SbytovMN / iStock.com
Commitment to our readers
The GOBankingRates editorial team is committed to providing you with unbiased reviews and information. We use data-driven methods to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our review methodology for products and services.
20 years
Helping you become richer
trusted by
millions of readers
There’s a famous saying about parenting that you’ve probably seen stitched on a pillow: “There are two gifts we must give our children: one is roots, and the other is wings.” But there’s a third gift that should have been included — an investment account.
6 Unusual Ways to Make Extra Money That Actually Work
As an experienced financial journalist and host clammon countdown On Fox Business Network, Liz Claman interviews some of the brightest minds in finance – not only about how they made their fortunes, but also about what lessons they pass on to their children about money. She says there’s one habit so powerful that, if you start it early, your kids will thank you when they reach their 20s: teach them how to invest.
Claman spoke to GOBankingRates as part of our Top 100 Money Experts The series highlights why parents should turn their kids into early investors, as well as other timeless lessons about money, patience, and hard work.
Teach your children to invest early
Between birthday and holiday cards filled with cash and weekly allowances – many kids are sitting on a nice stash of cash. You can let your kids spend some of that money on toys or games (or whatever kids are buying these days), but you’re also encouraging them to put some of it toward savings. Claman says it doesn’t go far enough.
“Basic checking and savings accounts don’t yield much interest these days,” he said. “A better idea is to open an investment account for them, and every so often, buy a share or a piece of the S&P 500, which consists of America’s 500 best companies. There are several exchange-traded funds (ETFs) that mimic the S&P: They’ve got tickers like SPY and IVV.”
Your kids will thank you – not just for the returns, but also for giving them a strong start and building smart investing habits. Claman says this strategy has the blessing of one of the greatest investors alive.
“Warren Buffett, arguably the greatest investor of our time, says that investing over the long term will give you great returns, and when your child is 20, they will be on their knees thanking you for teaching them the best way to grow money,” she said.
Help your kids stop impulsive spending
Another benefit of investing early is that you are teaching your children the value of delayed gratification. According to Claman, patience is a key skill for managing your money — and it’s a learned skill.
“Children are impulsive by nature. If someone gives them Rs 10, they rush out to buy a toy or candy. That toy will soon be broken, and the candy is gone,” she said. “It’s important to teach them that spending right now is a waste of money. Saving doesn’t feel good in the short term, but in the long term, it’s much more fulfilling.”
Establishing investments for your children at an early age can help them instill consistency, patience and good planning habits – at a time in their lives when many of their peers may spend quickly and regret it later.
Teach your children the value of hard work
Investing is important, but Claman also emphasizes that kids need to learn the value of earning money — even if they’re financially comfortable when they grow up. She recalls an interview with Hank Greenberg, the former chairman and CEO of AIG, who grew up poor but later became extremely wealthy.
By the time Greenberg had children of his own, he was living in a large apartment on Fifth Avenue in New York City. But he did not want his children to grow up entitled.
“I asked how he was able to raise his kids with good values while living a privileged life, and he said, ‘As soon as they turn 16, no more summer camps. They have to find a job — whether it’s making ice cream or being a camp counselor. They need to understand that nothing is given,'” Claman recalled.
ground level
Roots, wings, and an investment of knowledge – these are the gifts parents should share with their children to set them up for long-term success.
Setting up an investment account for your young children helps them develop a positive money mindset, as well as helping them benefit from long-term returns – something they will undoubtedly be grateful for. While you build their investing skills, you can also teach your children the value of patience and hard work, ensuring they have the patience and resilience to get ahead.