AP – The recent stock market mania over the video game company GameStop, which this week was scrutinised by Congress, has provided a teachable moment for kids.
The Associated Press (AP) talked to a few parents and financial experts for their tips on talking with kids about investing and the often confusing behaviour of financial markets. Here’s a summary of what they had to say.
Parents should make sure kids understand money basics before they try to conquer investing. Once they’re ready, don’t overwhelm kids with too much information at once — you risk them missing the lesson and losing interest.
Kids need to understand what stocks are, why people invest and how the markets work before they can understand investing.
“The best way to get kids interested in investing is to speak their language,” said financial literacy expert and senior vice president at Charles Schwab & Co Carrie Schwab-Pomerantz. “Start by explaining that investing is a means of using your money to try to create more money.”
There are plenty of good resources — websites, apps, books — available to help guide the way in talking with kids about money and investing (or to help bolster parents’ own knowledge). Among them: A Kids Book About Money by Adam Stramwasser and Schwab MoneyWise.
If they seem ready, let kids give investing a try.
Consider one of the many apps and games out there that allow people to simulate investing experiences. Those provide a good first step in a safe environment, said spokesman for the National Endowment for Financial Education Paul Golden.
Try one that shows gains over a long period of time, 10 or 20 years, as that better illustrates the benefits of long-term investing.
Parents can also help kids identify companies they are interested in and track them using fictitious money just for fun. That presents an opportunity to explain why a stock might rise and fall in value at different points.
“If you are going to encourage your kid to buy stock help them to understand and have a point of view on why they should buy a stock,” said President of Taylor Wealth Management in Oregon Louis Taylor, a father of two.
You don’t need to explain balance sheets, price-to-earnings ratios or anything technical just yet. Just help them establish clearer thinking about their decision-making process.
Taylor took this approach when several college students approached him during the GameStop runup asking if they should invest. Instead, he asked them why they would invest in GameStop if they don’t even shop there. He was able to help them conclude that maybe there was little underlying value in the company.
“I think you should buy stock, but know why you are buying it,” he said. “If you are passionate about (a stock) because you have a belief in a brand, that’s one thing. Don’t do it because you saw it on a message board.”