Of course, with an 8-year-old, you cannot get by with price/earnings ratios or cash flow analysis. Teaching kids may be very hard, but remember that they are children, and you must make investments interesting for them; or otherwise, they will soon lose motivation.
It would help if you taught your child about investing in an age-appropriate way. Make it a game for them or a responsibility like house jobs, give them little responsibilities for buying things from the market and teach them to find the cheapest and perfect quality items. This way, they will understand the difference in how the market has a similar product at many prices. At the same time, most of us don’t know of it.
Depositing some money into a brokerage account to teach your child how to invest is not such a good idea. When the child loses money, he may develop an aversion to the stock market. That might be even worse. When the child wins money, they may already think that they are a genius, and the child will start taking more risks.
4 to 9 years
Children at a young age should not yet learn about the stock market. But you can learn the principle of the stock market. Investing is investing for the long term. So, you can teach your child lessons that when you spend time and energy on something, it can yield a valuable result in the long run.
For example, your child can garden. Planting and caring for seeds will eventually produce a beautiful plant or flower. A giant puzzle or craft project can be encouraged and rewarded with a compliment that hard work can bring great results.
10 to 14 years
Kids heading into puberty are generally more interested in finances than you think. They must also be able to understand simple investment principles. You can teach them about well-known brand companies. Say, for example, that you can take some ownership of Disney when you watch a new Disney movie. Or Coca-Cola, McDonald’s, refueling at Shell.
You can also teach them about spreading. Teach your children not to put all the money in one company that anything can happen to any company. Multiple companies mean less risk. Also, teach them that “get rich quick” is an illusion. Let them enter the lotto with their own money. In this way, they will learn that the chance of winning is minimal to non-existent.
14 to 18 years
After some math knowledge, you can teach the kids about the power of compound interest. Teach them that money can make money. Teach them that the power of compound interest works faster and faster as more money makes more money.
With the rule of 72, you can learn how to double their money. Divide 72 by the return per year, and you know how many years it will take you to double your money. For example, a return of 7% per year doubles your money after ten years (72: 7 = 10).
Also, teach them that inflation works the same but makes your money worth less instead of more. This way, you can teach them that they lose purchasing power when their money yields less than inflation.
You can let them gain experience with the stock market through a virtual portfolio.
It is best to start with well-known stocks from everyday life. Create one or more portfolios per theme. This way, you can show them which system works and which method works less or not.
+ 18 years
Here you can put real money to work. Start investing some of your kids’ money during the holidays or weekends. Advise in good times but especially in bad times. Explain why stocks fall or rise. Teach them that investing is more rewarding than investing a total amount at once. Make sure they don’t make the mistakes that you undoubtedly did.
Conclusion
The most important thing is to teach children about the investment from the start and know what to teach as children grow because you should change the teaching according to a child’s age.
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