How to Teach Your Children About Saving and Investing

December 26, 2021

Okay, let's be honest. Thinking about our kids’ financial futures can feel a little daunting. It’s easy to put it off, thinking they’re too young to understand. But the truth is, starting early is so much easier than trying to teach them when they’re older and potentially overwhelmed. Introducing the concepts of saving and investing doesn’t have to be complicated. It’s about planting seeds – seeds of good financial habits – that will blossom into responsible money management skills.

Why Start Early?

The earlier you start, the more time their money has to grow thanks to the power of compounding. Even small amounts saved consistently can add up dramatically over time. More importantly, it builds good habits. They’ll learn the value of delayed gratification, the importance of setting goals, and the basics of how money works.

Here’s a breakdown of how to approach this with your children:

1. Start with the Basics - Saving:

The Piggy Bank/Jar Method: This is a classic for a reason! It’s tangible and allows them to physically see their savings grow. Encourage them to set savings goals – maybe a new toy, a special experience, or even just saving for fun.
Allowance: Linking an allowance to chores (or even just a regular weekly amount) is a great way to teach them about earning and saving.
Savings Accounts: Once they’re a little older (around 8-10), open a savings account with them. Let them watch their money grow with interest – a great visual lesson!

2. Introduce Investing (Age 10+ - Tailor to their Maturity):

Explain Compounding: This is the magic! Help them understand that earning interest on interest is powerful. Use a simple example – “If you earn $10 and then earn 5% interest on that$ 10, you now have $10.50. Then you earn 5% on$ 10.50…” It's easier than it sounds.
Simple Investment Options:
- Custodial Accounts (UTMA/UGMA): These accounts, held in their name but managed by a custodian (usually a parent), allow you to invest in stocks, bonds, or mutual funds. This is often the easiest way for children to begin investing. Important: Understand the tax implications of these accounts.
- Stock Market Games: There are several online games that simulate the stock market and let kids practice investing with virtual money. These can be a fun and low-pressure way to learn.
Focus on Long-Term Goals: Don’t get caught up in short-term market fluctuations. Help them understand that investing is a long-term game.

3. Make it Fun & Relevant:

Talk About Your Own Finances (Appropriately): Let them see you making financial decisions – budgeting, saving, and potentially investing.
Set Savings Challenges: “Let’s see if we can save $50 for that new bike!”
Relate it to Their Interests: If they love video games, talk about how investing could help them eventually buy the latest console.

Resources to Explore:

Investopedia – Great for learning about basic investing terms.
Junior Achievement – Offers educational programs for kids and teens.

Teaching your children about saving and investing is an investment in their future. Start today, and you’ll be giving them a gift that will last a lifetime.