In the past, growing money was an activity that only the ultra-rich were able to partake in, as many instruments for accumulating wealth were beyond the paygrade of everyday individuals. These days, however, there are plenty of assets that the common folk have access to, such as exchange-traded funds (ETF) and mutual funds, certificates of deposit (CD), and money market accounts and funds.
Some platforms even enable regular folks to put their money on fine art and fine wine without necessarily breaking their budgets. In the future, the next generation of investors might have even more investment options at the tips of their fingers. This is something you need to prepare your children for.
There are a few things you need to do to make your children understand the value of growing money. It’s also important to equip them with the tools they need to evaluate their investment options in the future. Here are some ideas that can help you introduce basic but crucial concepts to your investors-in-the-making:
Show Them That Money Can Grow Through Smart Investments
To introduce the concept of investments to children, you need to demonstrate exactly how money grows. Young children might not fully grasp the idea at first, but they’ll have a deeper understanding of it as they grow older.
Perhaps you can tell them that you’ve invested money in a cryptocurrency like Monero and are keeping a few tokens in your Monero wallet. You can tell them how much you bought each coin for, to start. Then, the two of you can keep track of the rise and fall of the price of the coin over time.
If your child is learning about multiplication or percentages in their classes, you can even get their help in computing how much you’ve profited or lost compared to your initial investment. It’s a great way to introduce investment-related concepts while they’re young. Plus, it gives you and your child a new topic to talk about whenever you want to spend quality time with each other.
Familiarize Them with the Concept of Risk and Reward Early On
Some kids are naturally inquisitive and willing to try new ideas at the drop of a hat. Others approach the unfamiliar with plenty of hesitation and thus prefer to observe others first. As they grow up, these children will be presented with situations where they have to take risks. Their successes will teach them to strive further and achieve more, while their failures can teach them about their limitations and points for improvement.
To drive these lessons home, it’s important to sit down with your children and converse with them about risks and rewards whenever the opportunity arises. You can introduce these concepts to them through play and games, things that children are quite familiar with.
For example, don’t just tell them not to use their savings to buy trendy toys. Instead, you can perhaps demonstrate how their money can grow in value if they keep it in their savings account and let it accumulate interest.
Alternatively, you can also praise them for having reached a savings goal and inform them of how they can further grow their finances in kid-friendly ways. One example is to suggest that they invest in tools to make crafts. They can then sell the resulting products for a bigger return on investment.
These conversations can help develop a child’s risk competence and get them into the habit of thinking of the consequences of their actions before jumping into any decision. This is a practice that will serve them well, no matter if they’re managing their investments or making decisions that will affect their present circ*mstances and future options.
Show the Benefits of Diversification in Real-Life Situations
Diversification is a crucial concept in investing, and it’s also an idea that even adults have a hard time grasping. Simply put, to diversify one’s investments is to allocate one’s resources to different types of assets. Among others, the chief benefit of diversification is that it can help an investor balance the level of risk that they are taking.
To teach such a complicated concept to young children, you need to be able to demonstrate diversification tangibly. One idea is to play games like Monopoly and show why it’s important to have a mix of money, properties, and utilities instead of putting all their eggs in one basket. You can also explain what happens in the game if you’re cash-poor and property-rich or vice versa, and then relate it to real-life situations.
Another idea is to hold a lottery where your child can use their assets to bet on various items, with each item having a different betting cost. You can explain the pros and cons of their options and help them think through their decision. Should they risk all their existing assets on a single big-ticket item, even if winning isn’t guaranteed? Or should they spread their assets across multiple, more affordable items to increase their chances of winning, even if the prizes may not be as grand?
Fortunately, asset allocation is a skill that kids can learn at an early age. Give them plenty of opportunities to practice this, and there’s a good chance that they’ll develop a keen eye for distributing their investment capital as they grow older.
Find a Small Financial Goal and Use It to Introduce the Idea of Time Horizons
It can be a challenge to get kids to imagine what life will be like five or ten years down the road when they still haven’t grasped the concept of time and how fast the world is changing right in front of them. The good news is that you don’t need to make them visualize their lives too far into the future if you’re just introducing them to the idea of time horizons. All you have to do is start small.
Maybe your child aims to buy a gaming rig in the near future and they have a savings account that can help them start on this project. You can sit down with your child and discuss the pros and cons of using their existing funds now to buy a gaming rig that fits their current budget, even if it’s not their top choice. Then, you can talk through the pros and cons of leaving their funds in their savings account until it accumulates enough interest so that they can buy the model that they really want. Such a situation offers a practical demonstration of how time is also an important factor when making investments and reaching financial goals.
Investing, just like saving, is an essential lesson that people should start learning at a young age. Unfortunately, growing one’s money is not exactly a common skill that the previous generation of parents elected to teach their own children. But while it may have been a struggle for you, you can at least give your own kids a head-start in their financial journey with the above tips.
