This post may contain affiliate links to products that I recommend and I may earn money or products from companies mentioned in this post. Please check out my disclaimer page for more information.
You may wonder if it’s possible to teach your kids about the stock market. Can they understand the concepts of stock going up and down, trading strategies, market cap, or dividends? Many parents don’t know when it comes to saving money or investing, which is more important? Many parents don’t know where to start because they wonder how much their children can comprehend.
Here are a few ways to teach your kids about the stock market:
- Teach your kids about the stock market at an early age.
- Choose age-appropriate topics to cover.
- Start out slow and build on the concepts.
- Use exciting learning materials.
- Teach with real-time examples.
- Allow your kids to manage their money.
- Invest in novelty stocks for practice.
- Build on what your kids already know.
- Make sure you understand the concepts fully.
- Keep it fun and entertaining.
While it might be unreasonable to expect young children to be professional traders right off the bat, it is possible to teach kids about the stock market in an age-appropriate way, and learning about the stock market can even be part of an overall curriculum that helps them master financial literacy. Read on to see how to teach your kids about the stock market.
Teach Your Kids About the Stock Market at an Early Age
In the investing world, it’s generally better to get involved in the stock market sooner rather than later, even if the investor just chooses plans that track an index like the S&P 500. Getting involved in the stock market sooner rather than later means that the investor can take advantage of principles, like compound interest, that much sooner.
- All other things being equal, people who start investing in their 20s will have more money in their investment accounts than those who begin in their 50s when they reach retirement age.
Kids can experience the novelty of the idea that they can own a share of well-known companies like Nike, Apple, and Disney even if they don’t necessarily have the financial clout of many institutional investors. The idea is that they don’t have to be Warren Buffet to earn a profit in the stock market. Once they get the hang of it, it can be a confidence booster for many children.
Most importantly, children should understand that they can choose the best investment options for their unique goals. They may want to max out their contributions to a 401(k) or Roth IRA plan. By starting young, they can retire on 500k and reach FIRE status.
Choose Age-Appropriate Topics To Cover
Depending on how old your children are, you may need to start with basic concepts such as:
You need to build up their knowledge of finance concepts before teaching those of the stock market. This means you will have to eliminate difficult terminology or concepts that can be challenging for beginners to understand. Instead, it’s best to opt for basic terminology and discuss the fundamental concepts in a simplified way.
It’s possible to start teaching the terminology once a child has begun to master reading, writing, and spelling. For example, elementary school students can cover basic concepts such as:
- shareholder (someone who holds stocks in a company)
- stockbroker (someone licensed to help people buy and sell stocks)
- ticker symbol (a 3- or 4-letter abbreviation that represents the name of a publicly-traded company).
Start Out Slow and Build on the Concepts
Children who have already mastered basic math concepts and understand simple equations can practice calculating things like profit, loss, and compound interest. Middle school students, especially eighth graders, can usually start working on intermediate concepts that only require a little more math and terminology to understand. You can help them create a personal balance sheet to calculate net worth to become familiar with simple finance management concepts.
Understand the Complex Concepts
Once they understand these intermediate concepts, the students can proceed to more complex concepts that might include:
Preferred Stock and Common Stock
These two types of stock can be confusing at first. Holders of “preferred” stock have some privileges like getting paid first if the company ever goes bankrupt, but their holders sacrifice voting rights.
Holders of “common” stock are more likely to receive dividends and have voting rights but get paid last if the company goes bankrupt. Explaining the differences between options vs. futures is important when talking about stocks and how to purchase stocks. Many beginning and intermediate traders prefer to stick to common stock because it’s easier to comprehend.
Payouts represent a share of the profit that a company earns. Companies will usually send out dividends on a regularly scheduled basis, such as monthly or quarterly. Dividend payouts will usually be between 1% and 6% of the value of the stock holdings, though some companies might give higher dividends if they are more highly profitable.
Initial Public Offerings (IPO)
Some companies can issue an Initial Public Offering, in which it puts shares in the company up for sale for the first time when they need money. An IPO is the first time investors can buy the stock, so there’s often a lot of excitement around an IPO if it’s a well-known company like Google or Facebook.
Sector and Industry
What does any particular company sell? Computers, pharmaceuticals, groceries? Publicly traded companies are most commonly classified by what they sell. In some sectors, like technology, a good question is: What is the company doing to stay relevant and innovative in a rapidly changing industry?
In others, like Consumer Staples (which covers groceries), the demand for food is stable and growing, which means that investors can prioritize other variables like a company’s past financial performance.
Break Down Investment Strategies and Investing Styles
Once children have started mastering the basics, they can start practicing some basic trading strategies that might include:
- Day Trading: This strategy involves buying an asset and reselling it within 24 hours. These “day traders” spend the day watching charts and news feeds to inform their trades, which is time consuming. You can also explain the concept of can you make a living trading forex to them as a way to earn income day trading.
- Position Trading: This method is suitable for traders who are comfortable holding assets in their portfolio for long periods and researching the history of the investments they are considering.
- Swing Trading: This strategy follows trends in asset prices and attempts to take advantage of price volatility at the end of each trend.
- Scalping: This investing style seeks to take advantage of temporary market inefficiencies reflected in the bid/ask spread.
Experienced traders also develop an investment style suited to their preferences. For example, some people might prefer value or growth stocks that will likely increase in value over time.
Others prefer to build a relatively predictable income by investing in stocks that pay dividends, or they’ll trade penny stocks that have a low value in the hope of making a higher percentage of their initial investment if a stock’s price goes up.
Discuss Asset Classes After Concept Terminology
Kids can start learning about basic asset classes once they’ve mastered the terminology and fundamental concepts. Asset classes include, though aren’t necessarily limited to, stocks, bonds, precious metals, currencies, and commodities.
Move On to Advanced Concepts and Trading Tools
Topics suitable for high schoolers who already have a good grasp of the basics might include mastering the available tools to professional traders. With a combination of free versions of top industry news feeds and price charts, they can start to get a good feel for the information that might cause an asset to move.
High schoolers can also start getting the hang of concepts like technical analysis, which includes making sense of specific patterns in price charts that could indicate whether the price of an asset is most likely to go up or down. The fundamental analysis covers the consideration of an asset’s fair price at any given time and compares it to its current value on the price charts.
Mastering these concepts can help kids get the hang of staying on top of the stock market if they choose to make their own investment decisions.
Use Exciting Learning Materials
Finding age-appropriate materials for teaching about the stock market can be a challenge at times. You may worry that most of them are too simple for a middle school or high school student or too complicated for an elementary school student. However, this may be a matter of knowing where to look for age-appropriate materials.
Utilize Puzzles, Worksheets, and Quizzes
Worksheets like crossword puzzles and fill-in-the-blank or multiple-choice quizzes can reinforce basic vocabulary and concepts. If your child prefers coloring pages, they can include a bear or bull showing the direction of their attack. A “bear” market attacks downward; a “bull” market attacks upward.
Encourage Your Kids to Have Mock Investments
Many online brokers have a trading simulator that comes preloaded with virtual money and can be used to simulate a real-time trading environment. Children can watch their mock investments make gains or losses in real-time, begin mastering reading charts, and figure out a “winning” investment strategy once they start getting the hang of it.
Take Advantage of Free Online Resources
Online resources include virtual classes that cover a variety of financial-related topics, including the stock market. Free online resources include the Actuarial Foundation’s ‘Building Your Future’ series, which covers topics like investing for long-term wealth.
You might also find a “money camp” for kids of all ages in your area. These camps will usually cover a variety of age-appropriate topics that include investing, budgeting, and banking. The Future Investor Clubs of America runs several camps covering investment-related topics for kids aged 8-19 across the United States of America.
YouTube can also be a solid resource for covering topics that would otherwise be difficult to teach.
This learning option may require some discernment to avoid videos that focus too much on selling you something outside of YouTube that may not be worth the money but can be an excellent way to teach concepts that require good visuals to cover adequately.
Teach With Real-Time Examples
Even with trading simulation “games,” keeping young children interested long enough for them to get the hang of the basics of investing in the stock market can be a challenge. It may help to keep their attention span in mind and take it in stages that they can handle. This option works well if you want to encourage investment strategies where they don’t necessarily have to stare at charts all the time, such as position trading.
- Teaching some of the basics of how stocks work could be as easy as using a lawn mowing business as an example or another suitable job. There are plenty of options for how to make money as a teenager that can be a side business.
If your children want to start mowing lawns for money, they may not have the money to buy equipment like a lawnmower. They might conduct a simple form of IPO and sell you some stocks to raise the money to buy the necessary equipment and cover operating expenses like buying gas. This comes with the promise of sharing the profits in the form of dividends.
When the business does well, the value of the stock might go up. When it isn’t making so much money, the stock price might go down. A money savvy kid might offer to repurchase some of the stock for a lower price during the winter when it would be reasonable to assume that demand for lawn mowing services is reduced and earnings are down.
Allow Your Kids To Manage Their Money
If your kids are successful in their lawn mowing business, it’s essential to share your knowledge but also allow them to oversee how their money is later spent or saved. There are many ways how to save money as a high school student that is appropriate that you can educate your kids on.
This can include advising on:
- savings accounts
- how to reinvest the funds
- the best course of action to grow the current sum’s value
This learning tactic can also enable them to decide how they move their money in the future and what accounts to put it into.
They may prefer to invest in different kinds of assets, which gives them greater control over where they put their money but requires that they spend their time doing the same research that professional investors do.
Allowing kids to manage their own money is a great way how to teach teens about financial responsibility, so they are prepared when they go to college.
Invest in Novelty Stocks for Practice
Novelty sites like Unique Stock Gifts offer single shares in well-known companies like Apple and Disney. It comes with a “novelty” stock certificate that children could hang on their walls. It comes with the fun of tracking the stock’s value in real-time on sites like TradingView, which is excellent for teaching your children how to read candlestick charts. With some stocks, your child might even get routine dividend checks.
Build on What Your Kids Already Know
Kids can get bored fast if they feel like they’re just rehashing the same old information that they’ve already learned. A first-grader tosses aside his pencils and runs off because he’s already done crossword puzzles with the same terminology five times. A teenager rolls his eyes and says any variation of, “I know, dad!” Kids of any age will tune out if they feel like they aren’t progressing when learning about the stock market.
Solving this problem will require knowing when to move on to other concepts or build on ideas that the child has already mastered.
For example, a child that has already mastered the basics may be able to handle more complex questions like:
- “How should you handle making a mistake when trading?”
- “Why do you think Tesla’s stock price went up so much last year? Do you think it’ll keep going up?”
Make Sure You Understand the Concepts Fully
The cool part is that you don’t have to be a professional trader to teach children about the stock market. It does help to have an excellent grasp of the concepts or at least know where to look if they ask you a tricky question, though. It might require a lot of reading and research at first, but it’s an excellent way to show your kids the importance of doing good research when deciding what the next investment move will be.
Keep It Fun and Entertaining
Teaching your kids about the stock market will go more smoothly if you can make it fun. Younger kids often have a limited attention span and are more likely to tune out if the material just isn’t interesting or they’ve already gotten the point after the first couple of tries.
Dealing with this issue will often mean including anything from simple trivia games to actual board games such as the stock exchange game for kids. these types of games help them get the hang of vocabulary to giving them access to a trading simulator. You might even have some luck with letting them pick out a few “real” dividend-paying stocks in well-known companies to invest in and pick out a treat with their first dividend payment if the stocks do well.
Books for Teaching Kids About Stocks
If you are looking for books to teach kids about stocks, you have a lot of options.
Below are some of the popular books for teaching kids about the stock market:
1. If You Made a Million: A Book About Investing and Making Money by David Schwartz
2. The Kids’ Money Book: Teaching Kids to Be Smart About Financial Facts and Figures from Savings Accounts to Retirement! by Martin John Evans, Heidi Widdick
3. The Little Book of Stock Market Profits for Kids: How to Make Money on Wall Street by Peter Lynch, Blake Robin
5. Go! Stock! Go!: A Stock Market Guide for Enterprising Children and their Curious Parents by The Fourth Way World, LLC
6. Stock Market Activity Book: Wallstreet Twins (Kp Cares) by David Torrence
One way to teach NYSE stocks for beginners is to review the fundamentals. For example, did you know that a stock exchange allows investors in one company to trade with those in another? Or that if you buy stock in an initial public offering (IPO), it can be hard to get rid of shares because they’re still too expensive compared with other companies trading on the exchange?
Teachable moments related to the stock market are when you can teach your children important lessons about investing and how stocks work. For example, teachable moments might include explaining what fluctuation means or explaining (on their level) some of the events that happen daily in the world of trading, like when stocks rise or fall because of news reports or earnings announcements.
Kids should learn about the stock market because it can teach them how money works and be a fun way to teach kids responsibility while earning money. For example, if your child is good at saving money, they might enjoy investing in the stock market even more than spending their cash on toys or candy. The best part is that you can teach them about buying stocks at their own pace, which means you can teach them how to buy stocks as they grow older.
One of the easiest and best ways to teach kids about money management is by letting them make their own choices with allowance. For example, instead of automatically saving up for something they want, teach your child about the concept of spending their budget on something they want one week and saving up for something else the next. This way, they’ll learn which items are worth buying immediately and which ones might be better to save for later. You can move onto other topics such as what happens when you don’t save for retirement that will affect them later in life.
It doesn’t have to be difficult to teach children about the stock market if you have suitable materials and a good grasp of the concepts. Learning how to comprehend the stock market can be part of an overall financial literacy curriculum or something fun that you can do with your kids as they watch their virtual portfolios, and sometimes real stocks grow in value.
While many children won’t become professional investors or traders, teaching them about the stock market can help them understand how investors grow their wealth over time. Teaching your child about the stock market also offers great quality time together and allows for spending family time together.