The Best Investment You'll Ever Make

One afternoon when I was 14, my father did something crazy.

Right in the middle of an episode of Saved by the Bell, he unplugged our TV, dumped a pile of books in my lap, and dropped this bombshell: If I wanted to go to college, I'd have to start learning about investing right then and there.

Let's just say reading a bunch of investment guides didn't hold a candle to watching the lovely Kelly Kapowski strut her stuff. But the TV wasn't going back on until I finished them, so I did -- without paying the least bit of attention to anything I read.

Hindsight is a cruel 20/20
Thankfully, even though I blew off the idea of learning about investing, dear old Dad didn't. I ended up with a college degree and without any student loans. But imagine if I'd actually started investing on my own!

I could've amassed a small fortune, simply by paying attention to what was happening around me, doing some research on companies I knew and loved, and buying those companies' stocks instead of their products.

The most depressing part
Back then, I wouldn't have thought twice about wasting hours watching reruns or blowing all my money on bulk candy and fast food, but it never occurred to me to research my favorite companies and then invest in them. Big mistake.

It's never too late to start investing, but the longer you wait, the less money you'll be able to earn. That's why it's incredibly important to introduce your kids to investing while they're still young.

But beware. If they're anything like I was, they'll be reluctant learners -- at least at first. Here are a few ways around that dilemma:

Show them the money
Nothing grabs a child's attention like cold, hard cash. So make sure your kids understand that investing is a way for them to make money -- and potentially lots of it -- without having to rake leaves, wash cars, or sell lemonade.

It never hurts to use hypothetical real-world examples: "Remember the $500 Grandma gave you for your birthday that you spent entirely on video games? Well, if you had invested that money in GameStop instead (which, in addition to providing a great in-store experience, offers strong top-line growth and rising returns on equity), you could have turned $500 into $1,130 last year. Think of all the video games you could buy with that."

Keep it simple, stupid
Nothing will lose a child's attention faster than big words and complex numbers, so begin with bare-bones basics. Explain what stocks are, why people buy them, why people sell them, and how you can make money in the process.

From there, let their questions, curiosity, and level of interest guide what you teach them, and when. Don't push them to learn too much too fast, and whatever you do, avoid dreaded words like "homework" and "research."

Go with what they know
I have yet to meet kids with any interest in fertilizer, mining, or mortgage insurance. So you might want to avoid discussions about Mosiac (NYSE: MOS), North American Palladium (AMEX: PAL), and MBIA (NYSE: MBI), and instead keep Peter Lynch's investment advice in mind: "Never invest in any idea you can't illustrate with a crayon."

Pay close attention to the clothes your kids wear, the stores they like to shop in, and what they spend their money on. Chances are you'll discover plenty of publicly traded companies -- and, hopefully, a few worth investing in.

Best of all, your kids won't see doing "research" on these companies as a chore. And you can start them off with easy tasks, like counting the number of customers each time they visit their favorite store, or keeping a record of how often their favorite product is sold out.

A more hands-on approach
Buy your child a few shares of stock as a birthday gift, and mark his or her height somewhere on a wall when the big day comes around. Next to that mark, write down the value of your child's shares on that day. Then repeat each year after that.

With any luck, after a few years, your youngster will have a pretty good understanding of how investing can grow his or her money over time. Not to mention that you'll probably have the most financially savvy kid on the block.

If you need help coming up with stocks to buy your kids, you should consider taking a look through David and Tom Gardner's recommendations for their Motley Fool Stock Advisor service.

Among their picks, you'll find plenty of excellent long-term investment opportunities that are "kid-friendly," like the aforementioned GameStop, which is up a whopping 568% since David Gardner first recommended it.

Right now, you can see all of the Gardners' market-beating picks by taking a free, no-obligation, 30-day trial to Stock Advisor. With a fun, easy-to-understand approach to investing, you just might discover that it's easier to get your kids interested in stocks than you ever imagined. So don't unplug that TV just yet!

But whatever you do, take the time to teach your kids about investing -- while they still have an entire lifetime to grow their money. Years from now, you and your kids will be very glad you did. In fact, there's a good chance this will be the best investment you'll ever make. In the meantime, simply try out Stock Advisor free for 30 days.

This article was first published on Jan. 11, 2007. It has been updated.

Fool contributor Austin Edwards doesn't own shares of any of the companies mentioned, but the lovely Kelly Kapowski still owns a share of his heart. Jack in the Box is a Hidden Gems Pay Dirt recommendation. GameStop and Costco are Motley Fool Stock Advisor recommendations. The Fool has a disclosure policy.