The Complete Easy Guide To Investing For Kids And Teens
Table Of Contents
- Introduction: Investing For Kids And Teens
- What is Investing
- Why Investing?
- How to Get Started
- Create A Brokerage Account
Introduction: Investing For Kids And Teens
Investing is not a regular thing that kids your age do. You usually don’t get any financial education until you’re in late high school or early college. This doesn’t make sense, because investing is a massive financial opportunity for kids, that’s just standing right in front of you.
The only reason there is as to why investing is not a more common thing that kids do is because until now, you had to call (on a phone attached to the wall) your broker (which I will tell you about later, he is just the guy who places the trade), pay a very hefty commission for your trade, and then check in the newspaper hoping that the stock you invested in increased in value.
Needless to say, investing was not an easy thing to do… until now.
These days, you can buy a stock by opening an app and tapping a button on your phone. You just need to take out your device, open up your brokerage app, and press a button to make a trade. Not too difficult, is it?
Right now is the easiest time to invest, so why don’t you start?
What is Investing
Since it is not common for kids to invest, I am going to start at the absolute basics: what really is investing?
Investing at its core means buying an asset (assets are property) with the expectation that the value of it will go up. Popular assets include stocks, bonds, and real estate.
Stocks are a small piece of a company. They’re bought and sold on a stock exchange through a broker. A broker can mean a brokerage platform, like a brokerage account, or in the olden days, it could mean a person who buys and sells stocks through a stock exchange. A stock exchange is a platform where the stocks are bought and sold through brokers. You can also invest in bonds and real estate through stock trusts, which you can buy on a stock exchange. A trust is a stock that follows the price of another asset. Another important thing you should know about is an ETF. ETFs are a basket of investments that track a collection of stocks.
A bond is basically a loan. They’re usually bought and sold by banks, but you can invest in them through a bond trust that’s traded on a stock exchange.
Real estate is a piece of property, such as an apartment, house, or plot of land. These can be bought and sold through a real estate broker, but this is impossible for kids to do. Kids can invest in real estate through a real estate trust on a stock exchange.
Why should you, a kid, invest? My answer to this question is broken down into three main parts that most likely you would never even thought of, but these are large reasons that can contribute hundreds of thousands of dollars to your savings over your time horizon.
My first reason is the about the time value of money. The time value of money means that your money grows, or compounds, at an interest rate. Since kids have a longer time horizon, their money has more time to compound. I’ll demonstrate it in this simple math: if you invested $5 a week for 50 years, you’d have $886,000. The real amount that you put into your investment account would only be $13,000, but remember that you’d be doing this for over 50 years.
My second reason is about risk. When you invest, you are going to be taking risks no matter what. Since we are kids, we are not covering our own living expenses, so if our stocks dropped we wouldn’t not be able to pay our rent or buy food, because our parents are covering that stuff. You can take advantage of this and invest in investments that have high risk but yield high returns.
My third reason is that it’s easy to get started. Most investment accounts today allow you to invest in fractions of a share, so you don’t need to buy a whole share of something to get started. Investment accounts for kids have no account minimums (no amount of money required to start an account) and the only thing you need is a little bit of money and knowledge.
How To Get Started
The only thing a kid needs to do to start investing is set up a brokerage account. A brokerage account, if you remember, is the account where you can invest in stocks. It really isn’t that difficult to set this up.
If you use my referral link (click here), you’ll get $50 from Greenlight to start investing. If you’re having trouble, then you can book a free 15-minute consultation. For more information about Greenlight, click here to go to their website.
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Suggested resource: brokerage account for child – custodial accounts, regular brokerage accounts, even joint brokerage accounts with child. All about brokerage accounts for child.
Suggested resource: how to convince your parents to let you invest in stocks – the complete guide to convincing your parents to let you invest in stocks.