As your kids start to learn about money, one of the best things you can do for them is teach them how to invest in the stock market. Here are four reasons why you should get your kids started with stocks right away:
The Power of Compounding
When you invest in stocks that are likely to gain a consistent amount every year, your money compounds, just like it would with compound interest for money in a bank account. The difference is that you can typically make a better return through the stock market, and if you stick to low-risk ventures, such as index funds, it’s very unlikely that you’ll lose money.
Because of compounding, the earlier you start investing, the better. If your kids start investing money before they even hit 18, they can build up a significant savings well before reaching retirement age. After 15 years, an investment of $15,000 dollars with a return of 5.5 percent compounded annually will be over $33,000. After 25 years, that $15,000 investment will be over $57,000. That’s why getting your kids started young with investing is the best thing you can do for them.
Making Money Work for Them
The stock market is a way of making your money work for you, and this is a critical concept to teach your kids. The wealthiest people in the world build that wealth by finding ways to put their money to work, instead of just working for their money their entire lives.
The reality is that there’s only so much money you can make when you’re working by the hour. Teach your kids that the goal is to use their money wisely so they aren’t stuck working themselves for every dollar.
There’s an obvious flip side to compounding – it works the same way when you take on debt. This is an important lesson for your kids to learn so they avoid debt whenever possible in the future. When your kids understand how much money they can accumulate through compounding on their investments, they will also understand how much they can spend on compound interest for a debt.
This knowledge will make your kids warier of high-priced loans, such as title loans and payday loans, in the future. They’ll be less likely to take out risky loans that leave people trapped in a cycle of debt.
A Lost Art
People don’t invest in stocks like they used to. In 2016, only 52 percent of Americans reported that they invested in stocks, which matched a record low. Far too many people don’t understand the stock market or how they can make money by investing.
Teaching your kids about investing will put them ahead of the game. In an age where many live paycheck to paycheck, don’t save enough for retirement, and carry exorbitant credit card debt, your kids will have the financial knowledge to attain success.
It’s not hard to get your kids started with investing. You can do it with them online, and you don’t need to risk money. Try an online trading platform that lets you make trades without investing actual money, then let your kids start using their real money when they get the hang of it.