Nearly Half of Parents Aren’t Teaching Their Kids About Long-Term Investing
Financial literacy is of utmost importance, and many American parents, recognizing that, start imparting investing lessons and financial education more broadly to their children early. In fact, most parents with children aged 10 and older have already taught them about investing, a new survey shows. However, that same data also indicates that nearly half of U.S. children are missing out on crucial personal finance lessons (especially given the current markets) such as the importance of long-term investing.
A new Motley Fool survey finds that 50% of parents with children over the age of 10 teach their kids about investing, with another 38% planning to do so when their kids get older.
Jack Caporal, research analyst at The Motley Fool, told GOBankingRates that parents should be mindful to teach their kids that investing is more likely to yield positive returns over longer periods of time.
“The current market volatility presents an opportunity for parents to lead by example and teach their kids that downturns and economic uncertainty are not reasons to panic,” Caporal said.
The survey finds, however, that while investing for the long term is the most common investing lesson parents teach their children, 42% of parents skip it — a finding Caporal deems “surprising.”
“Long-term investing is fundamental to successful investing. It raises the likelihood of receiving positive returns and avoids pitfalls associated with trying to time the market,” he said.
Common Investing Philosophies Parents Teach Children
Other popular investing philosophies parents teach their kids include diversification (with 50% of parents polled saying as much), the principle of “buy low/sell high” (50%), that it’s risky to try to time the market (29%), and the value of indexing (26%).
Only 5% haven’t taught — or don’t plan to teach — their kids any investing strategy, the survey finds.
Caporal added that understanding investing goals, and what philosophy is most likely to get you to those goals, is fundamental to becoming a successful investor. He added that The Motley Fool recommends developing and holding a diversified portfolio of at least 25 good quality stocks for at least five years, regardless of market volatility.
“It’s important for young investors to understand that historically, the stock market experiences drops of 20% every four to five years, and 30% roughly every 10 years — however, the longer you hold an investment the more likely you are to make a positive return,” Caporal said. “Market downturns can present opportunities to invest in equities at attractive prices if investors have bought into holding through volatility.”
Another key finding of the survey is that parents with investing experience are more likely to teach their kids about investing, with 93% of parents claiming investing experience having either taught their kids about investing or indicating that they plan to when the children are older. This figure can be compared to just 50% of parents without investing experience who say they plan to teach investing principles to their children.
Caporal explained that surveys and research on “financial socialization” suggest that kids pick up on the financial habits of their parents and role models.
“As a result, kids with parents who invest — and talk to their kids about investing — are more likely to emulate that behavior in the future and invest themselves,” he said. “This relationship runs in both directions. Parents who invest are more likely to teach their kids about investing, educate them about investing strategies, and establish custodial accounts which can be used for hands-on learning.”
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