(This article on teens and investing is adapted from Teenvestor: The Practical Investment Guide for Teens and Their Parents.)
Parents go to great lengths to make sure their children receive the best education that money can buy. Unfortunately, they neglect one of the most inexpensive and valuable skills their children can acquire — how to handle money.
Not all parents appreciate the need to help their teenagers learn how to invest. But it’s very important to teach this information. The earlier a person starts investing, the better off he or she will be in the long run. And time is a good friend of young people we call “Teenvestors,” most of whom will retire in about 50 to 60 years.
As with most things in life, parents have a big influence on their children’s savings and investment habits. So parents have to step up and introduce their children to the lifelong journey of money management.
Your children will have to learn about money. Without your help, they will grow up unprepared for financial difficulties they may face at some point.
Why Some Parents Don’t Teach Teens Investing
In our research, we have found that there are five major reasons parents shy away from encouraging their children to start investing early:
- Parents themselves don’t know much about investing.
- Parents think their children can’t understand investing concepts.
- Parents fear their children might put too much emphasis on money.
- Parents think that teaching their children about investing will interfere with their basic education.
- Parents think investing skills will come naturally with maturity.
Let’s deal with each of those reasons.
To many parents, investing can be quite confusing and intimidating. With all the perceived barriers to becoming an investor — jargon, the myth that investing requires great mathematical acumen, and others — many adults choose to stay out of the markets completely or let the “experts” handle their money (at great expense, we might add).
But one of the problems with turning everything over to the so-called financial experts is that you don’t learn anything about investing. What this means is that you will always be dependent on brokers who are probably no smarter than you are. For parents, it also means that you have no knowledge about investing that you can pass on to your children.
Teens and Investing Concepts
Children can’t understand investing concepts? Not true!
Organizations like Junior Achievement (which teaches financial literacy), the Securities Industry and Financial Markets Association (which runs the Stock Market Game) and the Young Americans Center for Financial Education have successfully taught young people investing basics. They’ve proven that young people are capable of absorbing financial and investment concepts when they are properly communicated.
Our website, Teenvestor.com, has a list of organizations that teach people about money and investing.
We have personally experienced the ease with which young people can pick up clearly presented investment concepts. For years, we ran Teen Business Camp, in which 14- to 17-year-olds spent two weeks on a college campus to learn about the stock market and entrepreneurship. The Teenvestors graduated from the program with a working knowledge of the stock market — much more knowledge than an average 21-year-old college graduate.
Other excellent websites to help your child learn about investing include Investopedia, The Motley Fool and InvestorGuide. And a few sites to research information about companies: Yahoo!Finance, Marketwatch, Morningstar, CNBC, CNN Money and The Street.
Parents Need to Teach Perspective
To address any fears that children might put too much emphasis on money, parents should continue the moral lessons they teach daily. Your children will have to learn about money one way or another, with or without your help. You can make sure they put money and investing in perspective. Without your help, they will grow up unprepared for financial difficulties they may face at some point in their lives.
And, no, teaching your children about investing won’t interfere with their basic education. We believe that investment skills are as important as the basic academic skills students learn in school. We hold this view because of the vast changes in the American economy in the past few decades. With prospects of receiving less financial aid, diminished social safety nets (such as reduced Social Security benefits in the future) and shouldering more of their own medical expenses, it’s imperative that your children learn more than how to read, write and do calculus. They also have to know about growing whatever amount of money they have.
Why Trial and Error Is a Bad Strategy
Sadly, despite what some parents believe, investing skills won’t come naturally with maturity. Hoping that the young will pick up investment skills as they get older is wishful thinking.
We firmly believe that money management skills are similar to other skills, such as learning how to play tennis. Children don’t magically know how to play tennis by watching Wimbledon. They have to hammer away at the ball on the court under the watchful eye of someone who can teach them how to swing.
In addition, if you let your children learn how to manage money by trial and error, they may never learn that saving and investing should be a lifelong habit.
Advice to Parents of Teen Girls
For parents of daughters, we have a special message: Don’t shortchange them when it comes to instruction about money and investing. Today’s women may stay single longer, have their own careers, outlive their husbands (if they marry) and get divorced. Teaching girls about investing will help them face challenges and opportunities encouraged by women in our society.
How Teens Should Begin Investing
Now that we have convinced you that teaching your children how to invest is important, what type of investment should they make with their money?
Historically, stocks have had an advantage over corporate bonds and government bonds. For the past 90 years, stocks and government bonds have returned an average of 11.4 percent and 5.2 percent respectively. While there are no foolproof investments, investing in the stock market is more profitable and more appropriate for children than investing in bonds, real estate and other assets that require a lot of money.
It’s a good idea for your child to accumulate at least $50 to $100 each time he or she wants to invest. With small amounts of money to invest, it’s best to choose one or two stocks, invest in them regularly through a low-cost online broker and hold them for a long, long time.
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