"I wish I'd known about investing when I was a kid," says Brent Schirmer, a financial advisor with Edward Jones, in Hastings, Neb. He’s not alone. Most of the people he's known wish they'd started saving money much earlier than they did.
If your child has the discipline to start saving the money from Grandma and Grandpa, or from a birthday or from a small job, parents can match that amount. It can be either dollar for dollar or some predetermined amount.
"This helps get kids started with systematic savings - they're not just putting it in their pockets and looking around for something to buy," Schirmer says.
The next step is to look at investment opportunities.
When people ask Schirmer what they should invest in, he asks them what they like.
"Do you eat at McDonald's? Do you drink Pepsi? Consider companies with which your child can identify. And when your child's savings account grows to a certain level, say $250 or $500, he or she could invest in an individual stock or a mutual fund that has those companies in it. Then their money is working for them in companies they're familiar with. They now have ownership in those companies and it's easier for them to follow."
Make it Fun
Parents could have a family stock-picking game to help children learn the basics about investing. Each family member picks a stock they like.
"We look at long-term investing, but the short-term game is a way to teach your children about companies," says Schirmer. "You can show children how to access research reports or you could visit your local stockbroker. It's good for your children to see the results over a short period of time."
It all boils down to children learning by example, Schirmer says. Both he and Andy Jacobitz, first vice president at RBC Wealth Management in Omaha, Neb. (see Part 1, called “Try These 5 Tips with Your Kids) encourage parents to share money issues with their children.
For example, Schirmer says, if you're saving for a family vacation or for a new vehicle, involve your children. Maybe they want to go to a movie, but instead, the money is used toward a specific goal.
"So many people are tied up in this "fast-food mentality," where they want it and they want it now," explains Schirmer. "But certain things take longer-term goal setting. This type of involvement also gives children a prime opportunity to show how impulse purchases can blow the budget.
"Parents need to come to the realization that children need a financial education," he continues. "And where are they going to get it? It starts right at home with their parents."
If you're not comfortable with your own financial knowledge, don't hesitate to talk to a professional. But don't wait too long, recommends Schirmer:
"The earlier you start, the less you have to put away later," he asserts.