Teach Kids Investing At Any Age

Most money experts will tell you that the number one money skill is investing. It’s the best way to make a lot of money doing the least amount of work. In fact, you can make a lot of money doing almost zero work. In the United States, it’s often better to own a company than work for a company.

Yes, it’s great to save money. You’ll need to save money if you are going to invest it. However, if you save money and stick it under your mattress, you’ll be missing out on potentially millions of dollars over your lifetime.

Yes, it’s great to be frugal. If you spot a bargain, you’ll have a much better chance to be financially independent at a young age. If you are frugal, you’ll be able to save more money to invest it.

Yes, it’s great to earn money. When you earn a lot of money and are frugal, you’ll be able to save a lot of money and invest a lot of money. Everything plays a role, but investing is where personal finance becomes fun. Where else can you turn one dollar into $32 by doing nothing?

We’ll get to that $32 example at the end. For now, let’s focus on how to teach kids about investing at the various stages of their lives.

Teach Preschoolers about Investing

It may sound silly to teach preschoolers about investing. In a lot of ways it is. At this age, kids have the concept of money buying things like goods and services. However, they don’t have the concept of money making money.

Beth Kobliner, author of Make Your Kid a Money Genius, has two great ideas for teaching preschoolers about investing:

1. Plant some seeds and water them every day. As the seeds grow into a plant the kid will see the “investment” and the results. If you have a garden, you can show how a few seeds can grow into a lot of real food. When I was a kid, my parents grew tomatoes and cucumbers. We always had tons – more than enough to give away to neighbors.
2. Read the Little Red Hen. My kids read this in Kindergarten – it was part of their curriculum. Even though they are in the 2nd and 3rd grades now, I still use the lessons in the book. You do the work and you get the reward. The Little Red Hen invested her time and effort and got to enjoy the cornbread.

Teach Grade Schoolers about Investing

For kids in elementary school, my best recommendation for teaching investing comes from The First National Bank of Dad. Author David Owen gives his kids extremely good interest rates to emphasize the point of compound interest. Nowadays, banks fail kids, they are boring locking up money in their vault returning barely more than a zero percent interest rate.

You might also consider explaining the very basics, such as “What is a stock?” This video covers it well in less than 5 minutes:

Teach Tweens about Investing

The options to teach investing around really expand around the ages of 10 to 14. Personally, I love MoneyTime. Over the last couple of years, kids have gotten a lot more experience learning online. It’s certainly not what we wanted and far from ideal. However, it’s very rare to find an in-person class on investing for kids. MoneyTime is a great way to get experts to teach your kids money.

If learning from a computer course isn’t for you, you are not alone. I know I learn best by doing. That means that I have to get my hands dirty and invest. This is a great age to open up a custodial brokerage account and buy some index funds.

Teach Teens about Investing

Unlike younger kids, teens can work real jobs and make a good amount of money. It’s a perfect time for them to invest in a kid Roth IRA. Since their retirement is fifty years away, every dollar invested will grow many times.

This is a great age to introduce them to Rule of 72. The rule of 72 is a way to estimate how fast your money will double. You divide 72 by the interest rate to get the number of years it takes for the money to double. If you were able to earn a 12% interest rate, your money would double in 6 years (72 divided by 12% = 6 years).

I like to assume that money will double every 10 years. That’s a 7.2% return, which is usually a safe estimate. With 50 years of compounding, every dollar can double 5 times. That means that every $1 becomes $2 (age 25), which becomes 4 (age 35), which becomes 8 (age 45), which becomes 16 (age 55), which becomes 32 (age 65).

Turning $1 into $32 is magical. A kid would “only” have to invest $33,000 one time at age 15 to have a million dollars in his retirement account at age 65. Of course, it’s very hard for a 15-year-old kid to earn and invest $33,000. However, all is not lost. A kid could continue to invest for several years and keep seeing that compound interest grow after age 65.