Ideas On How To Teach Kids About Investing

Investing can be quite an abstract concept, so this exercise is designed to have your kids interact with real people who have investments. Hopefully, these people are drawn from your circle of family and friends, so your child learns that investing is a normal part of life for the people around them.

This exercise is part of a series of activities from the Cash-Smart Kids Program, and these discussion questions also form part of the program. They are copyright. All rights reserved.

Activity

1. Print out the interview questions.

2. Make a list of people you know who have an investment.

This includes anyone who has a retirement account, a term deposit or high interest bank account, an investment property, or collectibles like coins and stamps, as well as the things traditionally considered "investments" - shares, bonds, mutual funds, and so on.

3. Find at least one person on the list who is willing to be interviewed about their investment - two is better.

4. Help your child to organise a time and conduct the interview, noting the answers.

5. Discuss the answers with your child, to help them understand why people invest, and the relationship between risk and return.

Explanation for ages 6-9

If you have money, you can invest it so that it makes more money. Some types of investment are more risky than others. You can lose your money in a risky investment.

Discussion questions:

Why do people invest (lend, rent) their money?

What sorts of investments are there? (lending for interest, property, other appreciating assets, business including shares)

What things can go wrong with an investment?

Explanation for age 10+

There is a trade-off between risk and return. Higher risk investments pay higher rates of return - if you don't lose your money.

Discussion questions:

What makes an investment safer? (having security, as with a mortgage, having an asset which doesn't change much in value)

What makes an investment riskier? (more chance of losing money - rapidly changing asset values, speculative, ie betting on future gains)

Why do riskier investments pay higher returns? (because otherwise people won't invest in them)

Why do people invest in risky investments? (the sensible ones only do it with money they can afford to lose, because they know that if they make 10 or 20 risky investments, they are likely to "win" with one eventually)

Learning Materials

Richest Man in Babylon by George Samuel Clason

Kidsbank.com (designed for the US)

Stock Market board game