A guide to explaining investments to children

Recently, a young 12-year-old boy in South Korea made a 43% profit gain from investing in stocks — all because he managed to convince his mother to open a retail trading account for him. As we can see, children are more than capable of understanding the concepts behind investments and do their own investing, if only they are taught. 

It’s generally recommended to teach your child about investments after they are already familiar with the concept of savings. According to experts, ages 5 to 15 are the most crucial years for teaching children about investments and to lay a good foundation. 

So, if you’re unsure of where and how to begin, here are some practical tips on how to get your child started on investments. 

Of all the types of investments, cash investments, where cash grows through interest, may be the easiest to introduce to your child.

Typically, children are already encouraged to put their leftover allowance into a piggy bank. Parents can use these to show how cash investments work by adding a small percentage of money (i.e. interest) to their piggy bank savings at the end of every month. Being able to see their physical savings grow will help your child better grasp how interests and cash investments work, and can even motivate them to save more.

Did you know that Warren Buffett bought his first stock at 11 years old? It’s worth getting your child familiar with stocks and shares from a young age. But investments can be boring to learn about, and your children may easily lose interest in the lessons.

To keep their attention and make it an engaging experience, why not use board games to open up conversations about stocks and investments?

Rats to Riches

Want a fun yet educational game for family game nights? Financial board games like Rats to Riches infuse fun, competitive spirit into the world of investments. Players have to make it out of the rat race by earning income, investing and selling assets, and even sabotaging other players. 

Game of Life

A classic board game for family and friends, the Game of Life brings your child through a simulated life, from finding a job to retirement. It’s a fun way to introduce your child to financial concepts like banking, stocks and insurance.  

As interesting as these financial games can be, your child may benefit from a look into how investments really work in the real-world. If you have been dabbling in investments and the stock market yourself, then it would be useful to share your own experiences with your child.

The next time you make an investment or check the stock market, get your child involved and walk them through the process. Let them observe how you buy stocks and track the stock market.

If your child has the basics down on what investments there are, and is keen to try investing on their own, sit down with them to set up a mock investment portfolio on platforms like MarketWatch and TeenVestor Stock Game. Together, you and your child can put together a list of stocks that they may be interested in, like Disney or toy companies. This will be a good chance for you to explain what stocks are and the different companies that you can buy stocks from. 

This will also be a good time for them to learn how the stock market works. MarketWatch and TeenVestor both allow you and your child to play around with a simulated stock market. Your child will be able to build a virtual stock portfolio, watch the market trends in real-time, and even trade their stocks — all without the dangers of spending real money. 

If your child is showing interest in bringing their knowledge into the real world, there may be some child-friendly investment opportunities that you can consider dabbling in.

Most banks around the world allow parents to open a savings account for their children. This not only grants them a sum of savings for them to access once they’re older, but it can also properly introduce them to how interest works in the real world.

At the end of the day, every child is different with different learning styles. Investments can be a tricky topic for children to understand, so it’s best to play things by ear and go at a pace that your child is comfortable with!