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Kids and Money: Teach Your Teen About Investing

Growing up, my parents taught me [3] about the importance of living within my means, setting money aside for the future, and the dangers of debt. Investing, though, was not something we discussed. My parents started custodial mutual fund accounts with my brothers, and encouraged them to add money, but it was not something that I had much exposure to as a teen. Because I feel this was a bit of an oversight, I fully intend to help my son learn about investing [4] when is old enough to better understand some of the concepts.

If you already have teenagers, now is a great time to begin teaching them about investing. Because investing is one of the best ways to meet long-term goals, it is important that they learn the basics of investing — and even get in a little practice. Here are some tips for teaching teens about investing:

Investing 101

You want to start out with investing 101, explaining your own investment philosophy, and the way you invest. You can talk about the basics of how the stock market works, what funds are available, and even talk a little bit about other investments, such as REITs, commodities and other opportunities. You should lay a foundation to help them understand risk tolerance, as well as the connection between risk and reward.

Try to keep things simple to start. While diversification is something that most teenagers can grasp, it’s a good idea to hold up on teaching about options, P/E ratios and other more advanced concepts. Try to keep things understandable to start, and when you teen is comfortable with investing, you might move into more complex investment topics.

Help Your Teen Practice

Before you decide to take the plunge, you should help your teen practice. Show your teen how to follow news about different investments online. It’s often best to start with individual stocks and funds. Show your teen how to look for solid companies with potential, and help him or her decide what to follow. Create a practice portfolio with investments your teen is interested in: Entertainment stocks, snacks and soda, clothing retailers, etc. Follow the portfolio to see how it is doing.

You can make the process a little easier by using online stock trading games. There are plenty of web sites, like Kapitall [5], that allow you to put together a portfolio and track it easily. There are games that can help teach teens investment concepts that can help them later in life. Take advantage of these as you help your teen navigate the early stages of investing.

Putting Skin in the Game

After some practice time, your teen needs to start investing. However, a teenager cannot have his or her own account. You can open a custodial account to help your teen trade. Technically, you are the controlling the brokerage account. This can be useful, since you can prevent your teen from making a completely disastrous decision, while still helping him or her learn the basics of investing. These custodial accounts revert to your child at age 18 or 21 (check your state law), and he or she will have full access — no matter what you do.

Work with your teen to decide what stocks or funds to invest in, and show him or her how to use the brokerage account, so that when the time comes your teenager is ready to take over.

What are your tips for helping teens learn to invest? Share in the comments!

(Photo: mag3737 [6])