47 0 0 0 13 6. 500, opened a brokerage account in his name, and told him to buy some stocks. If the stocks went down, her kid would be likely to conclude that investing is a sucker’s investing on your own and avoid the market altogether. If the stocks went up, he’d think he was a genius and start placing bigger, bolder bets.
Which could be an even worse problem. Now, I do think kids should learn about investing. 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. You might be tempted to put off investing discussions until your kid is grown up and has money to invest. Making sure that your child learns the fundamentals early will be a valuable gift. Even if your kid is flat broke, getting comfortable with the market will help him when he does have money.
So get started now, with these easy, age-appropriate lessons. But with some other concepts, she can start making important connections between current efforts and subsequent results. An investment is something that pays off in the future. Get a copy of The Little Red Hen and read it to your child. The Little Red Hen was thinking long-term and reaped the rewards of her investment of time and hard work.
Wow, you really invested time and effort—and look at what you’ve done! Because young kids have a hard time understanding the concept of the future, wrapping their little minds around investing can be tough. So relate it to something tangible. Help your child plant a garden or put some seeds in a flowerpot. Kids this age are able to absorb more than you might think about simple investing concepts—and are more interested than you’d guess.
A stock is a small piece of a company that you can own. The next time you watch a Disney movie or sip a Coke with your kid, you can use the occasion to teach him about stocks. Start by saying that a lot of the stuff he likes is made by companies. Don’t put all your eggs in one basket.
Tell your kid to imagine opening a restaurant that sells only hamburgers. As long as people really like hamburgers, she’ll make lots of money. But what if people hear that some cows got sick, and those people decide that burgers aren’t safe to eat anymore? Or what if they want French fries, too, and start going to a restaurant that sells more than just hamburgers?
This illustrates the crucial investment concept of diversification. When you buy the stock of a single company—say, Krispy Kreme—you’re making a big bet on that one company and the future popularity of doughnuts. If, however, you own stock from many different companies, you’re reducing the risk that you’ll lose all your money. That’s because if some companies’ stocks do poorly, some other companies’ stocks might do well. The lottery is not an investment. If your kid has lottery fever, let him learn the hard way. Buy some lottery tickets for him the next time there’s a big jackpot.