Financial literacy is a skill that is vital for us all to learn, particularly considering the fact that many young adults seek their first loans soon after leaving school or when they are at university.
Recent research by the University of Western Australia has found, however, that around 45% of adults in Australia lack financial literacy. When it comes to investment, budgeting, and other financial matters, it is never too early.
To ensure children feel confident about making money and managing it well, teaching them vital skills in investment may be the first, crucial step towards financial literacy and expertise.
Fostering Children’s Understanding of Key Concepts
Prior to investing in stocks, children should understand the idea of a public company and why it might sell shares on the stock exchange to raise capital.
Parents can take children on a shopping trip on the weekend, asking children to record some of their favourite brands. When the family gets home, parents can point out to their children which of the companies whose brands they purchased sell shares.
Parents can also teach kids simple concepts such as the difference between stocks, bonds, and other types of investments, talking as well about the concept of risk and the difference between secure and high-risk investments.
Starting Out with Micro-Investments
If children are interested in stocks and want to give investment a try using a little of their pocket money, start by downloading a micro-investment app such as Raiz Kids, Commsec Pocket or Spaceship Voyager. These accounts will need to be in your name if your children are under age 18. When they turn 18 the accounts can be moved to their name.
You can also consult an online broker such as Commsec in Australia and open a share trading account for them. Once again, the account will need to be in your name if they are under 18 years of age and you will act as trustee for them until they turn 18. Then the shares can be transferred into an account in their name.
Investing in Your Child’s Favourite Brands
Children may feel more inspired to invest in brands or categories of companies which specialise in their hobbies - including video gaming companies.
Giving your children the gift of financial literacy and teaching them about investment can stand them in good stead for the rest of their lives.
For younger children, begin by using books, videos and apps to teach them the basics of investment.