It’s never too late to start investing.
It’s also never too early when it comes to your kids!
Teaching your kids about money and investing on their behalf will set them up for a lifetime of financial know-how. They’ll learn about financial priorities, risks, and rewards at a young age. Don’t you wish you had?
To celebrate World Children’s Day, we’re sharing investing tips for your kids—whatever their age.
Money lessons through play: the toddler years (1-3 years old)
Little kids love doing the things we do.
Sorting laundry by colours, vacuuming, buying groceries? To us, they’re chores; to them, it’s a game!
And that’s perfect because kids learn through play. You can use play to teach your toddlers their first money lessons.
A great way to set up a playful money lesson is joining your kids in their world of pretend—for a grocery trip.
- Collect items from your kitchen and pantry
- Set them up as a shop
- For kids that can count, put stickers on the items to represent prices (e.g. the number of stickers can represent the price)
- Give your child a shopping basket and paper or stickers as play money
- Let them shop—you’re the helpful shopkeeper and checkout clerk!
- Ask them questions! What are they shopping for? How do they decide what to get? How many stickers do they have left? Do they plan to use (spend) them all?
They’ll see you in their world of pretend, listening to their choices, and making silly cash register noises. And you get to teach them some serious financial fundamentals.
Without a long lecture that will go over their little heads, they’ll instinctively understand that money buys things. It’s a tool to use!
They’ll see that some things cost more or less and that they’ll have the job of deciding what they get. (Thankfully, at this age, they love jobs!) They may even pick up on the differences between wants and needs—just don’t be surprised that they pick the candy as the must-have.
Savings add up: young kids (4-7 years old)
Practice makes progress. Starting around four, giving your kiddo practice with real money is the perfect way to keep building money skills.
They’re probably already coin and bill counting pros—especially if they’re receiving piggy-bank-stuffing envelopes at birthdays or other milestone events. And piggy banks are an excellent way to teach them some short-term savings strategies.
It’s time to show them how money can be a tool by teaching the concepts of earning, spending, saving, and giving.
Earn
While your little one may not be able to take on a real job, you can talk about those birthday envelopes and tooth fairy visits as income.
Your family may choose to introduce allowance to help teach money management. Or, if there’s a bottle return scheme in your area, your child can collect your family’s returnable cans and bottles for their earnings.
The cash gifts kids receive can teach them that money isn’t just something you spend and save; it’s also something they can earn. This also helps them understand how your income ties into your family’s financial health.
Spend
This is by far the easiest concept for kids to grasp.
It’s the example of money usage they see most and can practice easily. Talking about spending can be more than warnings to spend less. You can help them think about spending decisions based on need, budget, pricing, quality, and other factors.
At this age, prefrontal cortexes are still far from fully developed, so you may encourage them to shop only with their budgeted money. If not, that’s ok. The shopping trip may become a good lesson about buyer’s remorse and patience.
Save
Saving money can be tricky without practice. That’s why even adults get advice to make it friction-free.
Agree with your child on a spend-save-give ratio for all money they receive and help them stick to it by putting their savings out of sight. Let’s say you agree that they’ll save 20% of all their “income” and set aside another 10% for giving. That means they can spend 70%.
You can open a savings account to help them hang on to that 20% and introduce them to money tools. A savings account can help your child track their patience and dedication—through increasing account balances!
A nice incentive for them to save more may be for you to match their savings with your investments. You can do it in a high-yield account like SmartSaver, which can become their nest egg to build from as adults. In the meantime, it’ll be a nice comparison of how different interest rates affect money growth.
Give
Your family may choose to teach your child about another form of savings—for giving.
Whether you have causes you choose to support as a family or your child has their preferences, this is another way to teach kiddos about savings and the power of money.
You can use the same mechanisms to save these funds, but this gives you another opportunity to talk about how they can save more by keeping their money in accounts with higher interest rates. They can also decide which organisations and causes to support and how often they choose to give—annually, quarterly, or ad-hoc.
Letting your kids make more money decisions at a young age will help them grow into confident money managers as adults.
Compound interest and income: Older kids (8-12 years old)
At some point, your child may keep their piggy bank as decoration and ask for a bank card. That makes sense because that’s how money works in most places today.
Between the ages of eight and twelve, you’ll want to continue reinforcing the earn-spend-save-give habits, but your kids will be ready for more money responsibility and info.
Create a budget
Knowing where and when we need to spend money based on the money we have is a crucial life skill. Help your kids understand their available funds and their spending. This is especially helpful if they also start having some financial responsibility, like buying any clothing outside of the basics you provide.
Track spending and savings
With a bank card, there’s no more quick-piggy-bank shake for your child to track their financial situation. To know what they have, they need to learn to check.
Tracking can be part of a regular budgeting sit-down or a separate activity. What’s important is that you help your child learn to follow the numbers and not their gut about how much they’ve spent. This will also help them learn from their mistakes if they accidentally overspend.
Tracking savings alongside their spending can be an excellent way for your kid to see their money-growing habits. It may encourage them to save more for more returns.
At this age, they’ll be able to understand the benefits of compound interest and how it affects their investment decisions and future money goals. Make it more impactful by showing them the rates of return on different tools, for example, their savings account, a high-return investment like SmartSaver that offers up to 9.96% APY, and other investments like stocks, bonds, or real estate.
Now, they can start differentiating between short-term savings and long-term savings.
Let’s say they plan on going to the movies. They may need to set aside some of this week’s spending money as short-term savings to ensure they have plenty for tickets and snacks next week when they go.
This stage of money responsibility builds practical habits for basic and more complicated money decisions down the line.
Making money decisions: Teens (13-18 years old)
Your teen is almost an adult, and they certainly want to be. It’s the perfect time to let them test their money decisions and strategies with limited consequences.
They may want to take a job to afford things outside their current budget or increase their savings. Whether it’s a steady after-school job or they’re entrepreneurial and start a small business—walking dogs, washing cars, or monetising their skills—you can support them by helping them adjust their budgeting and savings plans and tools.
At this age, kids don’t assess risk like adults do. This means you should keep the dialogue open about the risks associated with various investment options and financial decisions.
Together, you may decide for them to try investing with riskier financial instruments. This can be done with a real investment account you manage for them, or they can do so with a simulator or demo account.
Trying—and possibly failing—is the key while they’re young and have fewer responsibilities and more time to recover. It will also help them figure out their money management style.
You are your child’s primary example of money habits. That doesn’t mean you always have to get it right. But sharing what you know, how you find information to make the best decisions, and giving them a chance to make their own will build their confidence to set and meet their financial goals.
Start early and see your returns grow.
Sign up for SmartSaver to start a fund for your children’s future
The information presented in this blog post is valid as of the time it is published. The content is intended to provide information only and is not meant and should not be considered as financial or investment advice of any kind.