Investing can be a confusing and intimidating topic for adults, let alone children. However, teaching your child about investing at an early age can set them up for financial success later in life. Here are five easy ways you can introduce your child to the world of investments:

1. Explain what investing is and why it matters

The first step in introducing your child to investing is explaining what it means to invest. You can start by telling them that investing is putting money away to make more money over time. It’s important to explain to your child that investing isn’t just about making money, but also about planning for their future. Help them understand that by investing early on, they can have more options and opportunities when they grow older.

2. Teach the basics of stock market investments

Once your child has a basic understanding of what investing is, you can teach them about stock market investments. Start by explaining how companies sell shares of their business to raise money, and how people can buy those shares to own a piece of the company. Show them how the value of these shares goes up and down based on supply and demand, and help them understand that buying low and selling high is key to making money in the stock market.

3. Show them how to start investing with little money

One common misconception about investing is that you need a lot of money to get started. Luckily, there are many ways to begin investing with very little money. For example, you could open a custodial account for your child where they can save and invest their allowance or birthday money. There are also many online brokers that offer commission-free trades for beginners.

4. Introduce mutual funds and exchange-traded funds (ETFs)

As your child becomes more familiar with investing, you can introduce them to other types of investment vehicles like mutual funds and ETFs. Mutual funds pool together money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other assets. ETFs work similarly, but trade like individual stocks on exchanges. These types of investments can provide exposure to different markets and asset classes while reducing risk through diversification.

5. Teach your child about risk management in investment

Finally, it’s essential to teach your child about risk management in investment. While investing can be lucrative, it also comes with risks. Help your child understand that not all investments will perform well, and that they should expect ups and downs in the market. Encourage them to do research before investing and to only take on as much risk as they feel comfortable with. By teaching your child about investing now, you’re setting them up for long-term financial success.