Investing can be a somewhat difficult concept to explain to children. Having to explain factors such as inflation, yield environment, interest rates and government policies can get you a yawn from them. However, there is always a way out.
Teaching investments can be fun and engaging, it only requires tact.
First, it is important that children understand the value of money; and the best way to teach this is by making them work for it, making them pay for things and showing them how to stick to a budget.
Money is only as good as you make it, and a steady approach to teaching children about investments is telling stories about the importance of patience, perseverance and growth. Investing should be likened to tree-planting, starting with the careful selection of a fertile land, the planting of seeds and most importantly, the continuous watering of the plant.
To efficiently invest, children must save, of course, how can there be an investment when there’s nothing to invest?
Paying children for services rendered (chores, errands or even work for your business), making them pay for certain items like transportation, clothes etc.; can better help them understand the importance of budgeting, trade-offs and buyer’s remorse.
In teaching about stocks, one can make it practical by talking about products. For example, a child who loves eating Blue Band Margarine can be told about Unilever and how it may not be able to produce more margarine without additional capital, and how he/she can help Unilever continue to produce by buying their stocks. You can take it a notch higher by explaining that owing stocks is as good as owing part of companies they love.
In teaching about debt securities, like treasury bills, commercial papers etc, one can simply talk about how they can get paid for lending money; this should be interesting. But most importantly, how the interest earned on the money lent (capital) can also earn returns by reinvesting it.
It is also really important to teach children about diversifying investment, teaching them about the woes of putting all eggs in one basket. This can be likened to investing all their money in their favorite drink’s company, say, Pepsi. 7up bottling company will continue to make money as long as people keep drinking “Pepsi” but what happens when people want fresh fruit drinks and no longer drink Pepsi? Their profits will dwindle, and the investor could lose all the money. But this may not be the case if they had invested in different unrelated product companies.
Another interesting way to teach children about investments is the use of games such as Wise Pockets, H.I.P Pocket Change (For elementary age kids) and Meri-Game (www.meritrade.com ) by Meristem Stockbrokers Limited for grown kids. This can be an interesting and practical way to teach about saving and investing in the stock market.
There really is no best way to teach children about investments. However, the most important thing is to make them understand the concepts and make it as practical as possible. Wealthy personalities who have made it big from investing can also be referenced in stories and children can be encouraged to aspire for this wealth.