teach children

It’s never too early to teach children investing concepts.

But do it the right way – not like this: “Boy, will my son be disappointed when he receives an Exchange Traded Fund (ETF) instead of video games for his Bar Mitzva,” a client told me recently when I suggested that she start getting her kids thinking about investing.

I didn’t recommend that she buy a stock fund for her son. However, I did point out that she should start talking about compound interest, investment gains and losses, and the future value of money.

Compound interest

Watching a savings account grow is the first step to learning the concept of compound interest. Compound interest is interest earned on the principal amount plus on any interest earned in past periods, also called “interest on interest.”

Investment gains and losses

Single stocks – Start with companies your child knows and whose products he uses. Follow a few of them, watching how they announce earnings in the news, and make the connection between sales and earnings, and stock price growth.

Themes – A fund that follows a specific investment theme could spark a child’s interest. Look for a media and entertainment fund that could include all your child’s favorite movie makers – Disney and Pixar, or maybe a budding scientist would prefer a biotechnology theme. Just following the funds without actually investing in them introduces kids to the realities of the financial world.

Asset allocation and diversification

Don’t be surprised when your child doesn’t ask for teenage gadgets on his birthday wish list but for dividend-paying stocks instead. “Dad, don’t you understand the value of compound interest? I need dividend-paying stocks to pay for college.”

If your kids are anxious to learn, watch this short video with them that answers frequently asked questions.

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published January 29, 2018.

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