The stock market isn’t just for grown-ups and it’s never too early to start teaching your kids about investing, as a matter of fact it’s even advisable to start as early as possible.
As a parent, who always wants the best for your children, you can do so much more than just putting their little savings in a porcelain piggy.
A study from investing site T. Rowe Price found that 71 percent of parents are reluctant to talk finances with their children, even though more than 80 percent believe it’s important.
Also, while 63 percent of parents say they have at least two opportunities each day to discuss money with their children, 56 percent don’t take them. And 41 percent of parents say they have never discussed investing with their kids at all.
Philippine Business School (PBS) believes that teaching children investing skills at a young age can bolster their chances for making smart investment and financial decisions in the future.
“Children need to learn how to invest their money; they just need to be taught what really matters and they need to be taught in ways that correspond to their age and their interests.” Shared PBS Business Development Head, Christine Filomeno, during their first Kids Business Tycoon workshop.
You might be tempted to put off investing discussions until your kid is grown up and has money to invest. But don’t. Making sure that your child learns the fundamentals early will be a valuable gift.
But how exactly do you explain to a 10-year-old child, for example, the concept of buying stocks? Here is a list of easy and practical ways to introduce the colossal jungle of stock trading to your kids in a child friendly approach:
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Keep it simple, speak their language.
Investing in the stock market is like being part-owner of a company. Ask them which company they want to partly own. A kid probably has a favorite fast food restaurant; let’s say it’s Jollibee. Ask them if they want to become part owner of Jollibee. If they say yes, you can tell them that they can take their savings and invest it in a good company which they love. And every time that company makes money from all the other kids who eat there – and as the company grows and earns – they will get a share of that profit.
From saving to investing.
While saving is an easy way to relate, investing is the next step in making money work. Point out to children the difference between saving and investing.
Saving is safekeeping your money until you need it later. It is not meant to earn money while you wait over this period of time. The main goal is to not spend it. On the other hand, to invest your money means putting it into an investment of some type that will make the money grow in value. The goal of investing is to earn money on your money, not safekeeping.
Track the stock’s price on a regular basis.
Part of teaching kids about the stock market is helping them to understand that market fluctuations are normal. If the value of his stock changes, discuss with your child what would happen if he sold his stock at that point in time. Also talk about the value of holding onto his investment: selling stock when it is low means a loss, but selling it when it is high means the end of his investment.
Give them stocks as birthday or Christmas present.
To quote AB Capital Securities, “anybody can open an account… even a child.” For a minimum of P10,000 and P5,000, you can open a trading account for your children at AB Capital Securities and COL Financial respectively. Similar to mutual funds, you’ll handle your child’s account which will be opened ITF and under your name until they reach legal age. You can start teaching them about public ownership and that they too can be part-owner to their favorite companies.
One benefit to stock as a gift is that it can spark a basic economics lesson about the importance of saving—and waiting.
Look at stock charts with your child
Investing should be a family activity and parents should provide a benchmark for children to look up to. Show your child the companies of which you own a small part. If you own any exciting companies that might be of interest to your child, make sure that you request the company’s current investor relations package, or print it off the internet, so that you can show your child more about those companies.
Show him how to evaluate how his stock is doing. Show him how charts make it easier to identify trends, despite any ups and downs of the market.
Introduce him to the concept of diversifying.
Diversification means that your child isn’t putting all his eggs in one basket. He’s spreading his risk of loss by using different investments because some may do well and others may not do so well. Teach him the importance of diversification so that he spreads his risk over several stocks, instead of buying just one. Use prices and trends over time to show him why it’s a good idea.
Let you child pick the stock when you are ready to increase his holdings. If you think he is making a bad choice, discuss it with him and give him your reasons. Offer him some options you think are better choices and explain your thinking to him. This will help him develop the judgment he needs to invest on his own.
You can also enroll them in seminars or classes.
It’s unfortunate that our schools don’t teach the basics of finance, saving and investment to our kids. Great news is that Philippine Business School regularly conducts the Kids Business tycoon program which teaches children how to appreciate and manage their finances wisely, and how to save and invest in the stock market.
At the end of it, you will all be prepared to invest in the stock market. So next time you give your kids some pocket money or they earn some, they will know exactly where to put it – in the stock market and watch that money grow. So parents, get your kids onboard, get them a notebook, get them ready to take some notes and let’s get started. It’s going to be a lot of fun.
As we have mentioned at the beginning of the article, your children can reap higher returns the earlier they start investing. Everybody teaches their kids how to save, how to value money and how to count. But what we’re trying to share is that at a very young age, whether they can absorb it or not, it doesn’t matter. Over time, as you continue to work with your child, they will one day be able to understand it. Time is your child’s most valuable asset, so make them aware of this advantage as soon as possible. It’s never too early to teach investing when it comes to their future. So start them early, and young.
Philippine Business School believes in the world-class potential of each Filipino as global business leaders of tomorrow. It currently holds numerous programs and courses applicable to different fields, including Business Development and Management, MBA courses, VAT masterclass, Human Capital Management (HCM) and much more! Connect with their office at Ibis One Central Building with telephone nos.+971 4 5232488. For more information visit their website at www.phbusinessschool.com.