Trading stocks has become much easier for young traders in the last few years – thanks to fintech apps like Robinhood and Greenlight.
Robinhood, for example, drew unheard of levels of young, first-time traders to the stock market during the pandemic.
The rise of such trading platforms that allow kids to buy stocks can be viewed as “a great opportunity” to get them “disinctive and excited about personal finance,” said Thomas Henske, a certified financial planner.
As the markets continue to be more and more easy to reach to everyone, what can kids gain from learning to invest and trade? CNBC Make It finds out.
Start learning young
nevertheless, industry experts who spoke to CNBC Make It said it will be advantageous for kids ages 8 and up to be exposed to the stock market.
“Teaching the basics of investment exposes your kids to understand how businesses work, [how to] grow money, and hopefully, … how to make wise investing decisions,” said Tania Brown, a certified financial planner and financial coach at SaverLife.
Children also have a “valuable asset” that adults do not — and that’s time, additional Jerremy Newsome, the CEO of Real Life Trading, which teaches kids, parents and adults about the stock market.
“Children, and already adults, are learning about stocks and investing way too late. I have heard so many people telling me they wished they learned when they are younger,” he said.
Understand ‘risk and reward’
The ups and downs of the stock market can be intimidating already for adults, how much more so for children. But both Henske and Newsome say that volatility is precisely why kids should start investing at an early age.
“One could say that there are several non-money benefits in the life lessons that stock market volatility incurs,” Henske explained.
“Stocks can be a metaphor for life in several respects. Life is not a straight-line. [Children can] learn about risk and reward … and think long term.”
For Newsome, learning about trading and investing is also a way to expose children to “reasonable adversity” and build “introspection.”
“When you make a trade — it doesn’t matter if it’s real money or fake money – and you lose, there’s a certain feeling that happens. You get upset or angry or annoyed or frustrated,” said Newsome.
This gives children the chance to learn how to recognize and understand emotions and then “shift” to a more positive state, building “emotional intelligence.”
Newsome additional that learning how to trade stocks is also a way for your children to better “practice math” and see it incorporated in real life.
“When kids are going by school, they don’t know how the math they’re learning is going to help … or assistance [them].”
“In the stock market, you don’t need to be a math expert by any method, but you generally do have a good understanding of percentages, decimals, multiplication, addition, subtraction — those really chief math principles are very common in trading,” said Newsome.
Investing for the future
Teaching children to save part of their allowance is one way to ensure they are financially savvy in the future. But experts who spoke to CNBC Make It said that learning how to “grow wealth” by investments is equally important at a young age.
“The earlier a person understands how to invest, the better chance of that person investing in the future,” said Brown.
Henske agreed, saying that there is “strength” in starting early and it is important to keep “the end in mind” – for some, that could be retirement.
He pointed out that investing is important for those trying to unprotected to their retirement goals.
“Show me someone who is an amazing saver and only gets 5% on that savings, and I’ll show you someone who has a better financial path … [and] gets 10% on their money.”
Learn to save first
However, Brown stressed that kids should first understand the basics of finances before learning to invest.
“Start with … saving part of their allowance, and learning to delay gratification. These skills should be taught, practiced, and used before moving on to investments,” she said.
Henske concurred, saying that children should have personal finance topics “nailed down,” such as understanding the value of money, budgeting, savings and compound interest.
That’s why he thinks it’s more “productive” to start talking to kids about investing only when they’re in their “tweens” — between the ages of 8 and 12.
“When the topic of investing comes up, parents often times get excited and want to jump right into teaching kids to buy stocks. In my opinion, that is not the place to start,” he additional.
“What good is teaching them to become a master investor if they can’t already save any money? Last time I checked, a 20% rate of return on $0 is $0.”
Henske’s advice to parents is to expose kids to the topic of investing early, but “don’t be discouraged if they don’t start being receptive to those lessons until they hit high school.”
How should kids start investing?
Allow your child to pick a company of interest, so that he or she will be more of a “willing learner,” said Brown, who additional that her own daughter picked Walt Disney.
Newsome indicates “investing in what you know.” These can be companies with goods and sets you use every day such as Apple, Netflix or Google.
“Don’t worry about investing into a new start-up company that you’ve never heard of before,” he said.
Brown additional: “You can buy stocks directly from the company and buy low shares, then walk your child by how to estimate the stock. Remember, the goal is not a stellar investment return, but rather to teach your child the basics of investing.”
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