Teaching your kids about money management

Investing might seem like a topic that’s too complex for children to understand, but there are many age-appropriate ways to broach the topic – and doing so can financially benefit your child down the line.

The earlier your child starts investing, the better off they’ll be in the future. Following this, it makes sense that teaching your child about investing from a young age will set them up for financial success later in life. Here’s how you can do it.

Teaching preschoolers about investing

While it’s unlikely that young children will be able to grasp most basic investing principles, there still are ways to talk to preschoolers about money that can lay a solid financial foundation for them.

At this age, children understand concepts like saving and earning, so you can do certain activities with them to contextualize these ideas in a practical setting. For example, you can help them save money by putting cash in a piggy bank and explaining to them the idea of saving up for a special purchase. You could also expand upon this exercise by taking them on shopping trips where they can occasionally select something to buy with the money they’ve saved.

Teaching elementary schoolers about investing

Once your child enters elementary school, talking about money might become a little easier. However, you’ll still have to explain it in age-appropriate terms.

These days, many schools teach financial basics in classrooms, where children earn “money” in class by doing certain tasks, and can spend it on activities or lose them based on bad behavior. This helps children learn how to manage money in a basic way – but there are other things you can do at home, too.

Elementary school is the age level where things like starting a lemonade stand, receiving allowance and opening a bank account make sense for children. Allowing them to handle their own money by way of an allowance can be a great stepping stone into money management – especially if they can deposit this money into a savings account. This can help them start to grasp the idea of having and maintaining a bank account.

Teaching middle schoolers about investing

Since middle schoolers can understand more sophisticated financial concepts, now is a good time to introduce them to investing. Switching to a monthly cadence for receiving allowance can help your preteen learn how to budget their money over a longer period of time.

If they’ve had a bank account for a few years now, though, you can also show them the (albeit minimal) effects of compounding interest on their savings account, which is a great way to introduce basic investing principles.

Teaching high schoolers about investing

High schoolers, however, will have even more opportunities to learn about investing. Many teenagers start their first job around this age, meaning they begin to manage the money they’ve earned themselves. Fortunately, this gives them the opportunity to make mistakes without facing too harsh of consequences. If they use their whole paycheck right away and have to wait two weeks before they get paid again, they may be inclined to learn how to better use their money.

But parents can – and should – still be involved at this age, too. Teens can start to fully grasp investing principles, and discussing with them the many different ways to invest their money can be beneficial. Investing toward a goal, such as opening a 529 account to save for college, can be practical in both helping them prepare for their future and deepening their understanding of core investing tenets.

Teaching college kids about investing

Seeing that most college kids are typically living on their own for the first time, they might feel comfortable taking the reins on their own finances, too. Even so, you can actively help them set practical financial goals for themselves. For example, some questions you might ask may be what they want to do with their money or how can they can reach a specific financial goal of theirs.

If they want to save for an apartment or a post-grad corporate wardrobe, help them create a sensible budget that still brings them closer to their financial goals. What’s more, setting up a retirement plan is often an important first step one takes upon starting their first post-college job – have a conversation with your child to ensure that these important steps are happening.

The bottom line

Setting your child up for financial success as a young adult can produce myriad benefits as they continue to age, since it gives their money more time to grow. Speak with a J.P. Morgan advisor today to learn more about how to introduce your child to important investment principles.

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