9 Easy Steps on How to Teach Kids about Saving and Investing for the Future

The preteen years are a golden time to teach your kids about saving for the future. They already know the value of money, having learned basic money concepts in school, and the mathematical operations involved.

If they have abided by your rule to set aside 10 percent of their cash gifts received as savings over the years, then they already have "seed money" invested. They're not starting from zero. If these savings were deposited in a savings account, then show them how their money grew over time. Let them study their passbooks or bank statements.

That's really the concept of investments: letting your money grow over time.

Here are some more tips on how to teach your kids about investments:

1. Explain to them that there are three things they can do with money: spend, let it stand in their wallets, or save and let it grow. It's good to spend for one's needs, but if all the money is spent, there will be none left for tomorrow. If money is kept in their wallets, it will be stagnant. But if money is saved and invested, it will grow to a bigger amount, which is good for their future.

2. Widen their vision by talking about what they want for the future. Would they like to own a car someday? Would they like to buy a big house with a garage and a doghouse for their pet? Setting goals this early, no matter how simple they may be, will help the kids aim for the future.

3. After they have set their goals, talk about how to attain them. They need to save regularly and invest their money so it will earn more. These savings should not be touched anytime they want to buy a toy. Instead, these savings should be kept for their future goals.

4. Agree on a reasonable amount they can save from their cash gifts this Christmas. If they saved 10 percent before, ask if they can save half of it or even more.

5. Go to the bank with your children and open savings accounts for them. As the parent, you will have to sign also on the signature cards as the bank will classify these accounts as "for the account of" your children. You can oversee these accounts and transfer these to them when your children reach a certain age and are legally allowed to have control over them.

Children learn best by example, and you may want to show them that you are also doing your part to save for the future. If your children don't have savings accounts yet, you can get them started by opening accounts for both of them and making an initial deposit. This could be your holiday gift to them.

On their birthdays, you can again choose to make a deposit in their accounts, or better yet, skip hosting a party, or just have a modest one, and put the rest of the "party budget" into their deposit account.

As their deposit grows, you can consider setting these aside in investments on their behalf. Your options include:

6. Mutual funds and unit investment trust funds where your money is invested in companies (stocks) or governments (bonds and treasury bills and notes) along with other investors, and in return.

7. Time deposits which are like savings accounts, except that the money has to stay with the bank for a longer time (no withdrawals before agreed date, otherwise there's a fine). But time deposits earn more than savings accounts.

8. Stocks or equities are ownership shares in a company. You can choose to invest in companies that you know, or seek advice from professionals. Stock prices change every day, and there are higher risks involved, but the money may grow more too.

9. Bonds are loans to companies or governments. You are actually "lending" the money to them and in return, you can get interest which is higher than what savings accounts may offer.

The steps you take now to teach your children about saving and investing will bear fruit in the future. Your children will be financially secure in no time.