Teach money lessons with a kid’s investing app

Investing is typically reserved for adults, but imagine if you learned to invest as a kid! Not only would you have built a wealth of knowledge, but you’d also have a nice little nest egg at a young age that you could build upon in later years.

Why not give your kids this power by teaching them about investing today? They can gain basic skills and knowledge in investing and build wealth in the process.

Below, we’ll explain further why teaching kids to invest early in life is so important and how to go about it. Plus, we’ll dive deep into our kid’s investing app, which could be very helpful in teaching them the ropes with only small amounts of money.

Why it’s important to teach investing at a young age.

When you teach solid personal finance practices to a child, you instill the importance of money management at an early age. (Ahem, investing!) When kids learn to invest, they get to know the all-important concept of compound growth, which is when you earn returns on previous gains.

For example, if you invest $100 one month and earn $10 in dividends in that month, the following month, you’ll earn dividends on $110 instead of the original $100. This is what makes saving and investing such a profitable venture in the long run.

Kids will have even more time to build compound growth because they’re investing early. Plus, they’ll get used to the idea that part of their money can go toward investing, making it more of a habit in adulthood.

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Finally, it teaches them to understand and manage risk and risk tolerance. They learn to analyze what risks are worthwhile and which ones aren’t. They’ll also learn how to minimize risks by diversifying their portfolio, which can help in other areas of their lives.

3 strategies for teaching your kids about investing.

It’s vital to teach kids about investing when they’re young, so they can learn the ins and outs and build a healthy habit of lifelong investing. This can lead to even stronger financial habits in adulthood.

Here are three great strategies for teaching your children about investing.

1. Start with basic money management.

Before a kid can invest, they need basic money management skills. And you can start this at any age they start earning money, whether it’s from an allowance, a gift, or a part-time job.

When they receive money, have them divide it between “Spending,” “Saving,” and “Investing.” This allows them to enjoy their earnings while teaching them the basics of budgeting. They will be able to better understand the 50/30/20 budget, too, a common rule of thumb for adults where you put 50% towards Spending, 30% in Saving, and 20% in Investing. 

Greenlight is a money app for families that can be more convenient for families than other bank accounts. A checking account and savings accounts may be too much of a hassle to open. With Greenlight, kids and teens separate their money into spending money and savings, and propose investment trades with parent approval. They can get a debit card for spending with up to 1% cash back* on purchases, plus saving and investing — all in one place.  

As they reach certain saving milestones, start paying them “interest” as a reward. Choose a small amount, like 10% per year, and pay it out and compound it monthly, so they see the benefit of putting their money away. (You can use Greenlight’s Parent-Paid Interest to do so!)

This will give them the framework they need to understand how saving and investing work to secure their financial future and to apply these concepts in the real world.

2. Cover the basics of investing.

With a firm grasp of money management and budding financial literacy, it’s time to show your child how investing works. They already understand return on investment (ROI) thanks to the “interest” you paid based on their savings.

Explain the stock market in terms they will understand, too. Presenting it as having partial ownership in a company is a straightforward way to show your kid how it works. Then, explain as the company performs over time, its value goes up or down. You can then sell when you need it, preferably when the value is highest. Selling when the value is high nets you a profit from the stock that you can reinvest into other stocks and repeat the process. 

You can also help them understand the topic of staying power using what they know best: toys. Show them how the hot toy from last year or a few years ago isn’t played with anymore and relate this to a hot stock you buy that surges in value and then crashes quickly. Like that hot toy with limited replay value, that stock is great at first but eventually ends up with little value.

This lesson helps them understand the value of adding stocks with staying power. These can include stocks in blue-chip companies — stocks from well-known companies that historically perform well — and large funds, such as the S&P 500 index fund. 

You can also open a custodial account for your children through a mobile investing app in the iOS or Android app store. Let your child research the various stocks and exchange-traded funds (ETFs) available to them, then allow them to present a few they’d like you to purchase. In their presentation, have them explain why they’d like these stocks, so you understand their reasoning behind choosing them.

If their rationale is solid and it’s a sound investment, let them know and purchase the stock. If not, help them choose the best stocks and ETFs within your parent investment account to help them meet their goals.

If you have a different brokerage account or investing app, such as Robinhood, Acorns, or Stockpile, show them your stocks and ETFs and review past performance to show them how far you’ve come. You can also show them some of your misses so they understand you can’t always win, but you want to mitigate your losses through diversification. For example, if you took a risk on a new crypto that didn’t pan out, you can show how you offset those losses by investing in more stable ETFs, which are diversified by nature because they are a collection of stocks from various companies.

3. Use Greenlight® to start investing today.

If you’re searching for a child’s account that allows them to experience investing and can help with an overall financial education — Greenlight is the perfect option.

The Greenlight app gives your child a prepaid account that’s FDIC insured, plus it comes with a debit card. The Greenlight app also allows them to set savings goals and earn up to 1% cash back and 3% on savings.*

On top of all that, Greenlight Max and Greenlight Infinity include an investment feature. They can learn to invest with as little as $1 in fractional stock shares and monitor investments. There’s no trading fee, and parents approve all trades to ensure your kids make the best investment decisions.

The Greenlight app can also make saving for investments easy with its round-up feature. Kids can choose to round every transaction up to the next whole dollar and put the change in their savings. They can then use these savings to propose trades in additional fractional shares of stocks, ETFs, and bonds.

So, whether they’re saving for their first car, a new video game console, or building their college savings, the Greenlight app can help them understand how to save and invest with ease.

Start investing young and reap the benefits later.

While your kids may not be ready for Wall Street just yet, they may be ready to start investing on a small scale. By trading fractional shares of stocks, bonds, and ETFs, your kids can learn the power of the stock market and earmark a percentage of their income for investing.

This not only allows them to build wealth at a young age, but it also teaches them valuable money habits. The more they know now, the better prepared they are for managing money as adults, leading to years of solid financial management and continued wealth building.

The Greenlight app, which includes a debit card, a kid’s investment app, and cash back, can help them learn these financial lessons early on. Sign up for Greenlight and see how it can help your kids today!

*Greenlight Core and Greenlight + Invest families can earn monthly rewards of 2% per annum, Greenlight Max families can earn 3% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. Only Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.