Teaching Kids About Investing

Q: Do you have any recommendations for how to start teaching my kids about investing? What if I myself need to do some self-teaching first – any recommendations there?

A: Being able to handle finances skillfully, whether through investing or in other ways, is absolutely a life skill. If kids can learn the right way to invest, save money, and all related skills, they'll be better off in the long term.

To start, get them to read the right books. We want age-appropriate works here, obviously: there are plenty of options for younger readers. Once they’re old enough, I’d recommend Warren Buffett books – not necessarily specific to personal finance, but anything that talks about his guiding principles: being patient, thinking long-term, and spending less than you’re making.

But most importantly, I recommend just talking with them about finances. Inflation, for example, is the perfect theme today. What does inflation mean? What are the everyday implications of it? How do families adjust when it goes up, and how does it affect family spending? We don’t need to overcomplicate these discussions, but we want kids to grasp the basic concept and be able to connect the dots between the concept and what happens in real-life. In other words, if someone made a certain amount a year ago, and now they’re making 5% more, but inflation went up 10%, they’re actually making less in effect. So, let’s discuss how that works in practical, real-world terms.

I’d also recommend real-world practice when they’re ready, to get them actually saving and investing. We don’t necessarily need to start with actual stock market investments. If your kid has a job or an allowance, help them set up a savings account, create a budget, and track it with them, so they understand the basics of money coming in and money going out.

Now, to educate oneself, the easiest path is still just to read. You don’t necessarily need to start with a thick treatise, however. Start with something as commonplace as The Wall Street Journal. If want to understand basic economic forces and their drivers, the WSJ is a great place to start. As far as investing-specific reading goes, beyond Buffett’s library of works, I’d recommend starting with almost anything by Joel Greenblatt or Bruce Greenwald. The Most Important Thing by Howard Marks is also excellent. And while this isn’t a book per se, The Superinvestors of Graham-and-Doddsville by Warren Buffett is a fantastic case study of what works in investing.