How to Help Children Start Passive Income Investing: A Beginner’s Guide
I so wish that I had understood about investing when my children were small. Passive income investing is a great way to build long-term wealth, and the earlier children start, the better. Teaching kids about investing can help them develop good money habits and learn about financial responsibility at an early age. But where do you start? In this beginner’s guide, we’ll walk you through everything you need to know to help your children start passive income investing.
I’ve written before about the advice I gave my older children here – it compliments this post, I think.
Start with the Basics
Before diving into the world of passive income investing, it’s important to teach children the basics of money management. This includes understanding the value of money, budgeting, and saving. Once they have a good grasp of these concepts, they will be better equipped to understand the importance of investing and how it can help them reach their financial goals.
Try giving them a little budget with their allowance.
Set Financial Goals
It’s important to help children set financial goals, so they have a clear idea of what they want to achieve with their money. This can be something as simple as saving up for a new toy or something more significant like saving for college. When children have a goal in mind, they are more likely to be motivated to save and invest.
Keep the goals small and relevant to the child.
Teach Them About the Stock Market
The stock market can seem intimidating, but it’s important to teach children about it. Start by explaining what stocks are and how they work. You can use real-life examples to help them understand the concept.
For example, if they love McDonald’s, explain how they can buy a share of the company and become a part owner.
Choose the Right Investment Vehicle
There are many different investment vehicles available, and it’s important to choose the right one for your child’s needs. Some popular options include mutual funds, exchange-traded funds (ETFs), and individual stocks. Consider your child’s financial goals, risk tolerance, and time horizon when selecting an investment vehicle.
These days you can buy fractional shares – very achievable for a child.
Use a Robo-Advisor
Robo-advisors are a great way to get started with passive income investing. These digital platforms use algorithms to manage investments automatically, making it easy for children to invest without needing a lot of knowledge or experience.
Many robo-advisors also have low minimum investment requirements, making it accessible for children with smaller amounts of money to invest.
Emphasize Diversification
Diversification is an essential part of any investment strategy. Teach your children about the importance of spreading their investments across different asset classes to reduce risk. This can include stocks, bonds, and real estate. this will give you a good excuse to show your child what phrases like “all your eggs in one basket” mean!
Encourage Regular Investing
Regular investing, also known as dollar-cost averaging, is a great way to build wealth over time. Encourage your children to invest a set amount of money each month, regardless of market conditions. This helps them avoid the temptation to time the market and ensures they are consistently investing over the long-term.
Investing 20 cents from every dollar that comes their way is a good way to start. Use a jar to divide the coins up if that helps.
Help Them Track Their Progress
It’s important for children to track their progress and see how their investments are performing. This can help them stay motivated and engaged with their investment strategy. Consider using a spreadsheet or a mobile app to help them track their investments and monitor their progress over time.
A special or secret little book that they note their investments down in is a super way to pique a child’s interest.
Foster a Long-Term Mindset
Passive income investing is a long-term game, and it’s important to foster a long-term mindset. Help your children understand that investing is not a get-rich-quick scheme but rather a way to build wealth over time. Encourage them to focus on their financial goals and not get distracted by short-term market fluctuations.
Long term for children means a month or less even! Perhaps buys stocks or an ETF that pay a monthly dividend so their attention is maintained.
Lead by Example
Finally, one of the best ways to teach children about investing is to lead by example. If you’re not currently investing, start now. Show your children how you’re investing and the results you’re achieving. This can help them understand the benefits of investing and inspire them to start investing themselves.
Conclusion – Help Children Start Passive Income Investing
Passive income investing is a great way to help children develop good money habits and build long-term wealth. By starting with the basics, setting financial goals, teaching them about the stock market, choosing the right investment vehicle, using a robo-advisor, emphasizing diversification, encouraging regular investing, helping them track their progress, fostering a long-term mindset, and leading by example, you can help your children start passive income investing with confidence. Remember, investing is a journey, and the earlier you start, the better.
Cheers
