Muhlenkamp Kids Muhlenkamp Kids & Money

Investing for Kids

Probably the best time to teach children about money is when they begin to observe habits of spending, savings, investing, and budgeting. Without good mentoring, it is natural for children to assume that money is simply available at the nearest ATM or by handing over your credit card to the cashier. Following are lessons that you can use to help children understand the basics of investing.

Lesson 1: Attending Auctions

Send

[X]

Goal (Why?)

This lesson should help you and your child to develop an ability to establish values -- and learn that price and value are not one in the same.

Objective (What?)

  1. Learn that price and value are not always equal.
  2. Practice Discipline - Set a limit on how much you are willing to pay, and stick to it.
  3. Supply vs. Demand - The number of available items for sale and the number of bidders in attendance make a difference on the price at which an item is sold.
  4. Need vs. Want - Unless the item is a necessity and there is no substitution, no one can make you pay what you determine is too much for an item.

Strategies (How?)

You can take your children to an auction to show them how the value of an item is determined (similar to the stock market). There is a minimum bid price that the auctioneer uses initially to begin the auction. The bidding keeps increasing the value of the item until some of the bidders reach a maximum price that they are willing to pay for the item and drop out. When the final bid is determined, the auctioneer ends the bidding for the item and sells it at the final price (or current value). This example can be used to help children structure their spending so that they determine a maximum dollar amount that they are willing to pay for something they want.

If you are unfamiliar with locating auctions, they are usually listed in the classified sections of your local newspaper. There may also be signs advertising an upcoming auction in your neighborhood. Usually when you arrive at a live auction, you must register and you get a bidder’s number. Without this number, you will not be allowed to bid. The items for sale are usually available for preview and inspection prior to the bidding. This is the time when you determine what you think value of an item is.