Most of us are familiar with the proverb: Give someone a fish and feed them for a day; teach someone to fish and feed them for a lifetime. Most of us would also acknowledge the truth that, while providing someone with a short-term financial “assist” can be helpful, one of the best and most lasting gifts we can provide is the knowledge and mindset to help someone become financially self-sufficient for the long term.
This is nowhere more true than with the next generation that has been given into our care. The fact is, teaching our children and grandchildren about personal finance is crucial in setting them up for a financially stable future. This includes guiding them on wise spending habits, budgeting, charitable giving, and saving. Investing is also a particularly important aspect of personal finance that we should be passing down to our children.
Indeed, there may have never been a more pivotal time than the present for us to ingrain the principles of saving and investing in a younger generation. With student loan debt at an all-time high, the costs of getting into a first home rapidly rising out of reach for many young families, and consumer debt out of control for many Americans, now is the time to reach our kids with the message of saving and investing.
Tools for the Digital Age
Fortunately, giving kids the tools they need to learn about money and investing has never been easier. For example, with Greenlight, kids can get a parent-supervised account that comes with a debit card attached to a spending account, a savings account, and a charitable account that teaches kids how to allocate the money they get for all three important purposes. The company also offers an investment account feature that allows kids as young as 10 to research, follow, and invest in stocks, all with parental supervision. Similarly, BusyKid helps kids save money from chores and other jobs, provides a debit card for spending, provides “buckets” for giving and investing, and has a built-in PayPal-like feature that makes it easy for parents and others to transfer funds to the child’s account when chores or other jobs are completed. Another great tool, AcornsEarly, allows parents to supervise up to four children’s accounts, including spending limits, automatic allowance transfers, paying for chores, and setting tasks for extra earning. Kids can learn to save, give to charity, and spend wisely, using their own debit cards. Many of these apps also feature kid-friendly lessons in the basics of finance, borrowing, saving, and investing.
Leverage Their Interests
Young people get even more excited about investing when it involves a brand or topic they’re interested in. Does your kid adore the Disney channel? Just ask them how they’d like to have a share of ownership in the company. Is your teen enamored by the latest sports car or fancy pickup? What if they could own shares of Ford? Platforms such as Greenlight and BusyKid allow kids to buy fractional shares in their own accounts so that they can watch as their holdings grow in value over time. This also helps them learn the wisdom of buying quality assets and committing to them for the long term—a principle made popular by savvy investors like Warren Buffett and others.
Playing the Long Game
Above all, introducing kids to these concepts now, while they’re young, encourages them to fully leverage the greatest advantage they have: time. Money saved and invested when kids are teens or younger has decades to compound and grow in value, affording them the opportunity to enter adulthood not only with a good grasp of finance and investing, but also with a solid nest egg that can generate security and opportunity for years to come. It’s wise to teach kids that first and foremost, investing should always be long-term. Stress to them that investing will not make them rich overnight and have them focus on slow and steady growth over time. Teach kids the “buy and hold” approach to investing — a long-term, passive strategy where investors buy stocks and hold them for a long period of time, regardless of short-term fluctuations — and share that in order to play the long game, it’s important to invest only money that they don’t need in the short term. It’s also a good idea to introduce them to the principle of diversification, perhaps by explaining the concept of an index fund or other asset type that features holdings spread over an array of non-correlated assets.
Learning the basics of investing at a younger age can also help kids incorporate the virtue of delayed gratification, a timeless gift that can do as much as any other single principle to shape their financial well-being. As early as age 3, parents and grandparents can introduce simple yet effective practices encouraging patience and thoughtful decision-making. One creative approach is the implementation of a “fun day jar” within the household. Here, grandchildren can earn money from completing chores or assisting with tasks, fostering a sense of achievement and responsibility. By not immediately spending their earnings on desired toys, they begin to grasp the concept of saving for a more significant, deferred reward. The American Psychological Association (APA) underscores the importance of this skill, linking it to academic success, practical coping skills, healthier weight, and improved relationships with peers. Ultimately, cultivating delayed gratification sets the stage for responsible financial habits that can last a lifetime.
At JFS Wealth Advisory, we know that setting children and grandchildren up for success is a vital priority for many of our clients. In addition to providing professional counsel and advice, our fiduciary obligation positions us to act as an informed third party for parents who are interested in introducing their children to the world of finance and investing. To learn more tips for teaching financial principles to kids, visit our website to read our article, “Learning about Money the Summer Fun Way.”
