Teaching Children to Save and Invest
Teaching children a few simple lessons about saving and investing can get them off to a great start toward a secure financial future.
The Importance 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, then work with your child on how to save for it.
Give options for reaching a 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 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 the importance of educating children about the market risk involved when investing in mutual funds, including possible loss of principal.
Staying 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 the 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 online.
Being a Good Role Model
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, contact your local registered State Farm® agent to create a financial plan that is right for you and your child.
Will your college savings keep up?
Mutual Funds Risk Disclosures
Investing involves risk, including potential for loss.
Not FDIC Insured
- No Bank Guarantee
- May Lose Value