Kids pick up all sorts of habits from their parents -- and money habits are no exception.
A growing body of research suggests that parents play a crucial role in shaping their children's approach to personal finance, including investing. At the same time, financial firms are offering products and services to help parents teach their kids about investing, including through custodial accounts.
According to a survey from The Motley Fool, 50% of parents with kids at least 10 years old have already taught them about investing and another 38% plan to do so when they're older.
The survey also found significant differences among the parents who teach their kids about investing when it comes to investing philosophies they pass down, tools they use to educate their kids, and more.
"Children are like sponges; they typically learn about money by observation and actions," Nilay Gandhi, a certified financial planner and senior financial advisor at Vanguard Personal Advisor Services, told The Motley Fool. "By educating them early and frequently, it's a good way to begin sharing parents' vision, values and preparing the next generation for wealth, investing, roles and responsibilities."
One marker of how parents approach teaching their kids about investing is whether they are investors themselves. Parents with investing experience are much more likely to teach their kids about investing, instill positive investing habits, and set up custodial accounts for their kids.
Read on for a deep dive into how parents are teaching their kids to invest.
Key findings
- Teaching early: 50% of parents with kids age 10 or older have already taught them about investing. Another 38% say they plan to teach their kids about investing when they're older.
- Missing class: 18% of parents don't know if the school their kids attend offers personal finance classes and 34% know that their kids aren't being offered a personal finance class.
- Generational wisdom: 38% of parents say their family didn't sufficiently educate them on investing; 46% say they weren't properly educated in school
- Passing down knowledge: Parents with investing experience are more likely to teach their kids about investing (93% vs 50% of parents without investing experience), teach their kids investing strategy (97% to 74%), and talk to their kids more frequently about investing.
- Custodial accounts: 54% of parents have opened a custodial account to make investments for their kids. Overall, 26% of parents use custodial investment accounts to educate their kids about investing.
Half of parents with kids at least 10 years old have taught them about investing
Fifty percent of parents with kids that are at least 10 years of age have already taught them about investing and another 38% intend to teach them about investing when they're older.
Just 13% don't intend to teach their kids about investing.
Do you teach or plan to teach your kid(s)about investing? | Percentage of respondents |
|---|---|
No, I do not | 13% |
I already have | 50% |
Yes, when they're older | 38% |
A growing body of research into "financial socialization" supports the idea that parents play a fundamental role in shaping their children's financial attitudes and behaviors throughout their lives. Given that, it's encouraging to find the vast majority of parents are making an effort to teach their kids about investing.
80% of parents who educated their kids about investing did so before they were 18 years old
Among parents who have educated their kids about investing, 80% did so before their kids turned 18.
Most parents educate their kids about investing when they're between 10 and 15 years old, though many start earlier or later.
How old was your kid(s) when you taught them about investing? | Percentage of respondents |
|---|---|
Younger than 10 years old | 9% |
10 to 12 years old | 21% |
13 to 15 years old | 34% |
16 to 17 years old | 16% |
18 years or older | 20% |
Research has found that financial socialization -- learning and observing financial behavior and habits -- from parents has the largest impact when children are 17 years of age or younger.
Parents with investing experience are more likely to teach their kids about investing
Ninety-three percent of parents with investing experience have either taught their kids about investing or plan to when they're older, compared to just 50% of parents without investing experience.
The other 50% of parents who have never invested don't intend to teach their kids about investing.
Do you plan to teach your kids about investing? | Parents who have invested | Parents who have never invested |
|---|---|---|
No, I do not | 7% | 50% |
I already have | 54% | 20% |
Yes, when they're older | 39% | 30% |
Parents that opt not to teach their kids about investing leave a gap in the financial socialization of their children which can affect their kids' financial habits and literacy over the long term.
18% of parents don't know if their school system offers personal finance courses
Parents that choose not to teach their kids about investing are leaving that education to their child's school system. However, 18% of parents don't know if the school their kids attend offers personal finance classes and 34% know that their kids aren't being offered a personal finance class.
Does the school system your kid(s) attend offer personal finance courses? | Percentage of respondents |
|---|---|
Yes | 48% |
No | 34% |
I don't know | 18% |
According to Next Gen Personal Finance, just 23% of high school graduates in 2022 took a personal finance class and only 8 states guarantee a stand-alone personal finance class for all high school students.
Year | Percent of U.S. high school students who graduated having taken a stand-alone personal finance course |
|---|---|
2018 | 16% |
2019 | 17% |
2020 | 18% |
2021 | 21% |
2022 | 23% |
Year | States that guarantee stand-alone personal finance courses for all high school students |
|---|---|
2018 | 5 |
2019 | 5 |
2020 | 6 |
2021 | 7 |
2022 | 8 |
While those numbers have improved over the last five years, it would be nice to see fewer parents being solely responsible for educating their kids on personal finance.
Buying and holding, diversifying, and buying low and selling high are the most popular investing philosophies parents teach their kids
Among parents that teach their children about investing, the most common philosophies taught are to buy and hold for the long-term and through market volatility (58%), diversify (50%), and buy low, sell high (50%).
Twenty-nine percent of respondents taught or plan to teach their children not to time the market and 26% teach the value of indexing.
Only 5% haven't taught or don't plan to teach their kids any investing strategy.
What investing philosophies do you teach or plan to teach your kid(s)? | Percentage of respondents |
|---|---|
Buy and hold for the long-term and through market volatility | 58% |
Diversify | 54% |
Buy low, sell high | 50% |
Don't try to time the market | 29% |
Index | 26% |
None of the above | 5% |
Other | 3% |
It's good that most parents are preaching Foolish investing philosophy, which calls for holding a diversified portfolio of at least 25 stocks for five years, regardless of market volatility.
Parents with investing experience are more likely to teach their kids positive investing philosophies
Our survey found that parents with investing experience are more likely than parents who have never invested to pass constructive investing strategies on to their kids.
Among parents with investing experience:
- 97% teach or plan to teach their children some investing strategy.
- 28% teach or plan to teach their kids not to time the market.
- 51% teach or plan to teach their kids to diversify their portfolio. 26% teach or plan to teach them about indexing.
- 56% teach or plan to teach their children to buy and hold for the long-term and through market volatility.
Among parents who have never invested:
- 26% haven't taught or don't plan to teach their children any investing strategy.
- Only 14% teach or plan to teach their kids not to time the market.
- Just 30% teach or plan to teach them to diversify their portfolios. Only 8% teach or plan to teach their kids to index.
- Only 23% will teach or plan to teach them to buy and hold for the long-term and through market volatility.
Investing philosophy taught to children | Parents who have invested | Parents who have never invested |
|---|---|---|
Buy and hold for the long-term and through market volatility | 56% | 23% |
Buy low, sell high | 47% | 38% |
Diversify | 51% | 30% |
Index | 26% | 8% |
Don't try to time the market | 28% | 14% |
Other | 3% | 3% |
None of the above | 3% | 26% |
74% of parents with kids 10 or older have educated them on investing risks; only 63% have educated them on risks associated with cryptocurrency and NFTs
Nearly three-fourths of parents (74%) have educated their children on risks associated with investing, while 63% have talked to their kids about specific risks associated with cryptocurrencies and NFTs.
All investors, even the most conservative ones, take on risk, so it's important to educate future investors on what to watch for and how to manage risks.
Cryptocurrency and NFTs pose unique risks given the lack of regulation and consumer protection and propensity to be the vehicle for investment scams, so it is doubly important for parents to talk to their kids about risks associated with those assets.
59% of parents who have educated their kids on investing used conversation and discussion, 35% used educational websites
How do parents teach their kids about investing? Conversations and discussions are the most common method (59%), followed by educational websites (35%) and apps (30%).
"The best tool is actually something unexpected: it's a basic conversation," said John Boroff, vice president of Youth Investing at Fidelity. "We've found that the simple act of talking about money with parents and guardians helps teens feel more confident about financial topics and encourages them to continue learning."
"Teens that have talked to their parents about investing are more likely to open checking and savings accounts, secure their first job, or start investing themselves," Boroff added.
Some parents use a more direct method to educate their kids about investing. Twenty-eight percent gift their children stocks to teach them about investing, 27% teach by showing their portfolio to their kids, and 27% introduce their kids to stock market games geared toward children.
How did you teach your kid(s) about investing? | Percentage of respondents |
|---|---|
Through conversation and discussions | 59% |
Educational websites | 35% |
Apps | 30% |
Gifting stocks or other investments | 28% |
Showing them my portfolio | 27% |
Stock market games for kids | 27% |
Books | 24% |
Custodial accounts | 24% |
How often do you speak with your kid(s) about investing? | Percentage of respondents |
|---|---|
Never | 14% |
Weekly | 31% |
Monthly | 31% |
Less than once a month | 24% |
25% of parents don't talk to their kids more about investing because they don't think they have enough knowledge
A quarter of the parents surveyed said they don't talk to their kids more about investing because they don't know enough about investing to do so.
This is worrisome because it suggests that a lack of investing education or confidence to teach about investing may be passed down to generations.
The most common reason parents don't talk to their kids more about investing is because they believe they already talk to them enough about it (49%).
Thirty percent said their kids are too young to understand investing.
Concerningly, 15% of parents surveyed said they don't think it's appropriate to teach their kids about investing and 14% said they don't think investing is a good way to build wealth. Investing over the long term is critical to building wealth, and while not every child is going to aspire to be the next Warren Buffet, it is still worthwhile to educate them about investing before they have the responsibility of making critical financial decisions on their own.
What's stopping you from speaking with your kid(s) more about investing? | Percentage of respondents |
|---|---|
I think I already talk to them enough about investing | 49% |
I think my child is too young to understand investing | 30% |
I don't know enough about investing | 25% |
I don't think it's appropriate to teach my child about investing | 15% |
I don't think investing is a good way to build wealth | 14% |
Other | 7% |
78% of parents are confident in their ability to teach their kids about investing
Seventy-eight percent of parents are confident they can teach their kids about investing, and parents that invested younger are more confident and talk to their kids about investing more often.
Among parents who have never invested, just 42% are confident that they can teach their kids about investing. On the other hand, 89% of parents who began investing between 18 and 25 years old are confident about teaching their kids about investing.
Over 80% of parents that began investing when they were younger than 18 or between 26 and 33 years old are also confident about their teaching abilities.
A similar trend is present in how often parents talk to their kids about investing.
Forty-nine percent of parents with no investing experience never talk to their kids about investing. Just 10% talk to them about investing weekly, and 12% talk about investing monthly.
Meanwhile, less than 10% of parents who began investing before 34 years old said they never talk to their kids about investing. Instead, they were likely to talk to them either weekly or monthly.
38% of parents say their family didn't sufficiently educate them on investing; 46% say they weren't properly educated in school
Over a third (38%) of parents surveyed said their family didn't sufficiently educate them about investing and nearly half (46%) reported that they didn't receive a sufficient amount of education on investing in their K-12 education.
Parents' lack of financial socialization and formal education in personal finance may be responsible for some being less involved in teaching their kids about investing.
26% of parents use custodial investment accounts to educate their kids on investing
Custodial accounts are not only a way to gift investments to a minor – 26% of parents use them to educate their kids on investing.
Fifty-four percent of parents have made investments for their children in a custodial account. Thirty-six percent haven't. The last 11% said they don't know what a custodial account is.
Have you made investments for your kid(s) in a custodial account? | Percentage of respondents |
|---|---|
Yes | 54% |
No | 36% |
I don't know what a custodial account is | 11% |
Among parents who have opened a custodial account, 49% did so to educate their kids about investing while another 49% did so to help their kids build wealth over time.
For what purpose have you made investments for your kid(s) in a custodial account? | Percentage of respondents |
|---|---|
To educate them about investing | 49% |
To help them build wealth over time | 49% |
Other | 2% |
Custodial accounts offer parents a way to show their kids how to invest as well as the value of investing, especially if parents keep their kids up to date on how investments in the account are performing and why certain investments are being made.
"Children who are given hands-on experiences with money tend to grow up into young adults who are confident handling money," Ashley LeBaron-Black, Assistant Professor of Family Life at Brigham Young University, told The Motley Fool.
"If children have accounts in their name and are involved as much as possible in those accounts, they will likely feel a sense of ownership and be more invested (no pun intended) than if you try to teach them about investing solely by words or example," she said.
Parents who began investing younger are more likely to have opened custodial accounts for their kids
Just as parents who invested at a younger age are more likely to talk to their kids more regularly about investing, they're also more likely to have opened a custodial account for their kids.
To that point, 62% of parents who have never invested also haven't opened a custodial account for their children and 28% don't know what a custodial account is. Meanwhile, 72% of parents who began investing when they were 18 or younger have opened a custodial account for their kids. Only 7% of that group said they don't know what a custodial account is.
However, just 50% of parents that began investing between 34 and 40 years of age have opened a custodial account for their kids. And only 21% of parents who began investing when they were over 40 have opened a custodial account for their children.
Investing age | Respondents that have made investments for their kid(s) in a custodial account | Respondents that have not made investments for their kid(s) in a custodial account | Respondents that don't know what a custodial account is |
|---|---|---|---|
I have never invested | 10% | 62% | 28% |
18 years old or younger | 72% | 21% | 7% |
18 to 25 years old | 65% | 28% | 6% |
26 to 33 years old | 62% | 30% | 8% |
34 to 40 years old | 50% | 40% | 10% |
Over 40 years old | 21% | 64% | 15% |
How to teach your kids about investing
Teaching your kids about investing can set them up for a lifetime of financial success. It can also be a rewarding experience for them before they begin investing themselves-what kid doesn't want to own part of their favorite clothing brand or toy company?
According to LeBaron-Black, "to raise a child who will become a wise investor, parents should have frequent and open conversations about investing, use their own investing experiences as opportunities to teach, and facilitate hands-on, age-appropriate investing experiences for their kids to practice with their own money."
So how can you begin to teach your kids about investing?
First, begin with the basics. Show them how you pay bills, including things they may take for granted like heat and electricity. Teach them money management by providing them an allowance or rewarding them for chores or neighborhood jobs like mowing lawns.
From there, you can move on to teaching them about compounding interest -- the real power and magic of investing.
After that, it may be time to introduce them to the stock market and explain what owning a stock means. A great way to do this is by picking out companies you know they love and helping them set up a model portfolio to track the performance of those stocks.
Once they're comfortable with a model portfolio, you can open a custodial account to highlight the risks and rewards of investing.
Teaching kids about investing isn't something that can be done overnight. However, putting in the time and effort to educate them will pay dividends over the rest of their lives.
Methodology
The Motley Fool surveyed 2000 Americans on June 13, 2022, with children over the age of 10. Respondents were 42% male and 58% female.
Sources
- Journal of Family and Economic Issues (2021). "Financial Socialization: A Decade in Review."
- Next Gen Personal Finance (2022). "NGFP's 2022 State of Financial Education Report."
About the Author
Ally is an advertising partner of The Ascent, a Motley Fool company. Jack Caporal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.