How To Teach Your Children About Investing From a Young Age

Money management is a skill that needs to be taught to kids at a young age. Here are five tips to teach your children about investing!

Money management is a skill that needs to be taught to kids at a young age. Kids need to understand the difference between saving, spending, and budgeting. And a practical approach is the best way to impact the lessons. Teaching your kids to manage money helps them appreciate the value. Once kids can read and write, you should educate them on investment. Explain what investment is, how it works, and ways to profit effectively. Imagine being taught investment as a tool for building wealth from toddler age; the child will become financially stable before adulthood. Investment is not all about buying stocks or mutual funds but understanding the basic principles. These principles will help them understand and create a solid foundation before investment. Knowing about investment as a child will save them the hardship of working for someone or looking for work. It will also make them independent and focus on creating wealth by themselves.

1. Educate Them On Cryptocurrency

There Are popular stories of crypto-rich kids like Erik Finman, who became a millionaire by investing $1000 in bitcoin in 2011. This story has inspired many kids to ask questions about crypto assets. Teaching a kid about working on checkbooks may be boring, but focusing on bitcoin and cryptocurrency will create enlightenment. Crypto is becoming popular among kids because;

Cryptocurrency is the trending wealth-building factor, and missing out won’t be cool.

Cryptocurrency is the seamless, convenient, no sweat, and fastest way to build wealth for kids.

Gen Z kids are tech-savvy and eager to know new techs and innovations.

For a child to easily grab cryptocurrency is about, start by explaining the basic terms such as different cryptocurrencies, crypto arbitrage, and opening and funding an account.

2. Open A Roth IRA

A Roth IRA account is set aside for your child’s future. The account is tax-free and accepts contributions that are withdrawn tax-free after retirement. These accounts are formed to assist the save for retirement. The custodian handles the account until the child comes of age, usually 18 or 21 years in most states. However, the account can only be approved if your child has started earning money and the deposit is limited to $6,000. Roth accounts can be withdrawn at any time, but the child can withdraw only the earnings. Your child can use these savings to pay for college or buy a home when needed.

3. Stocks & Bonds

Stock and bonds are alternatives to having savings account for your child. Stock is variable-risk with variable return on investment. However, stocks are highly risky in the financial sphere because of their unstable prices. Stocks rise and fall, which is affected by the company’s ability to make a profit or loss.

Bonds have low risk with a low return on investment. Generally, bonds only make little profits over the prime interest rate and are sponsored by financial institutes. Bonds can be bought at low cost and subsequently appreciate returns that can be withdrawn when needed. Stock and bonds may appreciate over time resulting in financial freedom for your child, and they are cheap to purchase.

4. 529 Plan

A 529 plan is a tax-free investment account initiated by the government to help families save for children’s college. The fund is only taxed free in the account and if used to pay for educational expenses such as tuition, fees, accommodation, and board. However, tax is levied on any expenses not covered under education and attracts a 10% penalty on earnings. A 529 plan can help a child take care of expenses relating to education. Tangible contributions can accumulate to huge funds, which can be used to further the child’s education.

5. Teach Them About The Risks

The risk is an important aspect not to neglect when teaching kids about investment. Risk is the detrimental consequence of bad investment. There is a low risk, which generates low returns, and a high risk with high returns. However, these terms may be difficult for a child to understand and what investment is needed to manage the risk. Teach the child about investment products that can be used to achieve investment goals. The investment products pyramid is a diagram to start from. The pyramid illustrates risk vs. reward on types of investment products. The pyramid has stable assets such as CDs, cash, and money market accounts which incur lower risk. An unstable asset is a stock known to rise and fall and cannot be predicted but attracts a huge return of investment in the long run. Knowing the risk involved can help your child manage funds and investments.

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One Comment

  1. I would love to inculcate a love of cryptocurrencies and markets in my child. I know that a friend of mine buys bitcoins every month and deposits them into his son’s wallet, which he wants to give him for his 18th birthday. That will be in 10 years and I wonder how much bitcoin will be worth by that time and if my son will appreciate such a present) I would teach my son too, maybe more about NFT/P2E, I think it is much more interesting for children than trading. But as an option I see the use of trading robots to initially help the child understand the basics of trading and market cycles in general.

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