My 7-year old son, Rupert is very curious about money. He often asks me about how people make money and why are some people rich and some poor.
Yesterday his piggy bank filled up and he asked me what to do with all the money he saved.
And I immediately got an idea: “Great! That’s the right time to teach him about investing!”
But investing is a complex topic. And you can’t teach your child about investing in an ordinary way. You need to make things super simple to understand…
First of all, we all know that puting money in the bank would be a terrible investment idea because of the low interest rates. So I decided to skip the bank and teach him about investing in stocks, that are much more profitable in the long run.
And to make it simple, I then explained investing in stocks with the help of a chocolate factory – because Rupert really likes chocolate. And I bet that your children like it too.
“Rupert, now that your piggy bank if full it would be very wise to invest that money in stocks and make it grow. Do you know what does investing in stocks mean?”
“No, I don’t. And how can you make money grow???”
“OK, Rupert, let me explain… Do you like chocolate?”
“Yes, sure daddy!”
“And where do they make chocolate?”
“In a chocolate factory!”
“Yes, you are right! So why don’t you draw a chocolate factory and then I will explain to you what stocks are with the help of your drawing.”
So after a couple of minutes, we had Rupert’s chocolate factory:
“Now Rupert, if you buy a stock you are basically buying a small piece of that factory. So investing in stocks means that you become an owner of a small piece of that factory.”
“Ok, I like that daddy! So if I buy a stock, this piece of the factory becomes mine…”
“Yes, that’s right Rupert, you got it! And now comes the most important part… whenever somebody buys a chocolate bar in a grocery store, you will receive a small amount of money because you own a small piece of the factory!”
“Wow, that’s great! So daddy, when somebody buys chocolate I will get some money.”
“Yes, it’s quite amazing. It will not be a lot of money, because you own just a tiny piece of the factory, but over time you can accumulate a lot of money this way.”
“And now I have an important question for you Rupert: would you rather buy a chocolate bar or a chocolate factory stock?”
“I think stock. If I buy a stock now I can have more chocolate bars later.”
“You got it, Rupert! I’m so proud of you. Most people never understand this concept.”
Now’s the time to have a conversation with your children. Read this article multiple times and prepare well.
Teaching them about investing in stocks will not only help them to win the financial game of life but also the importance of delayed gratification that is critical for success in life.
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