Families and Financial Literacy: 5 Ways To Talk To Kids About Investing

Michelle Griffith, a Senior Wealth Advisor at Citi, shares practical ways to teach children to be successful investors.

As the school year commences, students of all ages are preparing to learn various subjects that will shape their worldviews. One of the lessons that children should learn from an early age is how to invest money. Teaching kids about investing is a sure way to set them up for long-term financial success

According to a report by Gallup News, 61 % of American households have investments in the stock market, mostly in the form of retirement accounts such as 401(k)s or mutual funds, which is the most since 2008. But talking about investing or money management with kids can be a daunting, overwhelming task.

To offer some assistance, spoke with Michelle Griffith, a Senior Wealth Advisor at Citi with 30 years of experience in the financial industry on the ways you can talk to your children about investing. Here are five tips.

  • Introduce Children To The Stock Market Early

    Financial literacy should be a part of children’s curriculum to put them on the fast track to success. Children should learn about investing and other financial concepts that would familiarize them with how the stock market works and how they can begin to grow their money at an early age. Griffith believes that we should introduce children to the stock market as early as possible to ensure that they grow up learning the value of investing

    “When my son was able to recognize colors we would look at the stock market every day on my phone. He understood that green was good, and red was bad. When he began to understand letters, we added ticker symbols. So now he's able to look at a particular ticker symbol and understand what stocks are doing,” Griffith explained. “So the earlier that you can introduce children to the vocabulary of the stock market and integrate them into thinking like investors as soon as possible, they will be life-long learners and know how to grow their money.

  • Understand How Money Works

    Having frequent conversations about money opens the door for children to expand their financial wherewithal. Talking about investing and growing wealth with children will have a positive effect on how they view money in the future. Also, it shows them the value of working hard for money and learning about the right tools so that money can work hard for them.

    “The moment that a child understands that money can get them something that they want is when they are ready to learn the discipline about money.  We have to be intentional about it because if you don't make that point to your children,  as my grandmother used to say, “They’ll think that money grows on trees.” So you have to introduce discipline, so they’ll understand how money is earned and what it can do for them.”

  • Know the Importance of Saving

    According to a study released by Bankrate in January 2023, most Americans would struggle to pay for a $1,000 emergency expense and they would have to use credit cards to cover the cost. With this growing trend, teaching children the importance of saving is crucial to their financial futures. Griffith said that teaching children to save at an early age will help them to become shrewd investors as adults.

    “If you invest money and you don't have your cash reserves or savings, you're not going to be able to allow the investment to grow long-term. Something will happen and you will need it. So we have to teach children to become good savers first. When my son got money on his birthday,  he thought he was rich because he got so many cards,” she laughed. “We taught him that he had to save 20 percent of his money and the rest he could go to Walmart and buy what he wanted. He knows that he is not allowed to touch his savings unless it's a catastrophe. It has to be an emergency. I think that is a good rule of thumb.”

  • Learn the Power of Compound Interest

    Compound interest is interest on savings calculated on both the initial principal and the accumulated interest from previous periods, per Investopedia. Compound interest causes the initial investment to continue growing and at a faster than simple interest, which is calculated only on the principal amount. Griffith said that teaching the children the power of compound interest is essential for wealth creation.

    We have to teach children that a bank account is not the only way for money to grow,” Griffith said. “We have to teach them the power of compound interest and how it can work in their favor. Then, they’ll be able to recognize the differences between low-interest rates and taking some risks to get greater rewards.“

  • Choose Familiar Companies to Invest In

    One of the best ways to teach children about investing is to show them that they can own shares of products and services that they use every day. When children can identify companies that they are familiar with as stocks to invest in, it increases their knowledge of wealth building.

    “Kids need to know that their family has stocks and we should let them see what stocks the family owns,” Griffith said “If you have Apple, teach them about how the stock represents iPhones, iPads, and other Apple-related devices and technology that the family uses every day. So when we buy this phone, that helps the profitability of the company which helps the stock price go in the right direction. The sooner you start doing that, you give them the foundation that they need to build upon, which is one of the keys to becoming wise investors in time.

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