One financial topic that’s not often discussed at home is personal investing. Given its exponential growth over the past few years, it’s wise to teach your teenagers the basics of investing—so they get the facts from you and not some version of the facts from their friends, or from watching TIK TOK videos.
I think teens are very interested in learning about money, investing and building wealth. But they don’t want it to be something they read from a book. They want to learn by doing. Investing can seem overly complicated. The jargon alone is enough to make any novice run for cover. But if your teen is interested, it’s worth your effort. Because teens have what we grown-ups don’t—and that’s TIME.
No matter what you invest in, the goal is to make money. But, as in life, there are no guarantees. In investing, you are taking a risk for the opportunity of making more than what you started with.
Start by breaking topics down into simple terms. For example: Stocks represents ownership. When a company wants to raise money, it sells a portion of itself to the public as shares of stock. If you buy a share, you’re a shareholder—and part owner of the company.
A bond is simply a loan that you, the investor, make to a company, a government, or municipality. In exchange for loaning them your money, the borrower will pay you interest over time until the bond reaches it’s maturity date, at which time the principal you invested is returned to you.
Challenge your teens to design a portfolio of companies they know. Ask them questions like: What clothes or shoes do you wear? What are your favorite tech devices? What streaming services do you use? They can then track Nike, Adidas, Apple, Google, Netflix and Disney.
Ask your teen what they think about the expression, “Don’t put all of your eggs in one basket.” You want them to understand that diversifying their investments by buying many different stocks can help guard against “losing your eggs” if all your money is in one stock that goes down in value.
Teach patience: Show teens how compounding works over time. Einstein once said that compound interest is “the most powerful force in the universe.” Our kids have time on their side, and thus the ability to invest over many years. Let’s get them started now.
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There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.