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Investing can be quite a complex subject for anyone to fully grasp, especially teens and young adults.
A “2022 Teens and Money Study” by Fidelity Investments reflected that sentiment exactly, with more than half of teens between the ages of 13 and 17 saying investing is too confusing. The study also revealed that 70% of teens look up to family members as financial role models, while only 34% said their families actually talk about investing regularly at home.
While discussing money can sometimes be awkward or difficult, bringing up the subject of investing can seem pretty intimidating since there’s a lot of lingo to learn — index funds , exchange-traded funds (or ETFs) , dividends , mutual funds — and rules to understand, such as capital gains and tax-loss harvesting .
Below, Select details some ways parents can break down investing for young people, as well as the benefits of getting started with investing early in life.
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John Boroff, VP of youth investing at Fidelity, has one overall general tip when it comes to talking to your kids about investing: don’t wait. “There are a lot of reasons to talk about money, but the most important thing is to get started,” he says.
And there’s good reason to do so. The more you and your family talk about money, the more likely you’ll be able to build wealth , according to Boroff.
Start off by explaining what the stock market is and showing how you can invest in the companies your kids interact with everyday. For example, if they enjoy watching Disney cartoons, show them how buying one share of Disney stock makes them a part owner.
Next, help them understand how investing in companies can be a much more profitable experience than spending the same amount of money on something that’s not needed in the long term. For example, buying a share of Coca-Cola stock rather than buying an actual soda can be financially rewarding especially if you hold it for years.
Keep your kids interested by tracking down a social media account (where they consume content the most) that offers legitimate personal finance information that’s age appropriate for your children. I enjoy following the Personal Finance Club on Instagram and Graham Stephan on YouTube and find them to be pretty family friendly.
You could also get them involved by setting up a dummy portfolio so they can see what it’s like to buy and sell stocks with fake money and track their market performance.
As you’re informing your kids about investing for the future, explain that while this is not a toy to be played with, if used wisely, it can give them much more financial freedom later in life. It pays to invest at a young age
The most important part of investing is letting compound interest work for you. Note that this is a different type of interest from the simple interest you earn from a regular checking or savings account . Compound interest means the ability to earn even more interest on top of the interest you’ve already earned. Think of it like it’s a snowball rolling downhill — it will collect more snow along the way and become larger over time.
Here’s how that translates to investing:
Let’s say you start investing $100 within an S&P 500 index fund every month beginning at age 16. By the time you turn 30, your total investment will be $16,800. Assuming a 10% return compounded annually * over the 14-year span, the value of your account will be worth $33,569.98 . Even if you never invested another dollar from age 30 until you turned 60, it would be worth $585,776.09 by the end of those 30 years, assuming a 10% return compounded annually. That is the power of compound interest.
Naturally, a key part in this computation is at one point or another making monthly contributions to your investment account. As a teenager, this may be harder to do when you aren’t yet employed full-time but the idea is that you can use any cash you do make, whether it be through an after-school or summer job, to […]
source Fidelity study reveals most teens think investing is confusing, but here’s how parents can help