Give Your Kids an Early Education in Investing
For parents trying to raise self-sufficient kids, there’s a timeless proverb that bears repeating: “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” Despite this bit of wisdom, many parents still make the mistake of over-providing and under-explaining when it comes to financial education, including investing.
You can avoid this mistake by teaching your children about the basics of investing before they’re out on their own. By introducing some key financial concepts and providing a safe space to experiment, you’ll help them acquire the foundational knowledge they’ll need to build financial security as adults.
Here are four tips to get them started:
- Choose the right time: Every child matures at a different rate, but most kids can grasp the fundamentals of investing by their mid-to-late teens. Start with a discussion about the importance of building wealth to afford a comfortable lifestyle and meet major long-term goals.
- Explain the essentials: Kids should know that investing means buying assets that can increase in value over time. With recurring contributions and the power of compound earnings, they can potentially grow their money much faster than they would in a basic savings account. But they could also lose money, so they must understand the relationship between risk tolerance and time horizon.
- Start small, then expand: Consider opening a joint brokerage or custodial account with your preferred institution and buying stock in a few companies your child finds interesting (e.g., Apple or Disney). Later, you can explain the benefits of diversification and how mutual funds and exchange-traded funds (ETFs) allow them to invest in many companies at once.
- Get credible advice: There’s no shortage of websites, videos and apps geared toward beginner investors that can help your kids learn. Just be sure the information comes from a reliable and objective source, not some get-rich-quick scheme on social media, or general advice online that’s not tailored to their unique financial situation. Better yet, have your kids sit down with your financial advisor to map out a simple investing plan.
Help your child monitor and modify their budding portfolio, and they’ll begin to absorb the investing principles that will serve them well for the rest of their lives. For further guidance on early investing, reach out to Joel Doolen at Joel.Doolen@frostbank.com or 214.515.4982.
Investment and insurance products are not FDIC insured, are not bank guaranteed, and may lose value. Brokerage services offered through Frost Brokerage Services, Inc., Member FINRA/SIPC, and investment advisory services offered through Frost Investment Services, LLC, a registered investment adviser. Both companies are subsidiaries of Frost Bank. Additionally, insurance products are offered through Frost Insurance.