Is Your Kid the Next Warren Buffett? Here’s How to Get Them Started With Investing

Daniel Penzing
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It's never too early to talk to your kids about investing.

Especially if you want them to build wealth instead of debt.

The idea of your kid someday making you rich makes for great dinner conversation (you know, once they hit 18). But most parents are smart enough to know the only way a kid is going to become financially independent is by smart financial decisions.

The earlier you start teaching a kid about money, the better. That way they'll be establishing financial habits long before they experience the temptations of a consumer. But do you really know how to best spark your kid's financial interest and show them the value of investing?

Teaching a kid about money is a lot like teaching them about sex. Sure, you can leave it to the schools. But then you can often wind up with the wrong information – and you're taking the chance of your kid learning the lesson just a bit too late – especially if you're trying to hold off on the birds and the bees talk for too long.

Here are some strategies that'll help you help your kid with their money.

Make money a part of everyday life.

First, explain how and why you make money by starting a simple savings jar. You'll want to explain that when you collect a dollar, you'll put in your savings jar. And when you have enough in the jar, you'll use it to make more money.

Talk Openly and Consistently About Investing

One thing you should do is talk about investing openly with your child. Your child doesn’t need to know the details. It’s important that they just understand that you are talking about money. It’s some of the best bonding time you will ever have.

Your child doesn’t have to understand everything right now. You will be there to explain it as they grow up.

Keep It Real

Real Simple.

Investing is all about saving, so you don’t want to scare your child off by throwing jargon at him or her or overwhelming them with difficult investment concepts. “Kids are like dogs,” says Ted Beck, president of the National Endowment for Financial Education. “If you show them something only once and they don’t get it, they won’t do it.”

So make sure you keep it simple, and focus on saving more out of each allowance than your child is spending.

Open a Custodial Account

When teaching your kids about investing, the first step is to open a custodial account at your desired brokerage. This type of account allows you to handle all of the transactions on behalf of your child, and it also grants any earnings that accrue to your child without taxes.

Make sure to read all account agreement documents in full, as they will explain the rules and stipulations of the account. Depending on the brokerage you sign up with, you may be able to establish a custodial account for your child over the phone or online. Alternatively, you can set up one at your local stock brokerage.

Once the account is set up, ensure that your child receives all account statements and records. This will help them to receive valuable financial education on their investments and their money.

Conclusion

Warren Buffett, Ted Turner, Carl Icahn, Jim Rogers and George Soros. All these guys have made themselves rich through investing, and they're just a few out of all the possibilities. Your kid can also become a millionaire by investing if you teach him or her to do it correctly.

Investing is a subject that extends far beyond the confines of simple math. It's an idea that will open your kid's mind to all kinds of new possibilities in life and help them grow as a person. The important part is to get started early, when your kiddo is old enough to understand, but not old enough to forget the lessons.

So, what are you waiting for? Take action, take time and invest in your kid's future!