When you’re a kid, getting money is a big deal. Children love the feeling of having money of their own to spend, and they’re often ready to hit the toy store no sooner than they get it in their pockets. But if they were to save that money, they could have a nice nest egg by the time they reach adulthood.
It’s never too early to teach children about managing money. If they start learning financial concepts at a young age, they will be more apt to put that knowledge to use throughout life. One way to encourage responsibility is by requiring children to save or invest a portion of their money.
It wouldn’t be fair to expect a young child to put every penny he gets into savings or investments. But it’s not unreasonable to encourage them to put aside part of their money. If you explain how investing works in terms that your child can understand, there’s a good chance that he will be eager to try it. Who wouldn’t want their money to grow into more money?
If you choose to invest your child’s money, it’s best to stick with fairly safe investments. A money market account is a good place to start. The return isn’t as much as it would be with most other investments, but the risk of losing money is very low.
Once your child has seen how his money can grow in such an account, you might consider investing in vehicles that offer the potential for higher returns, such as stocks and bonds. Or you could place your child’s money in a college savings account. Either way, he will learn the benefits of putting money to work instead of spending it all straight away.
Incentives for Investing
Children are often resistant to the idea of saving or investing their money. They reason that if they can spend the money now, there’s no sense in putting it away until later. But there are some ways you can encourage them to save.
One technique that often works well is matching your child’s contributions. For every dollar he puts into savings, you could put a certain amount in out of your pocket. It doesn’t necessarily have to be a 100% match. If you can match half or even a quarter of what your child puts away, he’ll see that he gets more money in the long run by giving up a little now.
You could also show your child how the money that you invest grows. Let him observe when you make your investments, then show him each statement of your earnings. Seeing your money grow will show him what he can expect if he starts investing.
Teaching kids to invest some of their money will let them see at a young age how it works. And more importantly, it will make an impression that will stay with them for life.
