Encouraging your child to invest from an early age brings numerous advantages because they’ll have plenty of time to accumulate funds and build wealth. Still, explaining investing to a child without making it sound too complicated or boring can be challenging.

In this guide, we’ll share top advice for teaching kids about investing and provide tips on when and how to explain investing to a child. Plus, we’ll explore the best investment opportunities for minors and young adults so you can help your child kickstart their investment journey.

When Is the Best Time To Explain Investing to a Child?

The earlier you start teaching your child about money management, the better. However, the complexity of financial topics you should cover depends on your child’s age:

• Five years old—While it’s difficult for a five-year-old to grasp concepts like investing, you can start teaching them about the value of money and the impact their choices have on it
• Seven years old—As your child turns seven and is more familiar with the concepts of adding and subtracting, you can slowly introduce the idea of saving money and teach them the consequences of overspending
• Eight to 12 years old—At this age, you may cover more complex topics like the various uses of money and the difference between saving and investing. You can even start a custodial investment account for your child when they’re around 12 years old
• 13 to 16 years old—When your child becomes a teenager, you can consider allowing them to manage a small budget so they can put what they’ve learned so far into practice
• 16 to 18 years old—This is the age your child should be ready to learn about the more complex aspects of banking and financial systems. You can also encourage them to go to the bank with you and learn how the system works first-hand

While it’s best to explain investing to a child when they’re between the ages of eight and 12, investing apps for children like Acorns and Greenlight allow them to start investing even earlier, which is a great option if your child learns faster through practice. 

Topics To Cover Before Teaching Kids To Invest

Your child may have a hard time understanding the basics of investing for kids if they’ve never learned how to handle money on their own. This is why teaching kids about investing should come after they learn about:

1. Saving and budgeting
2. Money management

Saving and Budgeting

Before you introduce your child to the more complex topic of investing, teach them the meaning of simpler terms like saving and budgeting. Most younger children can grasp the idea of having a certain amount of money and spending it or saving it for a more expensive item, so covering this topic is a good starting point.

A great way to do so is to set your child up with an allowance card. These cards let you give your child allowance on a weekly or monthly basis, and most of them include parental controls so you can see how your child is using their money and help them develop healthy spending and saving habits.

Money Management

Once your child is familiar with saving and budgeting, you can talk to them about money management by introducing them to banking and savings accounts. Your child can grasp these concepts even better if you let them get:

• A money app—These apps are designed for various age ranges, and they teach young children how to manage funds through features like money games. If your child is a teenager, some apps mimic the experience of using real credit/debit cards, allowing them to learn about banking before they’re able to obtain an actual credit card
• A prepaid debit card—These cards allow you to put money into your child’s account, so they can use it or save it as they please. Still, they typically include parental controls, so you can see how well your child is managing their money and provide help if needed

How To Explain Investing to a Child

After your child fully understands what it means to save money and spend it mindfully, you can introduce them to the idea of investing some of their savings. While explaining investing to a child may seem challenging, it can be easy if you keep it simple. 

Start with a basic investing definition for kids, such as: “Investing means using the money you have to make more money without doing any additional work.” Then, you can introduce them to investment options that can help grow their funds, such as stocks, bonds, and real estate.

If your child is a teenager, you may also show them your investment portfolio if you have one. This can help them learn the meaning of compound interest through practical examples. However, if you have a younger child, try to make your examples more age-appropriate by relating investing to toys or gadgets they like.

How To Teach Kids About Investing—Most Effective Strategies

While coining a simple yet precise investing definition for kids can help your child understand the basic idea behind investing, this won’t be enough for them to fully grasp how investing works. Luckily, you can make learning fun and easy for your child if you:

1. Make it relatable
2. Turn it into a game
3. Help them practice

Make It Relatable

When teaching kids about stocks and investing, stay away from terms like “dividends” or “return on investment” and use simple language instead. You can make learning more relatable by providing actual examples of what it means to earn interest. Consider using a step-by-step explanation like:

1. You have $200, and you invest it
2. You later end up with $210 
3. Those $10 represent the amount you earned

You can also spark your child’s curiosity about investing by using a tangible goal they may have—like going to college or traveling abroad—and showing them how much money they can earn for their goal through investing. A simple way to do so is to use an investment calculator—a tool that helps your child visualize potential gains, increasing their motivation to invest.

Turn It Into a Game

Turning a potentially boring subject into a game can make your child feel more excited about investing, especially if you include a prize for the winner. For example, you could hold a contest to see who can earn more on their investments, and the winner may get a prize in addition to making a profit. 

By playing investment games with real stakes, your child will also learn what it means to lose money on their investments. This way, you’ll also introduce them to the concept of taking risks, which is crucial for developing a healthy relationship with investing.

Help Them Practice

Practice can make any skill perfect, and investing is no different. If you don’t want your child to start investing with real money right away, you can help them open a paper trading account, which simulates the experience of investing without spending any money.

When your child is ready to start investing for real, you can help them by opening custodial investment accounts like:

• 529 plans—These are education savings accounts that let you invest in your child’s primary, secondary, or college education on their behalf and earn a return on your investments
• Roth IRAs—Custodial Roth IRAs primarily serve as retirement funds, but they also allow you to make tax-free withdrawals of your contributions if you’ve funded the account for at least five years
• Brokerage accounts—These allow you to buy and sell diverse investments like stocks, bonds, and ETFs. Your child can open their own brokerage account when they reach legal age, but if they’re a minor, you can open a custodial account like the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) for them

The Benefits of Talking to Kids About Investing

Ensuring their children perform well in school and learn basic life skills is the main priority for most parents, so teaching kids about stocks and investing often takes a back seat. However, you should especially prioritize improving your child’s financial literacy since this is a topic they won’t learn much about at school. In fact, a recent report reveals that 88% of U.S. adults feel that high school didn’t fully teach them how to handle money in the real world.

By teaching your children about investing while they’re young, you can assist them in:

1. Learning about risk tolerance
2. Earning compound returns
3. Laying a firm financial foundation

Learning About Risk Tolerance

Besides learning the basics of investing for kids, talking to your child about investing gives you an opportunity to help them assess their risk tolerance level—a factor that plays a crucial part in choosing investment options.

Some investments, such as certificates of deposit (CDs), are considered low risk, but they also offer low returns on investments. Meanwhile, high-risk investments like stocks may result in money losses, but they also include high returns if the investment’s value increases.

One way to help your child assess their risk tolerance level and determine their investing style accordingly is to let them invest smaller amounts of money through investing apps. This way, you’ll be able to observe how they react to gains and losses without risking losing significant amounts of money.

Earning Compound Returns

One of the biggest benefits of teaching your child about investing and allowing them to invest early is the opportunity to earn compound interest. For example, if you contribute 5$ to your child’s investment account every month since their birth and get 10% annual returns, they’ll earn $2,882 by the time they’re 18 or $6,216 when they reach 25.

If you made larger contributions of, for example, $100 with the same return percentage, your child would have $57,640 in their account at 18 or $124,316 at 25. While this means you’d have to invest on your child’s behalf until they’re old enough to do so themselves, it’s a good way to give your child a solid head start once they’re ready to begin investing.

Laying a Firm Financial Foundation

If your child starts investing at a young age, they can reach financial security earlier in life since learning about investing also includes developing important financial skills like saving and budgeting. This means your child will be more responsible with money once they become independent, which may enable them to secure financing for a car or a house when they become young adults.

If you want to solidify your child’s chances of having a bright financial future, consider helping them invest in credit building services as soon as possible since this type of investment can benefit them in the long run. An early start at credit building can help your child save over $200,000 in their lifetime because good credit will help them obtain loans with favorable interest rates and improve their chances of:

• Obtaining car loans
• Securing rental housing
• Getting a credit card

A great way to help your child establish a strong credit score is to rely on platforms like FreeKick. This provider offers parent-sponsored credit building services for children as young as 13.

FreeKick—Premium Credit Building and ID Protection

Provided by Austin Capital Bank, FreeKick is a subscription service and FDIC-insured deposit account that allows young adults and minors aged 13 to 25 to build credit with their parents’ help. The platform also provides comprehensive identity monitoring and protection services for the whole family of up to two adult parents and six children.

Start Building Credit Early With FreeKick

Establishing a strong credit score can be difficult for children and young adults because the CARD Act of 2009 prohibits anyone under 21 from obtaining a credit card. Although you can add your child to your credit card and help them build credit that way, all their credit history will be lost as soon as you remove them from your card.

As a solution, FreeKick helps children build good credit from the age of 13 through its parent-sponsored credit building service. Here’s how to get started: 

1. Create an Account—Visit FreeKick.bank and choose a plan that best fits your family’s needs and budget
2. Set It and Forget It—Once the account is activated, FreeKick automatically starts building your child’s credit over the next 12 months
3. Keep Growing—When the initial 12-month period ends, you can either renew the account and keep building your child’s credit or close it and get a refund of your initial deposit

Keep Your Identity Protected With FreeKick

When your child starts an investment account, you must protect their identity to ensure their investments don’t fall into the wrong hands. Keeping your child’s identity safe is especially important when you consider the shocking data showing that a child’s identity is stolen every 30 seconds.

To keep your child’s investments and sensitive information secure, FreeKick offers identity monitoring and protection features for both adults and minors. Here’s what the service includes:

Services for Adult Children and Parents	Services for Minor Children
Credit profile monitoring SSN monitoring Dark web monitoring for personal information Up to $1 million identity theft insurance Full-service white-glove concierge credit restoration Lost wallet protection Court records monitoring Change of address monitoring Non-credit (Payday) loan monitoring Free FICO® Score monthly FICO® Score factors Experian credit report monthly	Credit profile monitoring SSN monitoring Dark web monitoring for children’s personal information Up to $1 million identity theft insurance Full-service white-glove concierge credit restoration Sex offender monitoring—based on sponsor parent’s address

FreeKick Pricing

FreeKick offers a plan that fits any family’s needs and budget. Both available plans are FDIC-insured up to $250,000. Find more details in the table below:

FDIC-Insured Deposit Amount	Plan Fee
$3,000	$0 (Free)
No deposit	$149/year

Help your child establish a strong credit score early and protect your whole family from identity theft—sign up for FreeKick today.