From Piggy Banks to Investment Portfolios : Teaching Kids About Saving and Investing in New Zealand

Introduction:

Teaching kids about saving and investing is an important life skill that can help set them up for a successful financial future. You can start by introducing simple ideas like using piggy banks and then gradually introducing more advanced concepts such as investment portfolios. In New Zealand, there are plenty of resources available for parents and educators to teach kids about personal finance and investing, such as the Sorted in Schools program which offers free financial education resources for schools. By teaching your child about budgeting, investing, setting financial goals, and more, you can help them build a strong financial foundation that will benefit them throughout their lives. This is especially important in New Zealand, where the economy heavily relies on investment and exports. This article will explore the different ways parents can teach their children about saving and investing, starting with piggy banks and gradually progressing to investment portfolios.

The Basics of Saving:

Saving is the foundation of financial responsibility. It is essential to teach kids how to budget their money and prioritize their spending. A great way to begin is by encouraging them to save small amounts of money in a piggy bank, so they can see the value of money and learn how to manage it. Once they have saved enough, you can take them to the bank and teach them how to open a savings account. Not only will this account earn them interest, but it will also provide a safe place for their money. You can show them how to deposit and withdraw money and keep track of their savings over time. It’s important to help them understand that saving money can provide a sense of security and peace of mind, and it can also help them achieve their dreams and goals. This way, they will understand the benefits of saving and be able to build a strong financial foundation.

The Importance of Budgeting:

Budgeting is another important skill that kids must learn early. Teaching kids about budgeting is also very crucial because it helps them learn how to manage their finances and make smart spending decisions. You can help them by encouraging them to save a portion of their allowance each week, which will help them develop good saving habits. Budgeting is also important because it can help kids develop healthy money habits early on, such as prioritizing expenses and saving for things they want. This can give them a sense of financial responsibility that will be helpful for their entire lives. By learning how to budget, kids may also be able to avoid debt and financial stress, which can make their economic future more secure.

Investing:

Once your kids understand the importance of saving money, the next step is to teach them about investing. This may seem intimidating, but it doesn’t have to be! You can start by having an open conversation about investing and explaining basic concepts in a way that they can understand.

For instance, you could discuss various investment options like shares, bonds, and mutual funds. Show them how each type of investment works and how it could potentially make money over time. But it’s also essential to explain that investing carries some risk, and that they should be willing to take risks to potentially earn more significant rewards.

To make it more relatable, you could share stories of successful investors who began small and worked their way up. Talk about how they overcame challenges and took calculated risks to achieve their financial goals. This may inspire your kids to think of investing as a way to grow their money and achieve their financial aspirations.

Risk and Reward:

Teaching kids about saving and investing involves understanding the concept of risk and reward. This means that the higher the potential reward, the higher the risk involved.

Saving money is usually low risk since it is usually kept in a bank account or a safe investment. Though the return on these investments may be low, the risk of losing money is also low.

On the other hand, investing in the stock market or other high-risk investments has the potential for higher returns, but also comes with a higher risk of losing money. It’s crucial to explain to kids that all investments involve some level of risk, but it can be managed through diversification and careful research. It’s important to emphasize to kids that no investment is completely risk-free. However, with careful planning and a well-diversified portfolio, it’s possible to manage risk and achieve financial success over the long-term.

Taxation:

Teaching kids about taxes is important when they’re learning about investing, even though it may not be the most exciting topic. By teaching them about taxes, you can help them maximize their investment returns and minimize losses.

Start by explaining how taxes work and how they impact investments. Talk about different types of taxes and how they can eat into their investment profits. Next, introduce them to tax-advantaged accounts like KiwiSaver or a Roth IRA, which can help minimize taxes and make their money grow faster. You can even show them how contributing to a KiwiSaver account can lower their taxable income and provide tax benefits for long-term savings.

To help them understand the impact of taxes on their returns, show them some simple examples of how to calculate taxes on investments. Teach them to factor in taxes when making investment decisions and always consider the net returns after taxes.

By teaching your kids about taxes and how they affect investments, you’ll be giving them valuable knowledge that can help them make better financial decisions in the future. And who knows, they might even start to enjoy doing their taxes!

Real-Life Examples:

Teaching kids about investing can be difficult because it’s a complicated topic. One way to help them understand is to give them real-life examples of successful investors. For instance, you could talk to them about how Warren Buffett started investing when he was young and became incredibly successful. You could also show them how regular people can invest and achieve their financial goals. Seeing these examples can help them understand how investing can pay off and motivate them to start investing themselves.

Resources for Kids and Parents:

To teach kids about saving and investing, there are lots of helpful resources available. Online games, books, videos, and financial literacy apps are great ways to make learning fun and interesting. You can also get help from financial experts and advisors, and many organizations offer educational programs on money management for both kids and parents.
By using these resources, parents and children can work together to develop a strong foundation of financial literacy, which will help them prepare for a financially secure future.

Setting Financial Goals:

Encouraging kids to set financial goals is a crucial step in teaching them about personal finance and investing. By setting goals, children can understand what they want to achieve with their money and why it’s important to save. This helps them to become financially responsible and disciplined from an early age. For instance, they can save for a new bike or invest in their education. Setting financial goals can also help them stay motivated and focused on their future. It enables them to learn the significance of planning and working towards achieving their goals.

Investing in the Future:

Teaching kids about investing is not just about making money, it’s also about planning for their future financial security. To do this, parents can explain the concept of investing and compound interest, showing how even small amounts of money invested regularly can grow over time. Parents can also encourage their kids to invest in their education and career by setting academic and career goals. By teaching personal finance and investing, children can learn how to save, budget, and invest for their future, building a strong financial foundation that will benefit them for the rest of their lives.

Conclusion:

Teaching children about saving and investing is an essential life skill that parents can help them develop by starting with something as simple as a piggy bank and moving on to investment portfolios. Parents can teach their children various aspects of personal finance such as budgeting, investing, taxation, risk and reward, and setting financial goals. Moreover, parents can provide their children with educational resources to help them learn more about personal finance and investing. By investing in their children’s financial future, parents are helping them develop skills that will benefit them for the rest of their lives. Children who learn about saving and investing from a young age are more likely to be financially responsible as adults, which can lead to greater success and stability. Ultimately, teaching children about saving and investing is an investment in their future, and one that can provide significant benefits for years to come.