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Best Time to Teach Children About Investing

Best Time to Teach Children About Investing

Best Time to Teach Children about Investing

by Efren Ll. Cruz, RFP®

The best time to teach children about investing, according to one writer is when they are in fourth grade.

Turner Cowles quotes Melanie Mortimer, head of the Securities Industry Financial Markets Association Foundation of the U.S., as saying that “Fourth grade, for us, is the sweet spot” to start learning about investing. When you’re nine, 10 years old, you’re learning about fractions; you’re learning about decimals.”

Mortimer is further quoted as saying that, “Investing taps into the dynamism of the global marketplace. It doesn’t sit still, and it’s changing and moving on a moment to moment basis, which is very similar to most 11-year-olds. They have a lot of energy, they’ve got a lot of interest; their attention is moving a mile a minute.”

While fractions are taught to Filipino students as early as Grade 1, the article is probably right in saying that the appreciation for money begins at a later age, perhaps that age that corresponds to being enrolled in Grade 4.

The fascination with creation, of seeing things grow in front of your very eyes is magical and powerful. But I would caution teaching investing right away because investments can head south and may scar children for life. The pain from losing Php500 will be stronger than the intensity of the joy from winning Php500. This is because the human brain does not like to lose, regardless of age.

More importantly, I would prefer to teach children the value of life goals and how such goals can be achieved with effective tools, investing being one of them. For as we all know, the basic tool for achieving life goals is saving.

Teaching investing per se without putting it into context and without emphasizing its long-term nature may lead to an unwanted focus on money. That focus on money can very well lead to greed and the love of money alone.

Still, investing can be a powerful lesson only when executed. So, I would advise parents to open an account for their children and do investing for them in small amounts first just to let them get the feel of the tool. At Grade 4, the joy of growing money by Php500 will probably be just as intense as growing money by Php5,000. On the flip side, while losing money still hurts, recovering the loss becomes easier if the absolute amount is not too large.

Parents can open accounts for their children with stock brokers, mutual funds, and unit investment trust funds while acting as their guardians. The children will own the account, even though their parents manage it for them.

For VULs, all you need to do is make your children the revocable beneficiaries so that you can add your other children with ease when it is their turn to practice investing.

Still, do not forget the pre-requisite lesson, which is teaching your children the value of life goals. Investing is just one of the tools.

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Efren Ll. Cruz is a Registered Financial Planner and Director of RFP® Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach™. He also writes for the Philippine Daily Inquirer’s Money Matters column HERE.

or more money advice in marriage, you can check out the column For Richer Or Poorer on Inspirations.ph every Friday (publication date may change without prior notice) or send questions directly to yaman@personalfinance.ph.