Investing as a Teen: What You Need to Know
I landed my first job when I was 13. I was a DJ for a kid’s birthday event space. Had I known, what I know now, I would’ve probably been a millionaire at 30? Why? Because of compound interest. You're never too young to start investing, especially if you are working. Many brokerage firms are appealing to younger crowds, like Fidelity, which offers teen-owned brokerage accounts for teens aged 13–17.
Getting Started
Most investment accounts can be opened with $0 and you don't need a ton of money to invest. I encourage young people to invest with what they have, $1, $5, $20, whatever. Starting good habits by putting something away is important. My best advice is before you buy something, have you saved/invested first? This should be your first thought before you spend.
There are two big reasons to start investing as a teen: compound interest and responsibilities.
Compound interest is the concept that you can earn money on dollars that have already been invested. Imagine you deposited $25, and your money grew to $30. Now when you invest again, you're investing on the $25 and the $5 that was earned through interest. Imagine the numbers becoming larger and you investing consistently, that number will grow exponentially. Starting early is the best way to capture that compound interest because you have time.
Most teens (not all) also have little to no responsibilities. As you're young, this is a great time to take advantage of investing opportunities and creating good habits. As you age, you're likely to increase your responsibilities like car payments, housing, insurance, and other bills that fund your lifestyle. While your responsibilities are little to none, it's a great opportunity to have any extra money work for you.
So how do you start?
I would start by having a conversation with them about the importance of investing. Ask if they invest and if there are things they wished they knew about investing when they were your age. Sometimes finances can be a challenging topic, so be patient if they are not as open to talking about it.
Did you know?
According to CBS News, roughly 42% of adults do not have anything left over once their bills are paid. More than half of adults in the US cannot afford an emergency over $500. Some of this is due to environments, wages not meeting the rate of inflation, and finally illiteracy.
By understanding financial literacy at an early age, you can learn from the mistakes of most adults (including myself). I landed living in my car my senior year of college because I didn't ask my parents for help and I didn't know how to manage my money. Learning now will help you start good habits, like paying yourself first, living below your means, investing (even small), and avoiding lifestyle creep.
A Note for Teen Girls
In the US, women gained access to opening up a bank account and a credit card in 1974 following the enactment of the Equal Credit Opportunity Act (ECOA) of 1974. According to research from Fidelity Investments, "Women investors tend to achieve positive returns and outperform men by 40 basis points."
Oftentimes, teen girls are not taught about investments at the rate of teen boys. It's important to arm yourself with information and be a good steward of your money. This is not to be a Debbie Downer, but women are still fighting to earn equal pay as men. Because of this, investing is a way to level the playing field when some women are out-earned by men in certain industries.
There is risk in investing and there is risk if you don't invest.
The stock market is made up of publicly traded companies and are subject to technology advances, world events, even human emotion. Because of that, it is risky to invest.
On the other hand, it's risky to not invest and to place your money in a savings account. Over the last 30 years, the stock market has averaged 9% returns, which is much better than the 0.01% that you would earn in a savings account. Finding a few good funds to invest in as a start is a great way to maximize returns.
Resources to Get You Started
Fidelity.com has great resources
The Morning Brew has a newsletter for adults that allows you to read snippets of the news before you drink your coffee
GreenLight - https://greenlight.com/learning-center
The Wealth Playground offers a monthly financial literacy newsletter and blog posts