Teaching Kids about Stocks and Investing

One of the things that confront many adults today is a lack of experience with how stock markets work or which stocks to invest in. In a number of cases this can be attributed to not being exposed to the stock market and equity investing at an early age. Think about computers and our senior citizens. Those under 40 feel at ease using a PC, browsing sites, social networking and using the web as a daily part of their life. A lot people over the age of 60 are terrified of using a computer and wouldn’t know where to start. It’s all about exposure. Those under 40 have grown up with computers through most of their life, whereas the 60 yr old probably didn’t have exposure to personal computers until their late 40’s to 50’s, and the older you get the harder it is to learn new things.

The same lesson can be applied to ones comfort in investing in the stock market. I look at it as an opportunity, others look at it as a mass of numbers that are in the “too difficult to understand basket.” I was always interested in stocks from an early age and felt comfortable investing in the stocks. One of the main reasons for this is that I started at a relatively early age. When I was in high school, I used to have an “imaginary cash” portfolio which was worth about $20,000 (a lot of money in those days) – I would then make trades, which were carefully documented, and every day eagerly check the newspaper (no Internet then) my father bought home to see if the stocks I had went up or down. I was allowed to change/re-balance my portfolio once a week where I could buy or sell shares in line with my overall portfolio value.

Through this process I learnt a lot about investing and as importantly the emotions around investing – the joys when the portfolio went up and the despair when I was loosing money (it hurt even though it was not real money). Having weekly re-balancing meant that I took measured rather than reactive decisions. My parents encouraged this “share game” through my teenage years and even though I stopped doing it for a few years when I was in high school and college, it provided me with an excellent foundation, understanding and comfort around investing when I started to use real money.

Parents should always encourage their kids to learn, and when it comes to the stock market and investing the earlier the better. Even the nation’s top financial advisors say it is crucial to educate your children on how hard mom and dad have worked to create their wealth/savings and how important it is to protect and grow it. Here’s a three point plan to play this stock market game with your kids.

1. Start slowly and see if your kids are interested in money, shares and investing. If you show interest they will too. Make sure you play this imaginary stock market game with them because not only can you learn new things, but having some competition is a great motivator for kids. Start with an imaginary portfolio of about $50,000, work together to research some stocks (start with well known names) and allow them to change (re-balance) their portfolio every week. Make sure you keep a record of your portfolio and how it changes weekly. Microsoft/Office 365 Excel or Google Spreadsheets are the best tool to use for this. If you are new to investing, I suggest you go to your local stock exchange website to learn about the basics of investing.

2. Stay consistent. Make sure you make a point of sitting down with your kids every other day and talk about how the market went up and how your portfolios are doing. See where they think the market is headed and why. Ask them what they have learnt? By engaging them, showing them the possibilities, their interest will grow. You will be surprised at how soon they start giving you advice! The Internet also provides a endless source of information on stocks and how to invest.

3. Reward them. Nothing like greed for a motivator. Tell them that for ever $100 of imaginary money they make you will give them $1 of real money (up to $100 of real money). Don’t penalize them for losses – its part of the learning experience. Also as they improve and get older, consider opening a joint discount online trading account so that they can slowly apply the lessons they learnt in the real investing world.

The stock market is dynamic and always changing – so it shouldn’t be boring once their interest is piqued. Who knows one day your kid could grow up to be a hedge fund manager worth billions!

Related Reading:
* Investing lessons for the young
* The A to Z of good personal finance (Part 2: L to Z)
* How to buy shares – Two simple steps

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