As a parent, you have the power to set your child up for a strong financial future. One of the best ways to do that is to help them develop healthy money habits as a foundation for their future journey as investors.
While you and your parents before you may have used financial institutions or investment firms to set up accounts and paid commissions to trade in those accounts, today’s young investors have more options, including immediate access to various investment products and platforms through smartphone investment apps at little or no cost. Cheaper and easier access may have helped democratize investing, but this also means that youth are exploring investing at younger ages so it’s especially important for your kids (and you!) to understand the value and risks of an investment.
Here are nine effective tips to improve your child’s financial knowledge, and refresh your own along the way.
Start Building Financial Literacy with the Basics
While investing in individual stocks may be exciting, it may not the best place to start when teaching children, teens and young adults about financial literacy. Teens and young adults require a basic foundation in core financial principles such as:
- financial goalsetting;
- saving and allowances;
- the effectiveness of compound interest over time;
- the impacts of inflation;
- budgeting; and
Start by keeping it simple. Open a savings account at a local or online financial institution. Encourage your child to save money earned through chores, jobs and gifts. Talk to them about interest rates and use a calculator to illustrate how their money can make money. Check out our Investment Growth Calculator to see how your money can grow over time.
There is help available for parents who would like to brush up in these areas. Please see the Further Financial Literacy Advice section of this article.
Share Your Financial Journey
Parents who do not feel well versed in financial matters can still effectively support teens and young adults by sharing their financial planning, household budgeting and investing practices.
Many parents may not feel comfortable sharing their complete financial situation with their children. That’s understandable. But children are likely paying attention to their parents’ financial habits including what and where they buy and how they earn, budget and borrow.
Explaining financial choices to teens and young adults is part of financial literacy training. Parents may not want to share their numbers, but they can share concepts.
Create the Foundation of Good Financial Planning: Budgeting
Sit down with your teen or young adult to create a budget that realistically tracks monthly income and expenditures. The budget should list all regular and essential items. Include a line for non-essentials as well, such as dining out and entertainment.
Look for milestone opportunities to create a budget, such as starting a new job or attending university. During this discussion, introduce the concepts of taxes and managing debt.
Teaching your child about taxes — including deductions, credits, filing dates, tax forms and the like — may not be fun. But it can help construct a strong base from which to build greater financial literacy.
Teens and young adults need to know that managing debt and paying it off on time is important. Many students take out loans to pay for post-secondary educational opportunities. However, far fewer actually consider how they will pay off the debts they incur. Overdue loans and carrying debt can impact credit scores and, in turn, impact future loans, mortgages and interest rates .
Progress Into Investing
Parents who feel comfortable discussing their portfolios and investment selections – whether stocks, bonds, mutual funds, exchange-traded funds (ETFs) or the like – can start by teaching their kids the basics of each investment including their potential benefits and drawbacks, risk versus reward, the value of time and dividends, and profits and loss.
If you own mutual funds, bonds, or ETFs, explain why you (or your advisor) chose to invest in those products. And if you invest in individual stocks, talk about why you selected those companies. Have your child join you in researching investments, watching their performance and staying up to date on them.
Brand-name companies that your child knows and uses might get their attention, deepen their interest and connect the world of investing to real life – fashion, technology, sports and entertainment companies may provide a start. However, this ‘buy what you know’ approach may lead to following a narrow band of stocks, at the expense of asset allocation. Ensure diversification is part of the discussion.
Look at a company’s investor relations page with your child to learn more about the company’s financials, growth, business strategy and workforce.
Provide a Hands-on Experience
Once your teen or young adult feels comfortable with basic concepts, let them select funds, bonds or stocks to invest in, initially through a model portfolio. This allows you to track the shares and other investments for fun and without the expense or risk of purchasing shares. There are a number of large, respected financial websites and apps that will allow you to easily set up and track such a portfolio for no cost. This may work especially well if your teen or young adult learns best by doing.
As you work with your child, create a financial plan. Set goals. Consider adding real time horizons (i.e. starting university, buying a house) then track and revise the portfolio with an eye on those time horizons.
Consider Small, Coachable Investing Moments Along the Way
- If you feel comfortable, show your child your account statements.
- Share your investment advisory firm’s analyst and industry reports.
- Talk about the stock market or how world events are affecting the economy during dinner.
- Inform your child about changes in your own investment portfolio and the reasons why the changes were made, whether it was to prepare to make a major purchase or retirement, obtain dividend yield, lock in profits, or diversify.
Ensure your child knows that investing is not a get-rich-quick scheme, but a tool to help them achieve their goals over the long-term.
Open an Investment Account with Adult Support
Eventually, your young adult may want to open an investment account at a traditional or online broker or sign up for an investment app and start buying their own investments. It’s important to research and select the best online brokers and investment apps before opening an account. Be available to discuss your child’s investment options. Provide them with subscriptions to respected investment publications and online resources, and be an informative, constructive sounding board to help select and track investments.
Parents or grandparents can open a trust account for minors to invest in stocks, bonds and funds. Talk to a registered investment professional to do so, and to understand the tax implications for the parent, grandparent and minor.
“There’s an App (or Website) For That”: Find Helpful Online Tools
There are helpful resources online to guide parents and their children through different stages of their financial literacy and investment planning journey.
Do your own research or talk to your registered investment advisor to select the best and most appropriate online tools for your child’s stage of development, whether saving, budgeting or investing. A word of caution – some apps or websites may make a game of investing, with animations, emojis, and challenges that engage children, teens and young adults and that may encourage them to take more risk. Making investment decisions according to your risk profile is a cornerstone of investing, and gamifying investing could dilute the importance of considering risk.
Also, consider how the apps make money, which could be through regular subscription fees, low interest on savings, or card fees.
Additional Considerations For Young Adults
At this point in your child’s life, adult guidance might be seen as interfering rather than helpful. Cite your experience to remind young adults how long it can take to accumulate cash for a house down payment or wedding. And, encourage the young adults in your life to set aside a portion of any income they’re earning to help achieve long-term financial goals, build a solid financial base and prepare for financial emergencies.
Further Financial Literacy Help
While parents often want to help their children develop responsible financial habits, they may not have that experience themselves. Fortunately, parents don’t need to be experts to help their children. There are online, in-person and educational programs available.
BCSC InvestRight’s “Get Started with Investing” Resource
“Get Started with Investing” is our free video-based resource that is designed to help you learn about the investing fundamentals. It’s packaged in two series – the first can help you cover the basics, including differences between saving and investing, and learning about common investment types and accounts.
The second set of videos can help you deepen your investment knowledge. The videos include topics like diversification, working with a registered advisor, and common money management strategies.
Spend Some Time on InvestRight.org
Parents and their children can visit InvestRight.org for trusted, unbiased investing information. Understand the basics by checking out our Investing 101 section, learn how to do a background check on an investment advisor, learn how to recognize and avoid investment fraud, and more.
Chartered Professional Accountants (CPA) BC
CPA BC offers financial literacy programs for people of all ages. The program includes a session titled How to teach your kids about money. The session is intended for adults, parents and teachers to learn how to raise children who are financially independent and responsible, and includes materials for goal setting, monthly budgeting and more.
Secondary Schools Offer Financial Literacy
Financial literacy is embedded into B.C.’s school curriculum in Mathematics, Career Education, and Applied Design, Skills, and Technologies (ADST). According to the BC Ministry of Education and Child Care, education in accounting, personal investments, loans, banking services, financial planning and budgeting is available.
In addition, Junior Achievement of BC (JABC) programs such as Personal Finance and Investment Strategies are available as extra-curricular courses or used by teachers as part of ADST or Career Education programs. They can also be self-directed by students.
Personal Finance teaches personal money management skills including spending wisely, budgeting, saving, investing and using credit. By the end of the program, students will have a personal finance plan and clear goals for their financial security.
The JABC Investment Strategies Program helps students learn to research and select investments, manage an online stock portfolio and understand the benefits and drawbacks of investments such as RRSPs. The program includes an online stock market simulation, where students manage their own simulated stock portfolio. The simulation is linked to live data from North American stock markets. JABC’s Investment Strategies course is supported by the BC Securities Commission.
Report a Concern
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using the BCSC’s online complaint form.