Three Steps To Start Teaching Your Kids About Investing

If you’re already an adult, do you sometimes wish that your parents had taught you about money earlier? If you had known concepts like the time value of money, compounded interest, and the importance of managing your finances at a younger age, how would your life be different now?

While it’s never too late to start with all that even as an adult, such knowledge would be even more powerful if they’re absorbed by the next generation while they’re still young. In light of that, we can teach our kids more about investing and help give them a headstart in their financial planning life. And, it might be simpler than you think.

Set up a “paper money” account for them

With the help of the internet, it is easy to just set up a “paper money” account for them to start ‘investing’. It can be treated as a game to engage and interest your child in investing. You could perhaps start by having a paper portfolio of maybe S$ 10,000 from which they could invest in any company they want.

Start with companies they know

As kids, the whole idea of a ‘company’ might be alien for them. But, you can guide them by starting with companies they already know. If they enjoy having the famous Pork Floss Buns from Breadtalk’s (SGX: 5DA) namesake bakeries for breakfast, or enjoying drinking chicken’s essence from Traditional Chinese Medicine outfit Eu Yan Sang (SGX: E02) to boost their health and energy levels, then that might be places to start.

This might even trigger them to be more aware of their surroundings and start noticing companies that they are in contact with frequently. Bus and train operator SMRT (SGX: S53), taxi services provider ComfortDelGro Corporation (SGX: C52), or even dental clinics owner Q&M Dental Group  (SGX: QC7) could be examples of companies that kids have constant contact with. And of course, those are all public companies in which anyone could be part owners of.

Setup a rewarding program

In every game, there must be an objective and a reward if it’s won. The reward can be a simple promise like a particular present or an increase in their pocket money if they achieve a certain investment return. If you have faith in your kids, you could even promise to start funding their own investment accounts with real money.

Foolish Summary

Although this is an exercise in investing in the stock market, I believe the main takeaway should be letting our children understand the concept of compounding. They also need to understand how the acts of saving and investing can one day led them to have the financial resources to pursue their passion in life. Money should be viewed as a tool that can help them to navigate through life and not something that they have to constantly worry about.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.