Investing 101 for children (and their parents)

One in four parents find it hard to speak to their own children about money. One in 10 parents wouldn’t trust an 18-year old to spend a lump sum wisely. We say it’s time to stop selling our children short and have an honest conversation about money.  

At Nutmeg, our mission is to democratise wealth management, and that means teaching more people about the importance of investing. That includes our children.  

Hi, I’m Roscoe, I’m 10.  

Hi Roscoe, I’m James.  

People tell me investing is important. But I’ve had a little look and it’s just a lot of numbers and words I don’t understand. So, James, what is investing?  

Investing is all about trying to grow your money for the future.  

Many people have some money today but will need lots more for the future. For example, for retirement or their first home. It’s our job to try and grow that pot of money as best we can. 

There are companies and governments all over the world that in effect would like to borrow your money in order to grow themselves. By lending to those companies, or by buying a small portion, you can also benefit in their growth and help them with their growth. If you do that, you’ll get a sort of reward for doing so.  

How big is the reward? 

It depends on the companies you invest in. Some will grow quite quickly, others might not. That’s why there’s an element of risk. But if you were to invest in a company that did grow quite quickly then your money would grow quite quickly as well.  

If you were to invest in a company like Apple for example, who make phones and iPads, had you bought a share in Apple 10 years ago then it would’ve cost you 6. But today, that 6 is worth 90. So, your money has grown exponentially in that 10 years. Much more than it would in a bank account, and that’s why it’s worth the risk.  

Okay, thanks for that. So, what do you actually do all day? 

I work in the team responsible for picking our customers’ investments. We read research, we analyse the news and lots of different types of investments to try and understand which companies and governments might grow the most and which are the riskiest for the future.  

We buy and sell investments on our customers’ behalf, and much of that used to take place on paper but now it all takes place on computers.  

That sounds a bit boring. What’s the most interesting part? 

Well, the most interesting part to me is that the investments are all over the globe. So, we have investments here in the UK but also as far away as China, Mexico or Taiwan. And there’s always something changing. The news changes every day, the global economy, as we call it, changes every single day, so there’s always new information to analyse. And I really like maths.  

But it’s also really nice to help people towards their goals in life, whether that’s trying to buy their first home or saving towards education.  

Okay, if investing is so important, why don’t I learn about it in school?  

Well that’s a really good question, and actually a lot of common-sense lessons and principles that are taught in schools also apply to investing. You just might not have thought about them in that context. Take, for example, not putting all of your eggs in one basket.  

It’s one of the reasons why Nutmeg is involved in school education for investing. Because even many parents don’t know that they could be investing themselves and for their children. Worse, many parents don’t realise they’re already investing through saving for their retirement.  

That sounds like an adult thing. Am I too young to invest? 

Well you’re never too young to start leaning about investing. And actually, your parents could invest on your behalf if you’re still too young to invest yourself.  

In the UK we have something called a Junior ISA, and what that allows your parents to do is to put some money away every single year up until the age of 18 when that money becomes yours tax free. It’s a really great way to think about future costs for their children and preparing for those costs, whether they’d like to contribute towards a university education or a wedding.  

You said you’d get a reward if your investment grows. What if you lose money? Can you lose money too? 

Yes, it is possible. Because just as some companies grow, some companies won’t. And in fact, different companies grow at different times. That’s why it’s really important to own lots of different companies rather than just one individual company. To spread that risk. To not put all of your eggs in one basket and to ‘diversify’, as we know it. But it’s also important to be very patient when you invest and allow the time for them to flourish.  

So how hard is it to invest? 

Well, it’s hard, and many people mistakenly believe it’s easy and give it a go. Unfortunately, the odds are stacked against them because the professionals they’re up against have much more resources, much more time, and much more ability to go away and analyse different types of investments. 

Even the professionals sometimes struggle to deliver the best returns. But particularly those who are focused on picking individual companies rather than spreading the risk across as many as possible.  

What’s all this got to do with Nutmeg? 

Well, Nutmeg is a spice and it comes from Indonesia. A long time ago it was one of the rarest spices in the world and one of the most expensive. It was the preserve of only the wealthiest in society.  

The same was true of good wealth management and investment management. Once upon a time it was the preserve of only the very wealthy. But Nutmeg is now delivering that service to everybody through technology – much like you can go to a supermarket spice aisle and buy some nutmeg today.  

I think I understood all that. Thanks James for answering my questions.  

Thanks for coming in Roscoe.  

Risk warning

As with all investing, your capital is at risk. The value of your Junior ISA can go down as well as up and you may get back less than you invest. To open a Nutmeg JISA, your child must be under the age of 16 and funds cannot be withdrawn until your child turns 18. Tax treatment depends on your individual circumstances and may be subject to change in the future. If you are unsure if a Junior ISA is the right choice for you and your child, please seek financial advice.