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By using our website or by closing this message box, you agree to our use of browser capability checks, and to our use of cookies as described in our Cookie Policy. With so much attention focused on the market in recent years, now is just the time to show young people what investing is all about. So we asked The Experts this question: How do you recommend teaching teenagers or younger about investing?

This discussion relates to a recent Journal Report article on how financial advisers taught their own kids about investing and formed the basis of a discussion on The Experts blog on Aug. The classic advice for years has been to teach young adults about investing by encouraging them to "buy what you know. But I think this is seriously flawed advice. For it is rooted in the premise that stock selection finding that one great investment trumps asset allocation the broad mix you select between stocks, bonds, hard assets, cash and the subclasses thereof.

Alas, academic study after study shows that over the long run the biggest impact on a portfolio's returns is…asset allocation. So rather than encourage youngsters to speculate by buying shares of companies they know and like, I'd much rather see teens taught about the long-run returns of various asset classes and how to pick the mix of each to best meet their needs.

That, I realize, is much more geeky sounding than "buy what you like. A great place to start is with some classic books on this topic. I recommend Burton Malkiel's "The Random Walk Guide to Investing" and William Bernstein's "The Four Pillars of Investing. Manisha Thakor ManishaThakor is founder and chief executive of Santa Fe, N. Tide detergent, Crest toothpaste, Bounty paper towels, and most importantly, Pringles potato chips.

She explained that whenever somebody purchased one of these products, the company—of which I was now a partial owner—made money. And a few times every year, they would send me some of that money in the form of a check. We didn't talk about how the price of the stock would move up and down.

We didn't talk about diversifying. We didn't talk about mutual funds. We didn't talk about risk tolerance, Roth IRAs, asset allocation, or any of the other topics that adult investors need to know about. At the time, I didn't know that there was anything more to investing than buying stocks and collecting dividend checks.

When performance actually matters e. But I'm not at all convinced that that's the place to start the discussion with kids. The first step must be to get the young person interested in the topic.

And I think the best way to do that is to make the lesson as tangible as possible. And for that purpose, individual stocks that make familiar products are an excellent teaching tool. Once you've got them hooked and interested in learning more, there will be plenty of opportunities for all of the other important lessons. Mike Piper michaelrpiper is a Missouri-licensed CPA and the author of the blog ObliviousInvestor. He is also the author of several personal-finance books, including his latest, "Social Security Made Simple.

Give them their own account. If teenagers or children feel like they have control over the decisions on how the money is invested, they are going to be more interested in learning about investing.

Don't give your teenager carte blanche, but do allow them to fail. Start with a list of stocks, or funds, they can choose from and then help them analyze the company or a fund. Let them have a sense of ownership by having them explain why they want to own a particular investment and why they think it is good. As long as their explanation sounds somewhat rational, let them buy the investment.

If something doesn't go right, help them understand why. And remember, they are teenagers. Their natural inclination is to be rebellious and think they know everything. So, give them the flexibility and room to figure things out.

In other words, be more of a coach than a hands-on parent or grandparent. Charles Rotblut charlesrotblut is a vice president with the American Association of Individual Investors. Well, the traditional way of doing this which is still a good method today is to start young say, age and provide children with an allowance but also work with them to create strategies for how to invest the allowance and how to spend the allowance.

Today, new technologies open up lots of new and interesting ways to teach children about investing. There are many Web-based platforms out there that do an excellent job of teaching financial literacy—often using gaming technologies and other ways to keep the younger mind engaged. I'd also recommend people check with their local school district to see if financial literacy is taught as part of the middle or high school curriculum.

If they do, you may want to use this as an opportunity to supplement the school courses with your own instruction.

Zimpleman is chairman, president and chief executive of Principal Financial Group. When my sons were younger, I taught them about investing by opening custodial accounts for them. I picked an investment that held blue-chip stocks that my sons could recognize, such as McDonald's, Exxon and Apple, and contributed to the accounts on a regular basis. Through the years, they learned not only about the stock market as they watched their account balances go up and down, but also about the power of compound interest and long-term investing.

There's no one way to teach teenagers about investing. However, based on my experience, here are a few guidelines:. Make the investment tangible. While a class or a book can teach the fundamentals of the market, tacit knowledge can cement these ideas to turn teenagers into lifelong investors.

With an automatic investment plan, kids can be doubly rewarded: They grasp the discipline to set money aside for future use and they see the benefits of dollar cost averaging. While you can show them the fluctuations of a certain company on a chart, stock ownership can have a bigger impact. Frank Holmes is chief executive and chief investment officer of U.

At all stages of your child's life there are simple and valuable lessons to be learned about money and investing. Children — This is the fun age that you teach your children the difference between a dime and quarter.

Let them play with your change and add it up. Start a piggy bank for them and talk them through what that money can buy. Allow your children to take a little wallet to the store and buy themselves a treat. Have them count out the needed change at the register. Children will learn pennies, dimes, nickels and quarters really fast when they want to buy a candy. Tweens — This is a very good stage at which to educate your tween about checking and savings accounts.

I have a tween girl right now and have given her a pretend check register excel spreadsheet so she can budget her weekly allowance and any gift money she receives.

We talk about her inflow and outflow of funds and how she budgets her money each week. Part of that budgeting process is allocating some funds to savings and charity. I check her register often to make sure the columns are all adding up and she understands the process. I advise a simple division of funds, for example:.

Teenagers — By the time your tween has become a teenager, she should have a good handle on what it means to save, give back and spend.

At this point I would recommend opening a custodial investment account for your teenager with a portion of the funds she has been saving in her tween years.

This does not have to be a large amount because it is for educational purposes, first and foremost. This process shows your teenager the importance and value of savings and investments. Take 30 minutes each week to discuss the basics of the stock market either through books or online. Keep it simple to encourage her interest. I would not recommend throwing out beta at your first discussion. Together, choose his or her first investment and then track the performance as a team.

Michelle Perry Higgins RetirementMPH is a financial planner and principal at California Financial Advisors. I taught my children through bribery and loss guarantees. First, I taught them how to save. This went on until they reached age That was a real motivation to save, and it worked. Eventually, they had enough money to invest in mutual funds, and I helped them open a Vanguard account.

They did as I suggested, and they're still investing in it today. My daughter became nervous during the financial crisis and wanted to sell. I tried talking her out of it, but that wasn't working. She thought about this for a couple of seconds and said, "No, I'm good. Rick Ferri is founder of Portfolio Solutions LLC and the author of six books on low-cost index fund and ETF investing. His blog is RickFerri. Today's young Americans are making many exciting and often life-changing decisions: Should I go to college or grad school?

Should I borrow for a car or a mortgage? How much should I save for emergencies and retirement? Where should I invest my money? But young Americans have also made huge financial mistakes and many young adults are groaning under debt due to overused credit cards, excessive student loans and poor spending habits.

My recent study of U. Three simple questions helped us explore what young adults age bring with them when they make critical financial decisions:. After five years, how much do you think you would have in the account if you left the money to grow: After one year, would you be able to buy: Do you think that the following statement is a true or b false?

The first question addresses whether people understand how simple interest works, while the second measures whether respondents comprehend inflation. The last question gets at whether people have any clue about risk diversification. Anyone who cannot answer all three correctly will have a tough time making smart decisions about investments and other financial matters. So what did we find? The good news is that almost four-fifths of the young adults get the simple interest right. Of most concern is the fact that fewer than half understand risk diversification, and over one-third say they simply don't know!

And only one-quarter of this age group can answer all three questions correctly, with the better performers being men and those with better-educated parents.

Young people need a better-equipped financial tool kit to make a go of it in today's complex financial markets. Teaching financial literacy in the schools would help, and Wharton's Knowledge Wharton High School is one free source for teachers and students alike.

Another angle is to expand one's knowledge of what markets can do. A book that profoundly shaped my own investment outlook was John Kenneth Galbraith's "The Great Crash " which brought to life some of the hardships my grandparents had lived through.

That turned me into a predictably conservative investor for life. Another tome I've given to recent graduates is Eric Tyson's "Investing for Dummies. Young Americans had better invest in themselves, if they hope to do better with their investments! Implications for Retirement Security and the Financial Marketplace" and the special issue of the Journal of Pension Economics and Finance offer a wealth of related information on the topic.

Mitchell is a professor of business economics and public policy at the Wharton School of the University of Pennsylvania, where she focuses on pensions, household finance and risk management. I first learned about investing at the tender age of six. That Christmas, my older sisters got shares of stock in the Peter Paul Candy Co. I probably got some age-appropriate toy. What I do remember, however, is the next Christmas when my sisters received holiday boxes of "dividend" candies from Peter Paul.

I wanted that candy but couldn't have it because, said my sisters, I was not a shareholder. The light bulb went off: Owning stock in a business that made things you liked was obviously a GOOD thing. Discussions about investing can get abstract quickly. Just try explaining a simple index fund to a noninvestor!

You must use examples of businesses that exist in the teenager's world. Take Apple, Starbucks, Disney—kids know and like what these businesses do. From there you can talk about how they can become investors. I wanted Peter Paul stock because my sisters had it. Have kids learn about investing by participating in a contest in which they buy and sell stocks "on paper" over a given time period to see who makes the most money. This is a common, effective way to teach them about trading, pricing, and market behavior.

Meet the year-old investor who tripled his money - Apr. 28,

For me, the benefit of stock ownership was something I could literally eat. For today's kids, tangibility means something different. They have to be able to hold the process in their hand: Whatever they are learning must be accessible to them on their phones. This means finding good, straightforward apps they can use to track investments.

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The price may be right. But students first need to ask themselves some hard questions. A public profile and adherence to our rules and terms of use is required. A profile displaying your first and last name has been created for you. It may also include other information that you entered in the past. I understand that my real name, my profile, and my commenting history will be publicly displayed. Your profile is now set to public.

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