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How to Start Investing as a Teen

How to start investing as a teen

“I wish I would have started sooner.”

I hear this phrase in my office nearly every day. No matter the age of the people I meet, almost all of them wish they would have started investing earlier. So, the other day my nephew, Keaton, asked if he could open an investment account. He is almost 13 years old, and I went into teacher-mode to capitalize on his interest. Since Keaton is still 12, he can’t open an investing account on his own. However, his mom or dad can open the investment account for him and he can then take it over once he becomes an adult.

Don’t Wait, Start Now

Even though I acted cool and “professional” on the outside as I started explaining a few basic investment terms, internally I was jumping up and down! I was so pumped that he was interested in investing at such a young age. The sooner he can start, the less effort he’ll have to put into contributing his own money into the account. Why? Thanks to our good friend, Compound Interest.

What’s Compound Interest?

Compound interest is basically interest earned on interest. *For example, let’s say you invested $1,000 today. For ease of math, we’ll say that each year your rate of return is 5% on that investment. That means that in year 2, you’ll have $1,050 ($1,000 x 1.05 = $1,050). You earned $50 simply because you invested! In year 2, you’ll have $1,102.50 ($1,050 x 1.05 = $1,102.50), $52.50 earned. In Year 3: $1,157.63 ($1,102.50 x 1.05 = $1157.63), $55.13 earned…and so on. Instead of earning $50 each year your interest is earning on the interest from the year before going from $50 in year one to $52.50 in year two to $55.13 in year three. All you have to do is get started.

Habits

The main thing when you’re just starting out is getting into the habit of investing. I usually encourage everyone, no matter what age, to set up a monthly contribution into an investment account. Even if it is $25/month, this will add up, plus you’re flexing your investing muscle and pretty soon you won’t even realize the money is leaving your checking account. If you can start as a teenager, the habit will be strong and consistent by the time you get through college and start your first job.

3 Things to Do with Money

There are three things you can do with your money: save it, spend it, or give it away. I suggest doing some of each. Spending is the obvious one. The main reason we all try to earn money is to spend it on food, clothes, entertainment, bills, etc. When I was a teenager, I really only thought about spending money . . . specifically for body sprays from Bath and Body Works and the latest BOP and Seventeen magazine – shout out to all the 80’s kids! As I grew up, saving and giving became more important, although I didn’t start investing until I was in my 20's (I wish I would have started sooner!). I started investing when my work matched my Simple IRA contributions. Flexing my investing muscle in my 20’s helped me to gradually increase the total amount I invest every year. The same thing happened with giving. I started out giving whatever I had in my pocket that morning at church - $5, $10, $20 – and as I flexed my giving muscle and grew deeper in my faith, the amount increased.

If I could go back to when I was 13, I would definitely still be buying magazines for the latest pictures of J.T.T. and NSYNC. But I also would have started basic giving and investing. Getting an earlier start would have allowed even more time for compound interest to do its job. I would have had a bigger impact on my investment account and a lot more fun with my charitable giving.

If you are a teenager or have a teenager interested in investing, I’d love to meet with you and/or your parents! It’s so fun for me to teach people of all ages about investing. If we can get you started on the right financial track early, it will help you immensely in the future.

*This example is for illustration purposes only. There is no guarantee that the illustrated results will be achieved. All investments have the potential for profit or loss.

Tawna Hermanson Tawna Hermanson is a Financial Advisor and has been a part of Financial Strategies Group since 2008.

Tawna serves as a Dave Ramsey SmartVestor Pro for North Dakota and Minnesota.

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Tawna Hermanson

Tawna Hermanson is a Financial Advisor and has been a part of Financial Strategies Group since 2008.

Tawna serves as a Dave Ramsey SmartVestor Pro for North Dakota and Minnesota.

SmartVestor logo

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