How to Talk to Your Kids About Investments Beyond Property

The dream of owning a home, once considered the cornerstone of financial stability, is now out of reach for many. But this doesn’t mean your children can’t build a secure financial future. It’s crucial to have honest conversations with them about alternative investment opportunities and reassure them that renting is a viable option.

It’s Okay to Rent

First and foremost, it’s important to normalise renting. In many cultures, owning property is synonymous with success, but this mindset needs to evolve. Renting offers flexibility, less responsibility for maintenance, and can often be more affordable. By renting, your children can avoid the financial strain of a mortgage, allowing them to invest their money elsewhere. Explain that renting doesn’t equate to financial failure. Instead, it can be a strategic choice that provides the freedom to pursue different opportunities.

Diversifying Investments

Once you’ve reassured your children that renting is a sensible option, introduce them to the concept of diversification. Investing in a variety of assets reduces risk and can lead to more stable returns. Here are some alternative investment options to discuss:

1. Share Market: Investing in the share market can be a powerful way to grow wealth over time. Teach your children about the basics of shares, how the market works, and the importance of long-term investing. Encourage them to research companies, understand market trends, and consider index funds or exchange-traded funds (ETFs) as a starting point. These funds offer exposure to a wide range of shares, reducing the risk associated with individual stock picking.

2. Bonds: Bonds are a lower-risk investment compared to shares. They provide regular interest payments and return the principal amount at maturity. Explain the different types of bonds, such as government, municipal, and corporate bonds, and how they can be part of a balanced investment portfolio.

3. Managed Funds: Managed funds pool money from multiple investors to purchase a diversified portfolio of shares, bonds, or other securities. This can be an excellent way for young investors to get exposure to a variety of assets without needing to manage them individually. Emphasise the importance of researching the fund’s track record, fees, and the expertise of the fund manager.

4. Real Estate Investment Trusts: While direct property ownership may be out of reach, Real Estate Investment Trusts or REITs, offer a way to invest in real estate. REITs are companies that own, operate, or finance income-generating real estate. They can provide regular income through dividends and potential capital appreciation. Discuss the different types of REITs, such as those focused on commercial properties, residential properties, or specialised sectors like healthcare or technology.

5. Cryptocurrency: While highly volatile and speculative, cryptocurrency has gained popularity as an investment. If your children express interest, educate them about the risks and potential rewards. Encourage them to start with a small amount and to use reputable platforms. Stress the importance of thorough research and understanding before investing in this emerging asset class.

Building Financial Literacy

Beyond specific investment opportunities, it’s essential to foster financial literacy in your children. Encourage them to read books, take courses, and follow reputable financial news sources. Understanding the principles of budgeting, saving, and investing will empower them to make informed decisions and adapt to changing financial landscapes.

Encouraging a Growth Mindset

Finally, instill a growth mindset in your children. Teach them that building wealth is a journey, not a destination. There will be ups and downs, but with perseverance and a willingness to learn, they can achieve financial security. Encourage them to set realistic goals, stay disciplined, and continually seek opportunities for growth.

By having these conversations, you’re equipping your children with the knowledge and confidence to navigate a world where property ownership might not be feasible. Emphasise the importance of flexibility, diversification, and continuous learning. With the right mindset and strategies, they can build a secure and prosperous financial future.

This article was first written by Vanessa Stoykov and supplied to Hunter and Bligh.

Feature image: Photographed by Fabio Balbi. Image via Shutterstock.

Disclaimer: This article provides general information only and does not constitute financial advice. It is important to consider your own personal circumstances and seek professional advice before making any financial decisions.