How to Encourage Your Child to Invest For Their Future

Investing is a fundamentally life-changing pursuit. Those who invest regularly & sensibly from a young age will be able to retire earlier, buy a house sooner and enjoy a better quality of life. They’ll entitle themselves to more freedom to choose vocational professions without having to worry as much about pay, and therefore lead more fulfilling careers.

It’s therefore incredibly important to impart your love of investing to your child to help them enjoy the rewards of the financial markets. This requires proactive parental effort as the school curriculum does not touch the topic of investing at any level.

How to Encourage Your Child to Invest For Their Future

Here are 3 helpful tips to help you fire their spark of imagination. With these, you’ll guide them to perhaps think of investing as:

  1. A normal part of grownup life
  2. A fun adventure that is worth sacrificing money now for

Tip 1: Provide an education

As I said above, schools don’t feature investment topics, so you’ll be starting from scratch to teach the building blocks of saving, investments and valuation.

There are lots of great online resources and videos which can show your child how money works. Many are available for free and can be watched as many times as necessary! Investing books for teens are also now widely available online.

Remember that understanding the basics of how investing works is totally separate from instilling the mindset of saving. One is knowledge, the other is a combination of beliefs, patience, and experience. As you are probably working out, the latter is much harder to teach than the former. 

How can you encourage your child to delay gratification? This leads to our next tip.

Tip 2: Boost the reward for saving by matching their savings, with a short delay

Matching any of your child’s deposits with a 100% matching contribution after one week will build your child’s expectation that good things come from saving, and that it’s well worth their while.

This should only apply to any discretionary savings your child has chosen to make from their weekly or monthly allowance rather than matching any automated savings you might be making on their behalf. The point is that you are rewarding their choices rather than just boosting any passive saving which is outside of their control. 

You might wonder if a 100% matching rate is too extreme to prepare children for the realities of spending. You can easily tailor this based upon your own child’s inclination to save. Some children may only need a 33% match for them to feel compelled to save their pennies and pounds. Others may need 150% for them to decide that it’s worth foregoing fun now to have more fun later. 

Parents are divided on whether children should be allowed to withdraw these savings immediately after the matching amount is paid in. If withdrawn in full each week, the child won’t be accumulating a little pot over time (which reflects real life), however, it’s important to remember that this is a mindset exercise and not a detailed simulation of real adult saving. It’s just an opportunity to create connections in the brain between saving and the pay-off.

These happy memories of profits made in the past will hopefully last to inform your child about whether to save or not when they are long into their adult years.

Tip 3: Make investing fun

Introduce games and bonuses linked to your child’s decision to invest or save to further add a sense of fun and excitement.

This could involve spinning a wheel to see exactly what matching % they’ll receive this time. 

Or you could find more intrinsic fun within the investing process, such as allowing your child to invest in shares of some of the companies and things they adore the most, such as

  • Disney Corp
  • The Coca Cola Company
  • Electronic Arts, Activision Blizzard, Ubisoft (video games)
  • McDonalds Corp

By investing in businesses that they personally resonate with, you can emphasize the real nature of ownership that share ownership confers.

The dividends that your child may receive from any shares they’ve bought will be fairly small, as the dividend yield on major corporations is rarely above 3%. However, these dividend receipts will be the first passive income earned by the child. It’s an opportunity to teach why passive income is so important for us, particularly later in life when we can no longer work.

Teaching your child about investing can be a fun, rewarding, and inexpensive activity. You don’t need to invest £1,000 to get going – even investing a small sum would be worthwhile. The best UK stockbrokers don’t charge much in account fees for small accounts for children, and you could even use an investing app that charges zero commissions.

Overall, if you decide to actively teach your child about investing, you are giving them a fantastic piece of knowledge that many of their peers will learn all too late in life.