Investing is all about planning for the future. Sounds a lot like parenting, right? It's also a great opportunity to teach your children how the stock market works. You can create a mini-portfolio with your child to get them excited about investing and prepare them with the foundations of a strong financial education. Here are some ways to get started.
Getting Started
Before you let your kids choose your entire portfolio, a good place to get started is to let them pick a company they're interested in and buy a share or a piece of a share of that company. You can buy stock through a brokerage firm. There are plenty of options, but make sure you open an account that has no minimums and allows you to buy fractional shares of stock. Instead of buying your kids the newest Moana merch, offer to buy them Disney stock. They'll have a connection to the company and be interested in its success. It will probably make it a little easier for you to watch Frozen for the 15th time, knowing your Disney+ streams keep Disney's stock price up.
While your kid picks a stock they want to buy you can help them through the research process. Together, look at the company's earnings growth chart and stocks value. If these charts are trending upward, something is going right for them. You don't have to pull out your calculator and do any complicated calculations. These simple visuals will teach them a basic way to start evaluating stocks.
Once you've found a company your kid comes across in their daily life and purchased the stock, you can monitor its progress together. Keep up on the news related to this company, and read an article together every day or every week that might explain fluctuations in the stock price. Explain the connection between their interaction with the company and its stock value. Check back in with the company's earnings growth chart and stock price. If it goes down, try to pinpoint what might have caused that. You can point out dips in the stock price when Disney had to shut its parks and increases from when they make Disney+ announcements. Some days you might make money, and others you might lose it, but you're teaching your kids the way markets fluctuate.
After you've picked out one stock together, have them look for a second stock. Think together about what makes the first company you have stock in together successful or unsuccessful. Then do some research to find a company that has the secret sauce and buy their stock. If possible, find a stock in a different industry so you can focus on diversifying your mini portfolio. Follow their company news together and track your progress. Keep adding stocks until you have a variety. A solid start is to invest in between 3-5 companies. Some companies' stock prices might go up while others go down, teaching you another valuable lesson about the stock market.
Keep the Momentum Going
After your kid learns the basics of investing from companies they're interested in, you can keep them connected to your financial progress. Show them your portfolio and how it tracks up and down over time. Keep them involved in the changes you make, so they can learn about adjusting their investments over time. Another great way to keep them involved is to let them "own" a piece of your portfolio. If you're buying 50 shares of Apple stock, offer to buy them one share, so you're on your investment journey together. If you diversify into bonds, ETFs, or other types of investments, you can help them understand these along the way.
Most importantly, let them know
why you invest. Are you planning on investing for your retirement? Let your kids know the benefits of an IRA or 401(k). If you're saving for their education, you can show them their plan's progress. At
Scholar Raise, we make it easy to see where you've been and where you're going with graphs in your user dashboard. You can also let them know the benefits of 529 plans and any other tax-advantaged accounts you might have. No matter what, letting your kids know your financial goals and showing them how you're achieving them through investing gets them excited for their financial future.
Whether your kid chooses to buy Apple stock and gets excited every time they see an iPhone on the street or buys McDonald's and begs you for another happy meal because it's really making you money, get your kids involved. Starting young will show them the benefits of compounding returns better than any math problem could. It will get them excited about the less glamorous aspects of a financially healthy life like budgeting and saving. Getting your kid in on the investing conversation helps them understand the concept and how it can affect their lives, instead of it being just another chore.
