How to teach children about investing

Investing can feel like a complicated subject for adults, let alone children, but introducing them to the concepts behind investing is a really useful lesson.

Teaching kids about investing is not just about explaining stocks and shares, but also about developing essential life skills like patience, delayed gratification, and the importance of making informed choices. Here are some ways to help you introduce children to the world of investing in a fun, understandable, and engaging way.

1. Start with the Basics of Money

Before teaching too much about investing, children need have a grip of the simpler financial concepts - so make sure they understand what money is, how it is earned, and how it is used for spending, saving, and earning. Here are some ideas to start you off.

• Spending: Talk about the items or experiences they want and how money is used to pay for them.

• Saving: Explain that saving money means putting some aside now for things they’ll need or want later. Use the idea of a piggy bank or savings account as examples.

• Earning: Introduce the idea of money being given in exchange for work.

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2. Use Stories To Teach

Storytelling is a teaching superpower! Keep it simple and fun. For example:

• The Growing Seed: You can try comparing investing to planting a seed. When you plant a seed, it starts small, but with the right care and time, it grows into a large plant. Similarly, investing involves putting your money into something that will grow over time.

• The Lemonade or Ice Cream Stand: If your child has ever seen a lemonade or an ice cream stand, use it as an example. They can invest money in supplies (like cups, lemons, and sugar) and, with hard work and some patience, earn more money than they initially spent. This is similar to how investors use money to buy assets like stocks, with the hope of getting a return.

  
  

3. Introduce the Concept of Risk and Reward

Explain that investing isn't an easy "get rich quick" scheme. Sometimes, investments go up in value, and other times, they might lose value. Help children understand that while investing can result in more money, there’s also a risk of losing it.

You could use a simple example: "If you put all your money into one thing, like a toy you think is really cool, it might break, and you’ll lose your money. But if you spread your money across several things—maybe toys, books, and games—you have more chances for things to go well." This idea mirrors diversification, a key concept in investing.

4. Play Games Together

One of the best ways to teach children is through play. There are many games that can help you teach your child about investing:

• Monopoly: This classic game teaches players about managing money, buying property, and understanding the consequences of investments—plus, it’s fun!

• Game of Life: Another classic that introduces investing, along with other ideas like insurance.

• Big Money: A fast paced game with fun assets to buy like a candy factory.

  
  

5. Give Them Some Control with a Small Investment

Once your child understands the basics, consider giving them a small amount of money to “invest” in something of their choice. Whether it’s stocks, bonds, or a small business idea, practicing with real money can help them understand how investments work in real life.

Start with something low-risk and simple, and as your child gets older, you can introduce more sophisticated topics like ETFs (Exchange-Traded Funds), bonds, or even mutual funds.

6. Talk about Long-Term Thinking

This can be a tricky one for kids! But it is well worth spending some time teaching your children the importance of patience and long-term thinking when it comes to investing. It's rare for an investment to produce immediate results. Help them understand that real wealth-building takes time.

You could use the example of a tree that takes years to grow. Just like waiting for a tree to mature, investing involves waiting for a return, but the longer you wait, the bigger and stronger it can become. Encourage your child to think of their investments as something that will take time to grow, and teach them the value of sticking with their decisions rather than trying to get quick results.

7. Encourage Them to Set Financial Goals

Help your child set clear, achievable financial goals - remember this will look very different depending on their age! But whether it's saving for a new toy, a trip to the cinema, or a fund for driving lessons, having a goal gives them motivation and a clear purpose for their investments. You can help them break down their goals into smaller, manageable steps, making the journey feel less overwhelming.

Teach them how to track their progress - visual trackers are good for younger children; and celebrate small milestones along the way. This will reinforce the idea that investing isn’t just about making money—it’s about achieving a goal over time.

Conclusion

Teaching children about investing doesn't have to be about explaining complex financial instruments—it’s about instilling a mindset of confidence with money and long-term thinking. By using fun stories, games, and real-life examples, you can help your child understand the concepts of investing, risk, and reward in a way that feels fun and engaging. The skills they develop will serve them well throughout their lives, helping them make informed decisions about money and investments as they grow older. So start early, keep it fun, and watch your child's financial confidence grow!