Questions about kids and money keeping you up at night? This series answers them so you can get some sleep.
With all the money lessons that you need to teach your kid right this minute (like how to avoid blowing her entire allowance on Zotz), the thought of teaching her about investing might make you giggle. Where’s your kid going to get the moolah to be a Wall Street mogul, anyhow? And wouldn’t she be better off sticking any money she has in a deposit box, where it will be safe?
If you think your kid can get through life just fine without investing, I have a scary word for you: inflation. Basically, this is the sad economic fact that the price of everything goes up over time. If your kid sticks her money under the mattress instead of into the stock market, the buying power of that money will shrink. It’s true that investing does involve risk. But if it’s done right (by, let’s say, investing in low-cost index funds, which I go into in detail in my New York Times bestseller Make Your Kid a Money Genius, and leaving it there for a long time) there’s a very good chance that your kid’s cash will grow by a lot. Historically, investing in stocks has been the best way to keep ahead of inflation.
Even when your kid is in preschool, it’s time to introduce the concept, because investing is a habit of mind as well as a matter of means. In other words, if she gets into the mindset now, she’ll be ready to invest when he has money from a summer job to put into a Roth IRA, or signs up for a 401(k) at her first job out of college.
Finally, if you don’t teach your kid about investing now, she’ll lose out on the biggest advantage a young person has: Time. The longer her investments have to grow, the more time the earnings will have to compound.
For much, much more about the wonders of investing and lessons you can start teaching your kid as early as preschool, see Chapter 7 of Make Your Kid a Money Genius.