All parents wish to raise children who can manage their money and overcome financial crises and problems on their own.
As you know, the first step is trying to guide your kids to the right financial path by teaching them financial basics like saving, giving, budgeting, and in more advanced cases, investing.
It’s common among parents to want to teach their kids about investing but don’t know where and how to start. This article can be a big help.
When it comes to investing, many people prefer to have access to their money. As a result, long-term investing is not the best choice for them.
Short-term investing enables people to have access to their funds and put their money to work at the same time.
If your kids are just learning how to invest money, short-term investments can be a great tool to help them practice the skills.
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Short-term Investments
Short-term investments are the type that can be converted into cash, and when you invest your funds, you have plans to use them in the next couple of years.
The short-term investment’s risk is low and can help you increase your money in a short period.
Short-term investments last for five years or less, and just like any other investments, they have benefits and drawbacks.
Why Are Short-term Investments Good Options for Kids?
If you see your children trying to save their pocket money or allowance to purchase a big item, you can suggest they invest short-term to help their money grow faster. Even when they get older, this method can help them save for a down payment or start a business.
What Are the Best Short-Term Investment Plans for Kids?
There’s no right or wrong here, as the best investment plan depends on your financial situation. However, opening your children a savings account can help you instil good money behaviours like saving habits.
High-yield Saving Accounts
The simplest way for short-term investments is to put your funds in a bank account that pays interest, and when the interest rate is higher, you’ll earn more money.
A high-yield savings account is a type of saving account that offers and pays the customer a higher interest rate than the traditional savings account.
Let’s review the High-yield savings accounts’ benefits and drawbacks.
Pros:
- You can see these accounts being offered widely
- The interest rate they offer is higher than average.
- Your money is often FSCS protected.
Cons:
- The withdrawal penalties are possible to happen
- The interest rates may vary.
Money Market Account
The Money Market Accounts, or Money Market Mutual Fund, also fall under the category of savings accounts, which pays a high-interest rate. However, they need a large amount of deposit at first.
In this type of investment, a fund manager invests your money on your behalf.
The Money Market Funds are different from other funds in that it’s less risky than others as the funds are invested in lower interest rates and short-term debts.
This method is also a good way for diversifying as your money is invested in various bonds and assets.
It’s important to know about diversification beforehand.
In order to get to know Money Market Funds, it can be a good idea to take a closer look at their pros and cons.
Pros:
- For your peace of mind, your money is managed and controlled by financial experts.
- It is a long-lasting and stable investment.
Cons:
- The interest rate can be lower than other investments.
- Your money is not FSCS protected
Corporate and Government Bonds
Major companies issue corporate bonds to fund investments. They also are safe methods for earning regular interest. Government bonds are in some ways like corporate bonds and are issued by the government. People can buy and sell them on the same day. These bonds can be a perfect choice to increase your savings in a short time.
If you are wondering about the pros and cons, pay attention to the next paragraph.
Pros:
- The risk is low
- You can gain a regular income
Cons:
- The interest rate may change
- In shorter terms, the interest rates are lower.
Certificates of deposit
Certificates of deposit or CDs are another type of savings account that the banks or credit unions issue. CDs are time deposits which simply means agreeing to put your funds in a bank account for a certain time without touching the money during that period.
When investing, the providers often require a minimum deposit to start. However, you should generally agree on some terms, like not making a withdrawal.
To Wrap Up
As we mentioned before in our blogs, long-term investments can be a great method to guarantee your children’s future.
On the other hand, short-term investments are the perfect tools to educate your children about investing.
