With the proliferation of financial products and the importance of financial literacy, it is valuable to teach children financial investment concepts from an early age. By using simple examples that children can relate to, we can explain key principles around saving, investing, risk and return. This establishes a foundation for good financial habits and decision making later in life. Terms like diversification, compound interest and asset allocation may seem complex but can be illustrated in child-friendly ways. Ultimately, financial investment is about putting money to work so it can grow over time. With some creativity, we can make this tangible for kids.
Relatable stories bring money concepts to life
Instead of definitions, stories will resonate better with children. For example, explain saving by comparing it to setting aside Halloween candy to enjoy for weeks rather than eating it all the first day. This demonstrates delayed gratification and how patience can pay off in the end. Another example is imagining money as seeds that can be planted to grow more money trees over many years. This introduces compound growth in an accessible way.
Games demonstrate risk versus reward
Games are useful for demonstrating investment risk and return. For example, play a dice game where higher numbers represent higher returns but rolling a 1 means losing your bet. Let your child decide what level of risk to take and experience the outcomes. This brings to life probability, upside and downside in an experiential way.
Visuals make intangible concepts tangible
Use visuals like pictures, props and drawings to represent financial vehicles and objectives. Have your child color in graphs to show the growth of a savings account over time. Build a toy city to show different investment properties. Visuals will help anchor abstract financial concepts and show how money can accomplish real-world goals.
Relatability enables better retention
Connect financial concepts to objects and activities that are familiar to children already. For example, compare diversifying a portfolio to the variety of flavors in candy or ice cream so they don’t get bored eating just one thing. This principle becomes more intuitive. Use their favorite toys to explain asset appreciation and dividends. Relating investment ideas to the child’s everyday world enables better understanding and retention.
Explaining financial investment to children through engaging stories, games, visuals and relatable examples establishes an intuitive grasp of key money concepts. This builds a foundation of financial literacy to help them make informed decisions in the future.