How to introduce older children to investing

Investing is often overlooked when it comes to financial education. Here are some simple and practical ways to introduce investing to teens and young adults.

When we teach children about money we often focus on budgeting and saving; the idea of spending a little less pocket money today so they can enjoy a bigger treat later. There are some fun and simple ways to talk to children about money and these chats can really help your children develop good financial habits.

These lessons are incredibly valuable but taking older children a step further could help them become a confident investor in future. Providing a complete investment education is impossible – most experts are still learning after decades in the industry – but sharing a few core concepts could make a huge difference.

There’s no need to dive into the ins and outs of the stock market and technical details, instead keep it simple with a few basic concepts and you’ll have a strong foundation to build on later.

A long-term view is vital for reducing ups and downs and due to the power of compounding.

Compound growth is when your returns earns their own returns. Income or gains are added to the investment and they themselves produce income and further gains. The longer you’re invested the more powerful this effect becomes. Much like a snowball rolling downhill gather more snow the larger it becomes, your returns build on themselves the longer you’re invested.

Taking a longer-term view can also smooth the ups and downs. In the short-term stock markets are often choppy, and can move sharply. Over time those fluctuations even out and when we look at longer timeframes we regularly see investments outperforming of cash.

Diversification might sound like jargon but the principle is incredibly simple – don’t put all your eggs in one basket. If you invest in just one company you’re returns depend totally on how that business performs. If it struggles your investment could fall sharply.

Instead you can spread your money across many companies, countries, and industries to spread your risk. That way poor performance in one area could be balanced out by gains in another area.

Staying curious helps investors spot new opportunities and adapt as their goals and the markets change. Curiosity is also a powerful way to protect against scams and spot risks before investing.

Many people have put their money into investments they don’t fully understand which turn out to be unsuitable. Ask questions, do a little digging, curiosity offers protection from scams and poorly researched decisions.

As a parent or guardian engaging a teen is no simple task but these ideas may make the job more manageable.

If your child is glued to their smartphone you could look at the investment options for businesses involved in the production and manufacture of their device. All hobbies will have a connection to shares available for investment. Whether your child is passionate about board games, skating or photography there’s an investment story – good or bad – connected to their hobby.

We’ve created some short, animated films for teenagers who want to understand the basics of investing money, compounding and how investing is different to saving. This five-minute video can give you a kicking off point for chat about investing and your teen will have a resource to go back to if they want to refresh their memory later.

There’s rarely a day when finances are out of the news. Discussing real-world events and how they’re impacting the stock markets and business can help connect real world events to abstract concepts like dividends and profit warnings.

Whether their long-term goal is home ownership or travelling the world framing investing as a tool to help them achieve what matters to them can help them understand it’s value.

Start by talking about their goals and timeframes. Then you can explain how different options such as saving and investing can help their money grow over time.

Having these conversations may be difficult but they don’t need to take a lot of time and they can be more successful if you don’t do your homework beforehand. Instead showing how you look for a reliable source and double check information when you need to discover more about investing is a great skill to demonstrate.

Talking to your teen about investing is, in itself, a form of investment. You’re giving them the tools to understand money and make informed decisions later in life. While they may be a little way off having the spare cash to invest laying the foundations now means they can be ready when the opportunity arises.