Chicago, Ill.-based actor Mike Wollner says at ages 7 and 10 his daughters are already learning how to invest.
Three years ago, Wollner opened custodial brokerage accounts for the girls through Monetta Mutual Funds, which has a Young Investor Fund specifically for young people to invest for the future. Through the fund, parents can open custodial brokerage accounts or 529 college savings accounts on behalf of their children, as well as get access to financial education and a tuition rewards program.
Wollner decided to open the accounts once his daughters began to nab acting gigs and earn an income. They’re already beginning to understand what it means to own a part of the world’s largest companies. “They will ask me to drive past Wendy's to go to McDonald's and say, ‘well, we own part of McDonald's,’” he says.
Wollner hopes his daughters will have saved enough for college by the time they graduate high school. His 10-year-old’s account balance already hovers around $13,000, while his 7-year-old has a little less than $10,000 saved for college in her account.
The Value of Starting Young
The Monetta Fund is only one example of a way to invest on a child’s behalf. The downside to using an actively managed investment account like the one Monetta offers is that it comes with higher fees — the fund’s expense ratio of 1.18% in 2016 is higher than the 0.10% - 0.70% fees typically charged by state-administered 529 college savings plans.
In addition to 529 plans, parents can open Coverdell Education Savings Accounts, or other custodial brokerage or IRA accounts through most financial institutions like Fidelity, Vanguard, or TD Ameritrade.
A college fund serves as a great way to teach kids a little about the time-value of money, but they’ll need to know more than that to manage their finances as well as adults.
“There's no guarantee that they are going to be financially successful because anything can happen in life, but you'll be better off with those skills and have a better chance of being successful with those skills than without them,” says Frank Park, founder of Future Investor Clubs of America. The organization operates a financial education program for kids and teens as young as 8 years old about financial management and investing.
He says FICA begins teaching financial concepts at an early age with hopes that the kids who start out with good money management habits now will continue to build on them as they age.
“If they fail to get that type of training now, it may be years into their late 20s, 30s, or 40s before they start. By then it could be too late. It could take 20 years to undo the mistakes they've made,” says Park.
3 Ways to Teach Young Kids About Money
Use real-world experiences
Wollner has each daughter cash and physically count out each check they receive from acting gigs.
“They just see a big stack of green bills, but that to a child is cool. It's like what they see in a suitcase in the movies,” says Wollner.
He then uses the opportunity to teach how taxes work as he has his daughters set aside part of the stack of cash to pay taxes, union fees, and their agent.
“They start to see their big old pile of money diminish and get smaller and smaller,” says Wollner, who says the practice teaches his daughters “everything you make isn't all yours, and I truly believe that that's a lesson not many in our society learn.”
Kids don’t need to earn their own money to start learning. Simply getting a child involved with the household’s budgeting process or taking the opportunity to teach how to save with deals when shopping helps teach foundational money management skills.
Park urges parents to also share financial failures and struggles in addition to successes.
“They need to prepare their kids for the ups and downs of financial life so that they don’t panic if they lose their job, have an accident, or [their] identity [is] stolen,” says Park.
Gamified learning through apps or online games can be a fun way to spark or keep younger kids’ interest in a “boring” topic like investing.
There are a number of free resources for games online like those offered through Monetta, Education.com, or the federal government that aim to teach kids about different financial concepts.
Wollner says his youngest daughter benefited from playing a coin game online. He says the 7-year-old is ahead of her peers in fractions and learning about the monetary values of dollars and coins.
“This is how the kids learn. It's the fun of doing it. They don't think of it as learning about money, they think of it as a game,” says Bob Monetta, founder of Monetta Mutual Fund. The games Monetta has developed on its website are often used in classrooms.
When kids get a little older and can understand more complicated financial concepts, they can try out a virtual stock market game available for free online such as the SIFMA Foundation’s stock market game, the Knowledge@Wharton High School’s annual investment competition, or MarketWatch’s stock market game.
“The prospect of winning is what makes them leave the classroom still talking about their portfolios and their games,” says Melanie Mortimer, president of the SIFMA Foundation.
Anyone can play the simulation games, including full classrooms of students.
Aaron Greberman teaches personal finance and International Baccalaureate-level business management at Bodine High School for International Affairs in Philadelphia Penn. He says he uses Knowledge@Wharton High School’s annual investment competition in addition to online games like VISA’s websites, financialsoccer.com, and practicalmoneyskills.com, to help teach his high school students financial concepts.
Adults should play the games with children so that they can help when they struggle with a concept or have questions. Adults might even learn something about money in the process. Consider also leveraging mobile apps like Savings Spree and Unleash the Loot to gamify financial learning on the go.
Reinforce with clubs or programs
For more formal reinforcement, try signing kids up for a club or other financial education program targeting kids and teens.
FICA, the Future Investors Clubs of America, provides educational materials and other support to a network of clubs, chapters, and centers sponsored by schools, parents, and other groups across the nation.
When looking at financial education programs, it’s important to recognize all programs are not equal, says FICA founder, Frank Park.
“Generally speaking, you're going to go with the company that has a good reputation of providing these services, especially if your kid is considering going into business in the future,” says Park.
The National Financial Educators Council says a financial literacy youth program should cover the key lessons on budgeting, credit and debt, savings, financial psychology, skill development, income, risk management, investing, and long-term planning.
Mortimer suggests parents also try getting involved at the child’s school by offering to start or sponsor an after-school investing club. She says many after-school youth financial education or investing organizations nationwide use SIFMA’s stock market simulation to place virtual trades and compete against other teams.
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