It is never too early to start teaching kids about money. Children as young as 3 years old can learn about money and grow up to become more financially prepared and savvy.

When you think about it, the beginnings of saving start with the use of piggy banks.

Susan Beacham, the founder of Money Savvy Generation, trains kids in financial literacy through the use of an exceedingly clever tool, a plastic piggy bank with four tummies. This piggy bank has four compartments for the priorities Ms. Beacham contends kids need to learn – to save, spend, donate, and invest.

The goal as parents should be to raise children as adults. If children know how to save or invest like millionaires by the time they are 21 years old, they may not have the actual million dollars in hand, but they will have established good habits to make it happen in the future. Here are 9 best practices and tips parents should keep in mind.

1. Setting the Stage – from Saving to Investing: While saving is an easy way to begin a child’s financial journey, investing is the next necessary step in making money work. You should point out the difference between saving and investing and go over the risks and rewards of each. Children should learn that they should not place all of their eggs in one basket.
2. Teach With Stories: Kids (as well as adults) are hard-wired for stories. You should narrate your ideas of investing and involve them in your investing activities. You can describe your own saving and investing plans and explain why you are saving and what benefits you will secure in the long run.

3. Know Your Child’s Learning Style: You should tailor your lessons and explanations about saving and investing pursuant to how your child learns best. For instance, for a visual learner you should employ different sources and methods to communicate, such as with the use of pictures, videos, smartphone applications, and narration.

4. “Game” the Market: You can start younger kids off by giving them a play money portfolio and tracking the results. Playing through online simulations can create a space for you and your child to openly discuss the rules of investing. If you are looking for an online tool, the SIFMA Foundation offers the Stock Market Game, which can be used with children in grades 4-12, and which works in conjunction with a smartphone app.

5. Types of Investments for Baby: No matter what type of account you’re looking at opening for your child, you’ll still need to decide on investments for them. Given that these will be extremely long-term investments – they won’t even touch the money for 10 to 15 years at minimum – you’ll typically want to invest in broad market index funds. Good choices include an S&P 500 Index Fund, or even dividend-paying funds like DVY or VIG. Keeping it simple by staying in an index fund will be a smart move for the long-term.

6. Types of Investments for Kids:While they are young, begin putting money away into a Roth IRA (to avoid tax when they begin cashing in the fund at an older age) if possible. It would also be wise to invest into a 529 College Plan for their college future (since the price of education is skyrocketing). All 50 states offer at least one 529 account and it’s also possible to enroll in an out-of-state 529 savings plan.

7. Get Them Interested: Once they grow a little older, encourage them to invest their money into the real market. Don’t just pick the best investments for them, let them choose a company that they have an interest in. For instance, if they love to play a certain type of video game, ask them who makes it and look up the company online. If you feel comfortable with the financials you see, let your son or daughter make that stock purchase.

8. Do Not Forget Giving: Legendary investors like Warren Buffett believe deeply in giving – and not as an afterthought. When children receive cash gifts, they can be taught to put some of that amount in the bank and to donate some of it before spending.

9. Earn Their Own: Another step in giving the gift of investments is to allow them to earn their own money. Give them extra things to do around the house, encourage them to set-up a lemonade stand in the front yard, or let them go to neighbors to work odd jobs around their house. Once they have earned the money themselves, they will be a little more excited to invest.

If you want your financial gift to be a blessing and not a curse, make sure you’re teaching your kids the value of hard work and responsibility to instill the character, maturity and wisdom to be a good steward of the financial gifts you are entrusting to them.

To contact Mr. Johnson please visit his website


• Your Child’s Fortune: 10 Tips to Teach Investing to Kids:

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• The Stock Market Game: