As your child’s first and most important teacher, the examples you set and lessons you impart can have an outsized impact on how your child manages their finances and invests as they mature.  

It’s worth considering how to approach this important subject and consider how and when you might best introduce the concept of investing. As always, this information presented is general in nature, and you and your family should seek the appropriate advice. 

Setting foundations for younger children 

Children as young as five can typically begin to understand the basics of financial concepts such as saving and trading – which sets the cognitive groundwork for understanding what investing is. This is the age when the trusty piggy bank comes to the fore, or when children might start receiving small cash gifts from relatives.  

You might have heard of the Stanford Marshmallow Test before. In this study, kindergarten children attending Stanford Nursery School were each given a choice. They could have one marshmallow immediately, or, wait for a brief time and be given two marshmallows. The study showed that some children as young as four could grasp the concept of delayed gratification.  

At this age, talking about financial topics should be kept basic and fun. Help children learn and count the different coins in their piggybank and let them engage in basic transactions where appropriate. It’s a great age to build an understanding of saving and even touch on the concept of interest. In the future, this early financial literacy will set the foundation for their investing education. 

Maturing understanding of investing 

As your child grows into their later primary school and early secondary school years, they are cognitively much more likely to grasp complex concepts related to investing, the financial markets and broader economy. Again, these topics should all be framed in a way that’s relevant and interesting to the individual child. 

Though children will still be building their understanding of money basics like saving and budgeting at this age, now is the time you can also start to introduce investing topics. 

The simpler and more direct you can be when talking about investing, the better. For example, in conversations about share market trading, use phrases like “when you buy a part of a company, you own a small piece of it.” Visual examples can work well for some younger brains. Other children might prefer to play online investing simulation games to get a live sense of what investing can be like.  

Speaking to Selfwealth’s Head of Sales, Brendan Mutton, a father of four, we learned some practical ways this education might work at home.  

“I started introducing my eldest two sons to investing when they were in grade six and studied topics like compound interest in maths. They would come home and ask questions about it. I loved their curiosity, so I started talking to them about the longer-term benefits of investing vs saving, using compound investing as an example. 

I showed them the app their minor account is invested with, got them involved so they could see and feel it and started to explain some of the concepts and terminology (shares vs ETF’s, dividends, re-investing, compounding, etc.) and helped them research the ETFs I had invested in for them. It was amazing how they related to some of the names or brands they were invested in.” 

Brendan emphasised that talking about investing needs to be an ongoing conversation, with practical and tangible lessons allowing them to better grasp the concepts. 

“Recently I have given them access to the app their minor account is with so they can check their balance. We talk about why their investment might go up or down and the reasons why. I believe getting them involved early, showing them how it works and giving them some access to see the money in their name has made it more tangible. 

My 15-year-old son has started work and he is now adding to his portfolio out of his own money and starting to make decisions about what he invests in (after discussing with me!); for his 15th birthday I printed off a fact sheet for one of the ETFs he wanted to invest in and I deposited $500 into his account and showed him how to buy that through the app so he has some practical experience.” 

For children who love online games, the ASX website offers free 15-week share market games that are ideal for keen budding investors. It gives players $50,000 of virtual starting cash to buy and sell shares in over 300 companies and 55 exchange-traded funds (ETFs). The online game uses live prices and sets brokerage charges on every trade, just like in real investing. 

Linking investing to your child’s interests can also be helpful here. For example, tech-savvy children can be intrigued by the idea of owning a stake in some of their favourite companies like Apple or Nintendo. Other children might be drawn to big everyday names like Woolworths that they can relate to their everyday life. 

Tools for teenagers 

In many cases as your child grows into their teen years, it can be harder to influence them. This is where all your financial education in the early years can pay off. The teenage years might coincide with major financial milestones including getting a casual job, or performing odd jobs for cash, setting up a superannuation fund, a tax file number and bank accounts. Among all these key milestones, don’t miss the opportunity to help your teenager get a head start with investing. 

With teenage sons, Brendan has learned to help them connect their investing activity to the ideas of long-term returns and life goals: “We have talked about goals – for the two older boys it is all about cars for now! Of course they want it to happen straight away, so it’s about reinforcing those key messages of long-term investing and compound interest.” 

Compounding returns is a topic that should be regularly reinforced with children and teenagers, especially as they grow closer to being financially independent and joining the workforce.  

If you haven’t already, setting up a minor investing account is a great idea at this stage, as your teenager is old enough to actively participate and understand the benefits of getting started in the share market. Explain to your child that from their 18th birthday, their Selfwealth minor trading account can be easily transferred to their own individual trading account that they will have full control over. 

Investing is something that requires lifelong education and engagement. By starting early with your children, you can give them an important gift and valuable life lessons to set them up for a life of financial literacy and security. By providing age-appropriate and relevant teaching as they mature, you can make sure the lessons you are providing are impactful. 

Please undertake your own research and seek the appropriate advice.