company profiles, you will have to explain risk and reward। Risk is the possibility that an investment will lose some or all of its value. Reward is the percentage of gain that your investment experiences over time - the return on investment (ROI).
Investing Should Be a Family ActivitySome parents are guilty of not discussing personal finance with their children, and almost all parents are guilty of not discussing investing with their children. Investing should be a family activity. Children mature at different rates, so it may take some time before your child is ready to tackle concepts like portfolio creation and asset allocation; however, the basics of investing can be taught quite young.
Risk and RewardBefore you have your kids spending Saturdays at the library using the internet to check company profiles, you will have to explain risk and reward। Risk is the possibility that an investment will lose some or all of its value. Reward is the percentage of gain that your investment experiences over time - the return on investment (ROI).
Below we will sketch a brief picture of the two more common investments: debt securities and stocks.
Easy Ideas to Tell Your Kids About: StocksStocks are variable risk, variable return investments. On the whole, they are categorized as high risk and high return. You have to make it clear that all the risks involved in the stock markets can't be predicted.
Enron and other companies have proved that accounting sheets can be tampered with and CEOs can lie. But even with the unknown risks, the stock market is a strong investment because, over time, it has seen a general rise.
SEE: Stocks Basics
Easy Ideas to Tell Your Kids About: Debt SecuritiesA bond is a low-risk, low-return investment. Typically, bonds pay only a small amount over the prime interest rate because they are backed by stable institutions (usually banks or governments). You can buy bonds from unstable regions of the world that offer better returns, but these countries often have unstable governments, so you can't necessarily count on getting that return down the road.
Therefore, it may be best start your child with stocks and explain that bonds become more important as you age and need guaranteed investments. Your child will probably not have enough money to make bonds worthwhile, and may actually lose money to inflation.
Getting Your Child's AttentionWhen you are checking your stocks, show your child the companies of which you own a small part. If you own any exciting companies that might be of interest to your children - plane manufacturers like Boeing, sports equipment specialists like Bauer, technology and video game companies like Sony - make sure that you request the company's current investor relations package, or print it off the internet, so that you can show your child more about those companies, including how much they earned, what they make and how many people work for them.
Easy Ideas to Tell Your Kids About: StocksStocks are variable risk, variable return investments. On the whole, they are categorized as high risk and high return. You have to make it clear that all the risks involved in the stock markets can't be predicted.
Enron and other companies have proved that accounting sheets can be tampered with and CEOs can lie. But even with the unknown risks, the stock market is a strong investment because, over time, it has seen a general rise.
SEE: Stocks Basics
Easy Ideas to Tell Your Kids About: Debt SecuritiesA bond is a low-risk, low-return investment. Typically, bonds pay only a small amount over the prime interest rate because they are backed by stable institutions (usually banks or governments). You can buy bonds from unstable regions of the world that offer better returns, but these countries often have unstable governments, so you can't necessarily count on getting that return down the road.
Therefore, it may be best start your child with stocks and explain that bonds become more important as you age and need guaranteed investments. Your child will probably not have enough money to make bonds worthwhile, and may actually lose money to inflation.
Getting Your Child's AttentionWhen you are checking your stocks, show your child the companies of which you own a small part. If you own any exciting companies that might be of interest to your children - plane manufacturers like Boeing, sports equipment specialists like Bauer, technology and video game companies like Sony - make sure that you request the company's current investor relations package, or print it off the internet, so that you can show your child more about those companies, including how much they earned, what they make and how many people work for them.
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