As parents, one of our greatest responsibilities is preparing our kids for the future, and a big part of that involves teaching them how to manage money. Beyond the basics of saving, there’s an invaluable lesson in understanding the power of investing. When I decided to teach my daughter about investing, I knew it would take some creativity to make it stick. She was used to the concept of saving, but the idea of putting money into something she couldn’t spend immediately wasn’t exactly thrilling to her. Here’s how we’ve navigated that journey together.
Why Teach Kids to Invest, Not Just Save
For most people, saving money is a familiar practice from an early age. However, investing is a different skill set that teaches patience, strategy, and the long-term value of money. When you invest, you let your money work for you—earning growth that a simple savings account can’t match. This concept is essential for young people to understand, especially as they think about larger life goals. For my daughter, that long-term thinking didn’t come naturally. Investing felt like money “locked away” rather than something she could access anytime. But with a little help and direction, she’s learning that the rewards are worth it.
Facing the First Challenge: Immediate Gratification
Teaching delayed gratification to a child can be challenging, and investing is no different. Just like the famous marshmallow test on patience, investing requires an ability to hold off on instant rewards. My daughter, like many kids, didn’t immediately connect with the concept of putting money aside she couldn’t touch for a while. But I knew that if she could understand the fundamentals now, it would benefit her enormously down the road. So, we took small steps to introduce her to the practice of investing—and to make it a little more fun.
Strategies to Get Kids Interested in Investing
Creating a Kids Stock List: Investing in Companies They Know
Kids’ interests are a great entry point to learning about investing. We built a list of stocks from brands she already knows and loves. In her case, she’s an animal lover and is also interested in coffee shops, so we included some animal-related stocks and a well-known coffee chain where she likes to get her “pink drink.” This made investing feel a bit more personal and gave her something specific to watch and track. It’s a way for her to see how her choices affect her money and watch her favorite companies grow.
Setting Realistic Short and Long-Term Investment Goals for Kids
Having goals keeps kids engaged, so we set a big, long-term goal: her dream of buying a Jeep when she’s old enough to drive. This “big goal” gave us a reason to start planning and investing for the future. But 16 feels like a lifetime away for an 11-year-old, so we added a few shorter-term goals to keep her motivated. These smaller milestones help her stay connected to the process without losing sight of the bigger objective.
Our Investment Strategy for Kids: Balancing Fun with Fundamentals
Not Just Investing in Trendy Stocks
While she would have preferred to put all the money into the companies she picked, I wanted to balance her excitement with a foundation of long-term stability. Instead, we took a “core-satellite” approach: the majority of her portfolio is invested in a diversified, broad-based fund, which we refer to as the “core.” This provides stability and a chance for steady growth. Then, we reserved a small portion for her “satellite” picks—brands she chose based on her interests. This balance allows her to learn through direct engagement with some stocks without exposing her entire portfolio to high volatility. This also gives us a little more flexibility in holding small positions in stocks I’m less confident about.
Does She Love Investing? Not Quite
I’ll be honest—my daughter isn’t hooked on investing just yet. She’d still rather be riding a horse than owning a piece of a company that sells riding equipment, and that’s okay. Not all kids are going to love it. My hope is that by keeping her engaged, she’ll start seeing the value in her investments over time. It’s about planting seeds now, and as her money grows, so will her understanding of the value in what we’re building together.
Key Considerations for Parents Setting Up a Child’s Investment Account
If you’re thinking about starting an investment account for your child, here are some considerations to help you make the right choice:
Account Titling: Balancing Access and Control
- Custodial Accounts (UGMA/UTMA): With custodial accounts, assets legally transfer to the child at the age of majority, typically 18 or 21. This offers the child direct access when they reach adulthood, but if you want to retain control, another option may be more appropriate.
- Tax Implications: Custodial accounts are subject to the “kiddie tax,” where earnings over a certain threshold are taxed at the parent’s rate. Consider the potential tax effects and plan accordingly.
Setting Flexible Goals for the Account
- Education-Specific Accounts (529 Plans): If your purpose is solely to save for education, a 529 plan is often the most tax-efficient choice. However, it’s restricted to qualified educational expenses.
- General Purpose or Retirement Accounts: A general custodial brokerage account or even a Roth IRA (if the child has earned income) offers more flexibility and can help them save for any number of goals as they grow.
Conclusion
Getting kids involved in investing takes patience, creativity, and a sense of humor. My daughter may not love it yet, but by engaging her with goals that matter to her, I’m hopeful that she’ll see the value of investing in time. The real value here is that she’s building a foundation that will last, and one day, she’ll understand that investing is more than just numbers—it’s a way of achieving dreams.
If you’re a parent interested in starting an investment account for your child, our team can guide you through the process and help your child learn about investing in a way that makes sense for their future. Let’s have a conversation about it!