According to a recent BMO Harris Bank national survey conducted by Ipsos America Inc., a market research company, nine out of ten (89 percent) U.S. parents think that they are an important resource for their children to learn basic money management. Unfortunately, less than four of ten (36 percent) parents talk to their kids about money management on a regular weekly basis.
Now that children have settled into another school year, BMO Harris Bank suggests that it is an opportune time for parents to start teaching their kids about the basics of investing and saving for the future.
"Learning doesn't stop when the school bell rings at the end of the day," said Jim Sathre, Senior Vice President, BMO Harris Bank. "It's never too early to introduce kids to the world of finance and that can start in the home. Even very young children can learn basic money skills, while older children can be taught about the stock market and the importance of setting financial goals."
BMO Harris Bank offers tips for parents on how to teach their children about saving and investing at any age:
The Early Years: The Value of Saving (suggested ages: 5 to 9) As soon as children start to collect a few coins and understand the value of money, open a savings account for them:
-- Explain to them why saving/investing money is important in life.
-- Introduce them to the concept of having a bank account and how money in a bank account earns interest.
-- Focus on a specific goal (such as buying a video game or a bike) this can make it easier for kids to set aside the money. Suggest children save at least part of the cash they receive for birthdays, holidays or jobs for something they really want.
-- By setting a goal and purchasing items themselves they will develop a better appreciation for the value of saving.
Taking Action: Learn the Marketplace (suggested ages: 10 to 12) Once the basics are in place, it is time to start learning about investing:
-- Educate children on the concept of risk and the importance of having a balanced investment portfolio - use language they understand and keep to key, simple concepts.
-- Explain that purchasing a stock means they own a small piece of a company and the value of the stock can go up or down.
-- Show them how to read stock prices in the newspaper's financial pages or online. As homework, have them track the stock prices of a handful of familiar companies, such as Disney((R)) or McDonald's, to make the exercise more interesting and personal.
-- Decide together how frequently they will check the stock prices (once a day, once a week) and then show them how to keep a log of the price changes to see how well their selections have performed.
-- If you have an online investing account, walk them through your portfolio and explain to them the rationale for your portfolio's composition and any trades/changes you make.
Getting Real: Becoming an Investor (suggested ages: 13 to 19)
-- Once the groundwork has been set, have kids invest a small sum of money in a few stocks they were previously tracking and perhaps offer to match any gains the child makes in their stock picks.
-- Consider setting up a custodial account and having the child contribute part of his or her savings.
-- Teach kids about the different savings and investing instruments available to them, such as 504 Plans and money market accounts, to build up a contingency fund, pay for college, or save for a larger purchase such as a post-graduation trip or car.
-- Explain that the younger an investor starts to put aside and save his/her money, the more time his/her money has to grow.
"An important lesson is that we can make learning about finances fun for kids," said Sathre. "With some instruction and hands-on experience, you may have the makings of the next world-renowned economist living under your roof!"
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