Naturally, parents want their children to be successful. So what’s one good thing you can teach them that will help them for the rest of their life? Consider opening them up to the world of stock investing.
Young people typically don’t invest right away. Only 18% of adults between 18 and 25 hold any stock at all, according to a Bankrate.com survey. Many young people find the idea of investing intimidating or think they should wait until they have more money saved. Plus, there’s no shortage of fun things they can buy for immediate gratification.
This causes them to miss out on two of the most powerful forces of making money: Compounding and time in the market. The earlier one gets started investing, the greater the potential benefit.
For example, if a person invests $1,200 a year into a portfolio averaging 6%, from age 40 to age 65, the portfolio will grow to around $70,000. However, if that same person starts investing the same $1,200 a year at age 18, then at age 65 the portfolio would grow to over $300,000.
The best way to teach kids about investing, especially in stocks, is to make it easy and fun for them to get started. If the young person is old enough to have a part-time job or other source of income, parents can make an initial deposit into an investment account and can incentivize future savings by matching each contribution the young person puts in. Over time, your kids will be able to see and experience firsthand how money can grow due to the magic of compounding.
Since the stock market can be intimidating for young people, you will most likely have to help them figure out what investments to buy. This is where it can be fun. For example, they can invest in stocks of companies that they like or relate to such as technology, biotech, or video gaming.
It doesn’t have to be complicated. The whole idea is to expose your kids to the principles of saving and investing and teach them a valuable lesson they will carry into their future.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.