Invest Time to Explain Investing

By Susan Beacham

Editor's note: This is the sixth in a series of six columns on how parents can help their kids get smart about money.

First, let me tell you what this month's column is NOT about. It is not the "be all, end all" of investing tutorials for you or your child. It is not a list of stock tips or mutual funds to buy. Instead, it is an introduction for your child to the ideas of long-term goal-setting and investing.

When you save money in a bank account, it earns interest safely because it is protected by the federal government. But the rate of interest is fairly low, which means your money will grow s-l-o-w-l-y. When you invest money, it has the potential to grow faster. But investing involves risk, so there is a chance you could lose some or all of the money you invest.

So why invest? Because the higher the risk, the higher the potential return. And there are ways to minimize the risk - by investing long term (10 years or more). In other words, money plus time equals more money.

Question of the Month My older kids love to play the stock market. They use pretend money and always seem to win. Is this a good way for them to learn about investing? It is amazing how easy it is to "win" when you are investing in companies using pretend money. When you use your own real, cold, hard cash, money that you have earned, the decisions you make with that money get more serious. Winning gets harder when faced with the risk of loss. I don't think it will harm your kids to play the market with pretend money, but it is important to make sure they buy at least one share of stock with their own real money to experience the difference. That way they will learn to manage risk - a very big part of the equation when you are investing for real.