Teaching Children to Save and Invest

Teaching children a few simple lessons about saving and investing can get them off in the right direction toward a secure financial future.

The Value of Savings

The lesson is simple — if you want something, you have to save for it. Talk to your child to find out what it is that he or she wants. Once you know what it is and how much it will cost, work with your child on how to save for it.

Give options for reaching his or her goal. If your child receives an allowance, talk about saving all of the allowance for a certain number of weeks versus saving half of it for twice as long. This teaches your child to view their options and make informed decisions about how to manage money.

The Value of Investing

Once your child has learned how to save money to achieve his or her goals, it's time to talk about how to earn money through interest accumulation. Learning about the benefits of compound interest should encourage children to invest their money in income-producing securities.

A good first step to moving from the piggy bank to the stock market is a simple savings account. As your child's savings grow with money from paper routes, babysitting, or other first jobs, you may want to introduce other investment vehicles, such as mutual funds.

Consider opening a custodial account for your child under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA), or start a matching program, similar to a 401(k) plan where you match every dollar your child invests.

Don't forget that it's important to educate children that there is market risk involved when investing in mutual funds, including possible loss of principal.

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 child throughout his or her learning experience with investments.

Take the time to go over your child's bank or mutual fund statements with them. If investing in a mutual fund account, show your child how to look up the value of his or her funds in the newspaper or on the Internet.

Practice What You Preach

You can talk to your child about investing until you're blue in the face, but chances are good that he or she will not pay close attention to the subject unless you're following your own advice.

Take a moment to speak to your child about investing in their future. Then call, email, or visit with your local registered State Farm® agent who will help you create a financial plan that is right for you and your child.

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Risk Disclosures

Investing involves risk, including potential for loss.


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