Teaching your children to save and invest

How many times have you looked back on life and wished that you had started investing earlier? Teaching your children, or grandchildren, a few simple lessons about saving and investing can start them off in the right direction toward a secure financial future, and can be as easy as 1, 2, 3.

Step 1: The value of savings
Teaching your children about saving money for a specific purpose is key to instilling good investment habits for the future. The lesson is a simple one -- if you want something, you have to save your money for it. Talk to your children to find out what it is that they want (chances are they've already told you this during your last trip to the toy store). Once you know what it is and how much it will cost, work with your children on how they can save for it by using their allowance. Give your children options for reaching their goals, such as saving all of their allowance for a certain number of weeks vs. saving half of their allowance for twice as long. This teaches your children to view their options and make informed decisions about how to manage their money.

Hint: A good way to encourage your children to start saving is to provide them with a "piggy" bank.

Step 2: The value of investing
Once your children have learned how to save money to achieve their goals, it's time to teach them how to earn money through interest accumulation. Learning about the benefits of compound interest is important to encourage your children to invest their money in income producing securities.

It's now time to put principle into practice. A good first step in moving from the piggy bank to the stock market is a simple savings account. As your children's savings grow with money from paper routes, baby sitting, or other first jobs, you may want to introduce them to other investment vehicles, such as mutual funds. Your registered State Farm agent can assist you in opening a custodial account for your child under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA). ). It is important to educate your children that there is market risk involved when investing in mutual funds, including possible loss of principal.

Hint: A great way to encourage your children to invest more of their savings is through a matching program, where for every dollar they invest, you match it with a dollar of your own -- similar to a 401(k) plan.

Step 3: Stay involved in the process
Most children look to their parents as a primary source of financial information. This makes it important for you to stay involved with your children throughout their learning experience with investments. Take the time to go over your children's bank or mutual fund statements with them. If they are investing in a mutual fund account, show them how to look up the value of their funds in the newspaper or on the Internet. Get your children interested in their investments at an early age, and it will stick with them for life.

Last but not least, practice what you preach. You can talk to your children about investing until you're blue in the face, but chances are good that they will not pay close attention to the subject unless they see that you are following your own advice. As a Mutual Funds shareowner, you are already well on your way to accomplishing this.

State Farm VP Management Corp. is a separate entity from those State Farm entities that provide banking products and auto, life, fire and health insurance products.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 276 KB).

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