While more than 75% of parents talk to their kids about saving money, only about a third of us broach the topic of investing. Perhaps that's because, like talking to our kids about sex, it can be uncomfortable. Or maybe it's because we don't feel like we understand some complex investing terms and strategies ourselves.
Whatever the reason, it's time to put on our big girl pants and introduce our kids to these concepts, so they can develop a healthy relationship with money and feel confident about investing for their future.
"In the beginning, it's just about understanding what money is," said Anastasia K. Wiese, JD, CFP®, Senior Financial Advisor at Grand Wealth Management. "You're teaching them, 'What does money look like? What can you do with it? And how do you earn it?'"
Wiese suggests using coins and dollar bills, because she believes using physical money helps children grasp the idea of money better than abstract concepts.
"Once your kids start reflecting back to you things that are related to the value of money, it shows a higher level of understanding," explained Wiese. "For example, my six-year-old will say, 'That's a big gift! We need to wait a few more weeks so we can earn for it.'"
For older kids with their eye on AirPods or lululemon sweatpants, understanding how long it takes to earn and save for those items can motivate them to grow their savings.
When the basics have clicked, you can transition to the next phase: bank accounts.
Wiese took her daughter to a local bank to open a savings account, providing the physical experience to help make the concept more tangible. When they got home, they looked up her balance online. "It helped her understand that, even though she couldn't see it or feel it anymore, the money was still there."
Be sure to explain the difference between a checking and savings account.
"You want kids to understand that savings accounts are for money they'll spend in the future," explained Paige Cornetet, who blogs about teaching kids about finances at SpendThen.com and is the author of a fun financial children's book series. "The money in a checking account is for current spending. For teenagers, that might mean movie tickets or gasoline."
Cornetet recommended having kids use a debit card beginning in middle or high school, to help them learn about budgeting without the chance of overspending.
"The beauty of a debit card is that it only works when there's money in the account," Cornetet said. "When it's gone, it's gone!"
Once they've mastered these concepts, it's time to talk about investing!
Deep breath: there's no need to feel overwhelmed. They're your kids, not Wall Street traders. Start simple.
"Explain what the stock market is, the difference between a stock and a bond, and why you'd want to invest in either of them," suggested Wiese. "Introduce them to topics like compound interest and delayed gratification. Once they understand that, you can dig in and teach about mutual funds and index investing."
Wiese advocates teaching first, investing second. She said it's important for kids to have an informed position before they start investing.
"You're setting the foundation for the way they treat money throughout their lifetime," she said. "When they can say, 'I understand what's going on and this is where I want to put my money,' then they're ready."
Pique kids' interest in stocks by helping them research companies they're interested in. When Cornetet was a young girl, her father took her and her sister to McDonald's, in which they owned stock.
"As we ate, my dad explained that because we owned McDonald's stock, we earned money when they made money," she recalled. "I can still taste that Big Mac and remember what it felt like to realize I owned part of that big company."
If teaching your kids about these topics makes you nervous, that's OK.
"When kids are asking questions, it's wonderful," said Wiese. "It shows that they're thirsty for more knowledge on that topic. Lean into it."
If you're hesitant because you're unsure about something, Google it with your child. There are tons of resources online to help you both learn more.
"Talk about money and investing as part of your daily-life conversation. Making it approachable, instead of something to fear, will go a long way towards helping your child have a comfortable relationship with money," Wiese assured.
BOOKS FOR KIDS
The Hen in the Pen series by Paige Cornetet
Beyond Piggy Banks and Lemonade Stands by Liz Frazier
Help your child create virtual "buckets" in their bank account and establish savings goals for each.
Kirsetin Morello is a Michigan-based author, speaker, writer, travel-lover, wife and grateful mom of three boys. Read more about her at www.KirsetinMorello.com.
This article originally appeared in the Apr/May '22 issue of West Michigan Woman.