By Idris Seedat (Manager: CSI of the Johannesburg Stock Exchange)
Those who start learning about finances at a young age are more likely to become responsible adults capable of making sound financial decisions. Teaching your teenagers about finances and the fundamentals of investment strategy is extremely important to help them gain the necessary skills to understand various financial options available to them throughout their lives. This could range from saving for retirement, to understanding interest on a car or house loan and of course how to invest. Here are five tips to consider when teaching your teen about investing:
The building blocks
You can help your teen build the blocks in their financial development by teaching them about investment. But in order to do so you need to empower yourself first by learning more and getting your financial house in order. Look at your own spending, saving and investing habits and what messages these send to your children. Start purchasing financial publications to learn about investments.
Start the journey together
You could start the journey together by making it a team effort. If you are already investment savvy, consider discussing your own investment strategy with your teen. Show your teen how you put the monthly budget together. Explain what investing is and why it is important. Touch on the difference between saving and investing and why both are important. Once your teen understands the basics, you can include the concepts of risk and diversification to their investment vocabulary. Look out for investment days and seminars that are offered by the JSE - you’ll see that there is a full calendar online of free events hosted at the exchange.
Role play – Enter The JSE/Liberty Investment Challenge
A great way to start some practical training is by getting your teen and some or his or her classmates involved in the annual JSE / Liberty Investment Challenge. This is an educational youth programme aimed at introducing high school learners and university students to the world of investment by teaching them the fundamentals of investment strategy. Learners are required to form teams which are given an imaginary sum of R1 000 000 each to invest in JSE-listed shares. There are great prizes for winning teams including the opportunity to visit a stock exchange in another part of the world. This year marks the 40th anniversary of the challenge.
Look for real-life learning opportunities
Encourage your teens to continue expanding their knowledge by reading books and doing web searches of different investment concepts. Keep an eye out for stories or news events and explain to your teen how the news can impact a stock’s performance. Before actually investing any money, get your teen to pick out stocks and follow their performance together by reading the investment pages of newspapers and tracking websites online. The JSE offers a simulated trading platform The JSE’s Virtual Trader which allows you, the parent the opportunity to test your investment skills in a safe and risk-free environment. You will be credited with virtual cash and therefore, all profits and losses emanating from your trading activity will remain virtual and therefore you will incur no liability but also will make no real money.
Gain real experience
After your teens have had some practical experience with investment games and are ready for a real first investment, a good option to consider is an Exchange Traded Fund (ETF). An ETF allows you to invest in a basket of shares which provides diversification and so minimises risk. As a passive investment vehicle tracking an index it offers lower fee structures than other options. To gain exposure to ETFs, you can invest a minimum lump sum of R1000 or invest via a monthly debit order of about R300. Reward your teen’s good school marks and other achievements by putting money aside to be invested in an ETF. If you start when your teen enters high school you may have a nice lump sum together for his or her university education.
Investment is for the long term and should be based on what you can afford. Always be aware of the risks involved and seek advice from investment professionals. Instil the idea that building an investment from the ground up over the long term will ultimately also offer rewards in the long term.
http://schools.jse.co.za or http://university.jse.co.za for more information and getting registered for the JSE/Liberty Investment Challenge
www.jse.co.za for upcoming investment seminars held at the JSE
www.etfsa.co.za for information on all the exchange traded products available
www.justonelap.co.za for investment advice for beginner investors