Teaching your teen to be financially literate is one of the best things you can do to set them up for life. For instance, training your teen to invest responsibly is never too early. Some parents start teaching their teenagers how to invest when they begin their first summer job to make the most of their paycheck. But you don’t have to wait until then; you can invest with your teen before they even get a job.
Why it’s Important to Teach Your Teenager About Responsible Investing?
As a parent, you should teach your teens about investing so that your kids can grow up to become adults who will make smart money decisions. In addition, teenage investing is an excellent way to build up your child’s financial savvy and self-confidence.
Without it, your child may never understand key money concepts such as keeping a healthy balance between risks and rewards, the difference between stocks and bonds, and how to grow the value of the money invested over time.
Read more: How To Trade Stocks Online
Introducing Basic Investing Concepts: Stocks, Bonds, and Funds
As you begin to go into investing with your teen, you should do your best to explain the concepts of stocks, bonds, and funds. The best way to do this is by using practical methods. For example, if you own stocks, be vocal about it with your teen and share why you decided to invest with them instead of another option.
Key things to do with your teen as you learn about investing:
- Explain how stock values appreciate and depreciate based on a company’s profit.
- Read about stock values daily with your teen and discuss your thoughts on what’s happening.
- Listen to the latest news about companies you have invested in and discuss how it might affect your stock values.
Discuss the Risks and Rewards of Investing
As you teach your teenager about investing, you must also explain that their capital is at risk. Stocks are seen as a high-risk investment, but at the same time, it also has high rewards. You can take the time to show your teen how this can happen too. For example, you can invest in stocks on their behalf and note the money’s value as it rises and falls.
Here are some additional ways you can explain the risks and rewards of investing:
- Explain how stock values appreciate and depreciate based on a company’s profit.
- Read about stock values every day with your teen and talk about the stock market.
- Listen to the latest news about companies you have invested in and talk to your teen about it.
Teach Your Teenager to Do Their Research
When your teenager is learning about investing, you can make it even more interesting for them by using practical measures to keep them interested. One of the best ways to do this is to get them to use an investment returns calculator.
There are many tools online that your teenager can use for this.
When you use an online tool, you can;
- Enter the amount you want to invest over time.
- Enter the number of years you want to invest that amount.
Then the calculator will return the expected rate of return for the amount and time you have entered.
When your child can research and learn about investing, they will know that it is better to start investing early rather than later to build their wealth over time.
Encourage Them to Invest for the Long-Term
Teenage investors should know that investing is for the long term. Retirement may seem like a long way off, but you can start to explain that investments can be made towards that time. This way, your child can learn to make high-risk, high-yield investments and build wealth over many years.
For example, you can also set up a custodial account for your teenager who is under the age of 18 years old.
When your teen turns 18 or 21, they can control the account. Before then, they can choose the company they want to invest in, and you can get them involved in the investing part as much as possible. When they access the account, they will understand how to invest and keep it going.
Help Them Understand the Power of Compounding Returns
Anyone who wants to get into investing should try to understand the power of compounding returns. When teaching your teen about investing, you should elaborate on the strength of compounding returns.
You can do this by explaining that compound interest is when an investor earns interest on the money saved and the money they have earned simultaneously. For example, if money is deposited into an investment account, it will earn interest over time. If the money is left to earn interest and not withdrawn, the balance will continue to grow as it will earn additional interest the longer it is kept there. The more interest one makes, the faster and higher the value of the money will grow.
In closing, teaching teens about investing as early as possible is essential. There are many practical ways to make investing part of your teens’ everyday life. Lastly, teens who learn to invest will likely become adults who make smart money decisions.
