When you are a kid, the only way to learn how to invest is by watching your parents do it. Of course, in the United States, we have a tradition of putting our money into educational institutions, like colleges and universities, where we go to learn about how to invest. These investments typically lead to a lifelong career in financial services or business, and most of us end up making a comfortable income and living well. This lifestyle is generally considered to be normal, and it's definitely not rocket science.
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However, there is one aspect of money management that most people overlook as they go about managing their money: being a kid. You've heard the saying that "kids learn from their parents." That's exactly what it means. If your parents taught you how to invest as a kid, then so can you. And it's easier than you think. Here's how to get started learning about how to invest as a kid.
As kids, we are exposed to a lot of different ideas about how to invest. For instance, some parents will give their kids small amounts of money to invest in the stock market so that they can someday own their own home. Or maybe your parents got you started in the game by investing in mutual funds so that you could afford to go to college. The idea is basically the same: kids learn how to invest because adults are teaching them how to do it.
How to Invest As a Kid
What does this have to do with your money? Your investments are going to be different if you learned how to invest as a kid versus how you are learning to invest in the money market today. That's because your investments will be based on how you perceive value. Here's how to think about investments.
If you think that paper money is good and should be invested in the money market, then those are the investments you should make. Those are known as "liquid" investments because the interest rate is very low and you can borrow money against them to invest for a long time. Those types of investments have very low risk and you will see a steady return on your investment. However, if you are an adult who wants to learn how to invest as a kid, you should avoid liquid investments such as CDs and bonds, real estate and the stock market (both large and small).
You should focus on saving money instead. You should focus on saving up for retirement. Saving money is what helps you pay off your debts later. It's also how you build wealth over time through investments in the money market. If you want to learn how to invest as a kid, you should keep these three investments in mind.
The first thing you should do when you want to learn how to invest as a kid is to set aside some money to help your child set up a retirement fund. Children usually don't save that much money and they may end up borrowing money from family members or other adults to help them with their retirement fund. In this case, you should tell your child not to invest any money that he or she doesn't have immediately. Your child shouldn't have to work at finding ways to get money to invest either.
The last thing you should do when you want to know how to invest as a kid is to teach your kids how to diversify their investments. You should encourage them to invest in things such as the stock market but you should also teach them how to invest in mutual funds and other things like bonds. These are some of the best investments a kid can invest in because the returns can be fairly high and they can handle the risk better than an adult. Of course, when you talk to your kid about these investments, don't stress him too much about the risks because he or she will be working to reduce those risks when they get older. Tell them about some of the more secure investments they might want to look into but don't force them to take the "bank money" approach.
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