How to explain investing to a child

Last Updated: 30/01/23 0
How to teach investing to kids

My aunt visited us a couple of days back and she has given 100 Rs to both the kids, as per the tradition in Indian culture. The elder does give something to the younger one as an expression of their feelings of love, affection, and gratitude.

At that moment, both of them passed the notes to me and continued with their play.

Yesterday night I asked them a question that ultimately led to the beginning of their investment journey. Here is the conversation, divided into steps to simplify the process.

May the parents and teachers who want to bring financial literacy, awareness about investing, and entrepreneurial skills to their kids can follow the same with suitable changes.

Step 1: Understanding the purchasing power of 100 rs.

What can we buy out of this 100 Rs? I asked my kids, ages 7 and 10. Both of them came with an extensive list, starting from the stuff of their personal interest and use to everything and anything they can think of.

The 7 YO does not understand monetary value yet and he would consider buying an office too, out of that 100 rs. 🙂

As the list exhausted, we discussed how the money will vanish once the product we are purchasing will be consumed.

For example, if a bar of chocolate, once eaten, is nowhere. That gives us temporary happiness but afterward, we don’t have anything with us. Neither the currency note nor the chocolate.

Step 2: Keeping the money safe

What should we do if we want to keep the 100 rs with us?

We discussed the possibility of keeping it safe in the cupboard where even after 10 years we will have 100 Rs with us.

Kids were happy for a while but next was the googly.

Step 3: Understanding inflation, without discussing that.

Investing for kids

If we are getting something for 90 rs today, will we get the same thing at the same price after 10 years too? We took some relevant examples to understand this. Petrol for example.

Last we flew together anywhere was before the pandemic. We took the example. We compared the amount we used to pay at that time and what I paid during my last flight to Bengaluru (Actually it’s almost 3 times).

So that was a convincing and revealing phase. There is no point in keeping the money safe in the cupboard. Even though we will have the same note, we would have lost a major portion of it.


Step 4: Ways to make money grow.

Then the thought was to do something so the 100 rs grows.

The 10 YO came with a brilliant entrepreneurial idea and said, we can buy craft papers, do origami workshops and earn fees. So the money will increase.

Vah… Jordar!! What she needs to learn now is how to execute the ideas effectively.

Ok so to continue the discussion, we came to a point where we found the need of doing something so the money grows by itself.

We considered buying things which we can sell after ten years at a higher price. And we figured out there are very few items that can be appreciated in 10 years.

Eventually, we discussed the gold, silver, property, and at last, equity shares.

Investing for kids

Step 5: Teaching kids about shares

What if some company is earning a very good amount of money and we take part in that? Here we understood the concept of shares.

To better understand the shares and which company we should invest in, we discussed the companies whose products we buy frequently in our daily lives. We found companies to whom we pay quite frequently. Here we understood that if we pay a lot of money to them, there are chances many other people are buying from them. They have a lot of money, and if we buy their shares, we will get some portion of that money.

And finally, we agreed to buy shares. So we are doing that today.

Here is the beginning of the investment journey for my kids.

Instead of buying an insurance policy for the kid’s education and marriage, you also like your kids to earn and save their own one crore rupees funds by the time they mature?

NOTE: I am not a financial advisor and this post is only about how I inspired my kids to invest and become entrepreneurs and creators. I don’t recommend any stocks or any sort of monetary transactions. Do everything you want at your risk and under statutory guidelines.

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