Let's just put it out there: teenagers are probably still learning the ways of the financial system. Sure, you may have given them an allowance to play with in the past or even helped them start a savings account (no judgement if that "account" is just a shoebox under their bed). But when it comes to something like investing, it may seem way too complicated to even attempt to wrap your brain around, let alone your kid's.
Well, we're here to tell you that it's easier than it seems — especially if you have the tools to help you. We tapped John Boroff, the vice president of Youth Investing at Fidelity® Investments to give us some easy-to-follow pointers on how you can help your teen get into the investing game.
Why Is Investing as a Teen Important?
To put it simply, getting your money to work for you while you're young lays the groundwork for your entire financial future. Think about it: if your teen starts now, their money will have way more time to accumulate than if they wait until they're in their 30s.
The specific term for this is compound interest, which is all about the accumulation of wealth. "You can [look at it] like it's a snowball going downhill," Boroff says. "And as it starts to pick up speed and size, there's a point where it just becomes incredibly compelling. You can see like, 'Oh my God, my money is working for me.' And that's one of the most important things that we can teach a teen."
It's important to remember, like Boroff says, "Not every teen should start investing." It's going to come down to each person, because compounding (and any type of investing) does come with risk.
What Are Their Money Goals?
Goal-setting is probably the most important way for your teen to think about their money right now (and always, TBH). But as a teen, you may not be thinking as long-term as retirement — and that's OK. So help your kid identify what they are saving for. Boroff suggests breaking it into things that are a little bit more near-term, which could even be something as small as a pair of shoes or a prom dress. "Maybe if you're 13 or 14, you're thinking about your first car, that's a little further out," he says. "And then your first home, which is even further out than that. And then retirement's way down the road."
Having an understanding of goals and making a plan to reach them should be where your teen starts this financial journey. "It doesn't have to be anything formal," says Boroff. "You could literally put it on a spreadsheet or a document [in your phone] so that you get something to refer back to track your progress against what those goals are. But starting with the short term I think helps a younger person grasp the concept of setting a goal, saving and investing to reach that goal, and then seeing some success and saying, 'Hey, that worked.'"
OK, So How Do They Start?
First things first: do research with your kid and make sure they're gathering information from reputable sources. When they open a Fidelity® Youth Account, for example, they'll have access to educational content to learn concepts before putting them into practice. "It's about getting teens to learn good habits, whether they're ready to invest or not," says Boroff.
Plus, a Fidelity® Youth Account can be opened when they're as young as 13, and it's owned by them (parents can have some oversight, too). From there, teens can manage their savings, spending, and investing all in one spot, invest in stocks starting at $1, and make payments via their debit card or with mobile payment apps. Not to mention they'll have access to most domestic stocks, ETFs, and Fidelity® Mutual funds combined with fractional shares.
Once you've helped your teen lay that groundwork, together you can start to think about the types of investments they'd be interested in. And you should know that there's no secret formula for picking investments to fit their goals — just remember that they shouldn't choose something blindly because they heard it from friends, and try not to put all their eggs in one investment basket. Do some research on things like mutual funds and ETFs, individual stocks and bonds, and more big-picture investments like a brokerage account together.
However they choose to start investing, know that your family has support. Opening a Fidelity® Youth Account is a great place to start — click here to find out how.
The views expressed are as of the date indicated and may change depending on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity® Investments.
The trademarks and/or service marks appearing above are the property of FMR LLC and may be registered.
Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact Fidelity® for a prospectus, an offering circular, or, if available, a summary prospectus containing this information. Read it carefully.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917.
Illustrations: Sarah Alice Rabbit