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Teaching your children the tricks of the trade when it comes to investing can give them an edge later in life. Simple lessons could equip them to be better investors when they have some money of their own to invest. Encouraging saving and budgeting habits in kids is commonplace, but less emphasis is put on investing for kids. Read on to learn how to introduce your kids to the stock market
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Overview: Investment Accounts for Kids
Before beginning the lessons on the stock market, you’ll want to make sure an investment account is the right choice for your child.
Saving vs investing
If you want to wait until your child has money set aside to teach them about investing, you could help them open a savings account. This would allow them to practice managing their money while working to save for investments in a few years.
On the other hand, invested money earns higher returns than the saved money, although there is an element of risk involved in the former. If you think your child is ready to handle this concept of risk, or has enough money saved away to learn it on their own, it may be a good time to teach them about investing.
Asset classes for kids
There are several avenues or asset classes for investment, such as stocks, bonds, commodities, currencies and the whole categories of derivatives. The easiest asset class for kids is equity or stock.
Stocks, however, are relatively risky compared to bonds, commodities such as gold and some safe haven currencies. However, children can connect better with stocks due to their association with companies, whose products and services children are familiar with.
How old do you have to be to invest in stocks?
At age 11, prolific and astute billionaire investor Warren Buffett bought his first stock from the money he saved working in his family’s grocery store.
He did odd jobs while he was a teen and used the money he saved to buy stocks of local companies. Buffett’s first experience with investment came in the year 1941. Things have changed between then and now, most notably with kids being well informed via modern communication devices.
Depending on the type of brokerage account you open for your child, there may be an age restricting on if they can invest. This is brokerage specific, but parents can usually open a custodial brokerage account for kids under 18 years old.
How Kids Can Start Investing
Investment should be made as a family activity. Kids can join discussions concerning companies that form their portfolio, the moves of those assets, and more. When parents discuss their holdings with children, they should help them understand that investing in stocks is a risky business and therefore, it requires thorough background research and a clear strategy to avert or minimize any potential losses.
Step 1: Describe investing in simple terms
Explain to them that it is merely a form of deploying the money they have saved in something, which can fetch you incremental returns. One can also take the children to annual shareholders’ meeting of local companies to get them interested.
Step 2: Have them make a few stock picks
Include them in stock picking by asking them which company’s stock they would prefer to own. Kids may not have full knowledge about the whole gamut of industries and sectors. At least they will be familiar with companies such as Disney, Nike, Nintendo etc, whose products they are familiar with. With these fledgling steps, though children may not get the whole hang of things, for sure, they pick up the basics.
Step 3: Practice with a simulation
Before they are ready to go, you can make the children play stock market simulation games with paper money. At this point, you can do all the hand-holding children would need, walking them through the basics of investing. Once children gain some familiarity by watching the parents invest, and they accumulate some money for investing, parents can explain the concept of a portfolio, which serves the purpose of diversification and risk minimization.
Step 4: Select an online brokerage
For children that are going to build a simple portfolio and hold that position for a number of years, a brokerage for beginners is a great way to go.
Check out more of our favorite brokers and investment platforms below.Try
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
- Cost-conscious traders
- Active and Advanced traders
- Over 8,000 different stocks that can be sold short
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- No chat support
E*TRADE is an online discount trading house that offers brokerage and banking services to individuals and businesses. One of the first brokers to embrace online trading, E*TRADE not only survived both the dot-com bubble and Recession — it thrived. You can choose from two different platforms (one basic, one advanced). E*TRADE is a suitable broker for traders of most skill levels, whether you want to buy mutual funds and hold them for decades or dabble in options swing trading. E*TRADE offers a library of research and education materials to help you out.
- Active traders
- Derivatives traders
- Retirement savers
- Sophisticated trading platforms
- Wide range of tradable assets
- Exceptional customer service
- Limited currency trading
- Higher margin rates than competitors
- No paper trading on its standard platform
This latest groundbreaking technology is IBKR GlobalAnalyst, a new trading tool that helps investors compare the rate of PEG or price-earnings growth valuations and provide more immediate and comprehensive financial metrics of stocks, globally.
Recognizing that stock selection can be challenging for investors to compare the valuations of domestic and international stocks, Interactive Brokers created GlobalAnalyst to offer investors a simple, yet powerful tool to easily evaluate investment opportunities around the world.
Using GlobalAnalyst, investors can search for stocks by region, country, industry, market capitalization and currency to uncover undervalued stocks worldwide. The resulting table displays the current market and financial metrics, including the PEG Ratio. The PEG Ratio is the PE ratio divided by the three-year compound earnings growth rate, and smaller PEG Ratios typically indicate undervalued companies.
- Price earnings growth valuations
- Easily evaluate investment opportunities
CenterPoint Securities is ideal for active traders who demand access to advanced tools and services. While investors and casual traders are likely to be content with the basic offerings of traditional online brokerages, active traders will benefit from CenterPoint’s suite of advanced trading tools. If you value execution quality, access to short inventory, advanced trading platforms, and accessible customer service, CenterPoint is an excellent choice.
- Intermediate to Advanced traders
- High-volume traders
- Momentum traders
- Short sellers
- Unrivaled access to short inventory
- Flexible order routing for improved executions
- Discounts for active traders
- Advanced platform with fast executions
- Reliable customer service
- Not designed for beginner or low-volume traders
It’s also wise to teach children money management by investing in them directly. Use a savings program like EarlyBird to show children how investing is a long-term practice. A young child of, say 5 years old, can see the EarlyBird account working on their behalf.
EarlyBird is an excellent example you can use with kids because it has a mobile app, offers 5 investment options and anyone can invest. On the one hand, you can show your kids that you are putting money in their account, and on the other hand, you can encourage them to invest in their future.
EarlyBird is also a lovely way to explain crowdfunding to your kids. You can ask friends and family to contribute to the account, and your kids might ask for gifts for many years to come. Plus, your kids can see what it takes to save for college, training, certification or any other form of education they require.
Investing is an amazing way to teach children the importance of money and how our economy functions as well. If you are looking for helpful, educational resources to explain these topics, you can start with how the stock market works.