Invest Bank: How Investing vs. Saving
The time factor
Investing is for a long time. Point out the difference between money that you save to spend pretty soon – or in a month or two – and money you save for a long time. The money that children save to buy a car or go to college will be saved for a very long time. People like to make that money grow over the years by earning interest, not sitting in a bank at home. The Growing bank helps kids keep the money until there is enough to invest.
Making your money earn money. First save a sum of money that’s pretty big – a target of, say $20 or more (whatever is appropriate to the age of your child). When you’ve reached your target, it’s time to move money out of the Growing bank and into an investment where it will earn interest. Help your child remember what interest is by returning to the dollar and nickel activity in the Savings bank page.
Take a trip to the bank
Start with a bank deposit. If you put your money into a savings account, the money will be very safe, but it will earn only a little interest.
Other investments. Explain to your child that there are other places to put money. You’ll find more information under the Fun for Kids tab. Within that Investing section, you’ll find simple definitions of different types of investments: US bonds, CDs, Money Market Funds, Stocks, and Collectibles. Tell your child that investing in a place other than a savings account typically earns more interest than a savings account at the bank.
Which one’s for you?
Pick an investment that fits your comfort level. Explain to your child which investment you are going to choose to help his or her money grow. Plus, explain how the investment works. You’ll find simple explanations in the Investing section.
The concept of risk. This is really a concept for older children. It might make younger children nervous about the safety of their money. Many families start with US bonds because they are backed by the federal government. If you put your child’s money in a non-guaranteed investment, like mutual funds or stocks, make an activity of tracking the money’s progress: you and your child should watch the newspaper or the Internet to see how the investment is doing. If the investment dips, don’t react in a way that will make the child anxious. Keep sending the message to your child, We leave money in an investment a very long time. The money will have its ups and downs. Just like we all have good days and bad ones days?
Decorate the bank
Stay focused. Decorate the bank with pictures of your child’s long-term goal, a car, college, or a trip abroad.
To learn more about types of investment and the risks they pose, go to Investing under the Fun for Kids Tab.