Financial literacy is one of the key competencies, which parents should pass on to their children. Learning the value of money right from the outset of their education could be the difference between a financially stable adult and one who barely makes ends meet despite having a sizeable income. While some parents usually get the basics right, teaching their children how to prioritize spending and to save, many often neglect to impart lessons on investing. This is quite a shame because investing has the potential for massive returns, especially over time due to the phenomenon of compound interest. If you want to secure your child’s future regardless of your income bracket, here are a few suggestions:
You cannot teach what you do not know. Understand the basics of investing, the various products available, how grow your portfolio and dealing with risk. This will help you break down complex concepts in a manner that your child will understand and and help you answer any questions they might have. There are plenty of free resources for teaching yourself about investments. Companies such as Cytonn offer a free wealth management training for anyone who is interested. Others, such as Centonomy give training at a fee. You also have unlimited free resources from the Internet.
If you do not have the time to be the primary source of information on investments, then you could enroll your child for lessons. Aside from free Internet resources, programs such as Junior Achievement Kenya are ideal for enhancing your child’s financial literacy.
Instead of going on and on about the intricacies of investing, show your child how they work by starting an investment in his/her name, and then letting it grow. Involve your child in every aspect of the investment, including showing him/her the communications received from the investment manager and letting him/her make decisions pertaining to it. Crucially, let the child contribute to topping up the account from his/her pocket money or cash earned from doing chores. This instils a sense of responsibility and ownership, making him/her more likely to continue to save into adulthood. Money market funds are a great option for a first-time investment for your child because they bear low risk and have a low initial investment.
For any habit to take root, it needs to be practiced consistently. Investments are no different. Give your child a reason to top up his/her investment every week or month. The advantage of a money market fund is that there is no minimum top up amount, which means your child can top up as frequently as he/she likes without any restrictions. A good motivation is matching whatever amount he/she wants to save. If he/she puts in Kshs 100, you could put in the same amount. Aside from being an incentive, it also teaches that the more you invest, the more you earn.
It is all well and good for you to want your child to learn the value of money and investing, but if your behavior does not match your teachings, you will not be as effective. Children can pick up on your attitudes about money by observing you, so, be careful about what your spending habits communicate to your offspring.
Knowing what you know now, aren’t there investment decisions you might have made differently? Maybe you would have started earlier. Or you might have picked a different investment product. Having admitted that, wouldn’t you want to offer your children the same advantages that you weren’t afforded?
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Kevin Namunwa - 1 second ago