How to Teach Your Kids to Invest Early
“Son, come here”, my dad said. “I want you to read this.” He handed me a neatly folded copy of the Wall Street Journal. I was 10. All I saw was fine print and funny looking faces. “Why?” I asked. “Read the cover of this newspaper everyday. It will help you understand what’s going on in the world.” “I guess…” I said, as I took the WSJ in my hands for the first time.
At first, I would fake the read to avoid getting in trouble. I was, after all, 10. But eventually I started to enjoy it and found myself getting interested all on my own. This turned into reading my dad’s investment newsletters and gradually learning about the stock market. On the weekends, my dad would explain to me what stocks he bought and why. His successes were sprinkled with failures but there was a story behind every investment. I remember asking him, “why did you invest here?” - his response wasn’t earth shattering: “I spoke to people who understand the company well. Then I did my own research and made a decision.” I nodded in agreement as if I knew what any of that meant. But there was a kicker: “Take a little bit of risk, son”, my dad continued, “This will give you the chance to live life the way you want.”
Those early days with my dad had a big effect on me. It ended up defining many of my early choices and gave me a love of investing that’s stuck - I ended founding a company to help people invest. But it wasn’t just about learning how to pick the right stock - I learned to understand risk, the importance of saving money, and how to be responsible with my finances. Now, I’ve begun to think about how to do the same with my own children.
Today’s generation doesn’t sit around the table with black and white newspapers, or even watch cable news. Not only that, they’re surrounded by ads every minute of their lives, and have credit card offers thrown their way the moment they turn 18. They’re the spending generation. Student loans, credit card debt, and bouncing from job to job without a 401k seem like things that would make developing good personal finance habits hard. That’s why it’s important to get your kids started early.
Thinking back, I realized that investing was a means for my dad to spend time with me - to connect with me and treat me like an adult, even if I wasn’t all that ready. Once I got interested, I’d go running to him with questions and ideas, and that hasn’t gone away - investing only becomes more important as we grow older. It became a channel for me to rely on his advice.
I believe sitting down with your kids as they’re growing up and teaching them about investing can have a number of benefits:
They start paying attention to their finances - regardless of how their investments may do, it’s a way to help young adults understand that money doesn’t grow on trees (and encourage them to save money)
Investing money will help your children’s financial literacy; Understanding things like interest rates, risk and returns, and the general economy will be useful tools when it comes time to get their first car or buy a house
You can use investing to help garner a sense of independence; By trusting your child with some seed capital, they’ll feel as if they’re being treated like an adult
Most importantly, it can help combat bad personal habits such as overspending and being neglectful; If you’re in the habit of investing, you’ll be trying to save a little bit of money every month to invest and (hopefully) watch that pot grow over time
How to get started
Find a way to share in the investing experience - you could go over your picks and decision making, invest in companies they’re interested in (or explain why not to invest in them), or get onto a site like Instavest, that’s designed to be collaborative to allow people to learn (more on that below)
Try to incentivize them - if you can afford it, match them dollar for dollar during their first year, or couple of years, of investing (i.e., if they save $100, mom and dad will give them $100 to invest) - it’s a great way to reinforce responsible behavior and encourage investing the money in their bank accounts
Share simple resources with them - at Instavest, we put together a few write ups and links that we think are helpful:
- Investing Your First Dollar
- Six Habits of Highly Successful Investors
- Visit great sites like Investopedia or Nerd Wallet
- If they’re the podcasting type, check out The 6 Best Personal Finance Podcasters on the Internet
Where Instavest Fits In
One of the biggest issues surrounding investing today is the amount of poor or misleading information out there, especially on the internet. Often times, pundits and writers put up research and analysis they make up out of thin air - and a young (and therefore inexperienced investor) can fall into traps.
This is where Instavest comes in. It is the only wholly transparent investment engine built on top of a collaborative network - and therefore an incredible place to learn. Here’s how it works (you can see a preview by signing up):
- There’s an approved group of “investment leaders” - industry professionals, long-time investors, retired money managers, etc. on the site
- They post stock picks, invest their own money (which everyone can see), and post a detailed rationale/ thesis
- Anyone can either “follow” one of these leaders, do some additional research on their ideas, and make a decision to invest alongside them
- Investors can always look back at a leader’s history: How they did do in the past? Do they have a particular style of investing? What’s their background like?
- From there, you can manage your investments, be notified of the investment leaders behavior, and use each stock as a learning experience while looking to earn a profit - there’s no real alternative to investing your own money
In the spirit of putting our money where our mouths are, we’re offering $100 to anyone who signs their kids up (must be 18) and funds their account on Instavest by December 31st. Please use code “Future01” and let us know this account is for a beginner, and we’ll be sure to help them along the way.