Investing At A Young Age

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The days of being skeptical about investing are over. No matter your age, it’s never too late to start. However, investing at a young age enables you to accrue more wealth with less effort over time.

One of our aims as parents is to instill financial habits in the next generation that will become ingrained in them. There’s no one-size-fits-all approach to cultivating these habits, but they all lead to the same destination: financial freedom.

You don’t need a lot of money.

That’s true. When I used to hear people talk about investing, I always thought they were referring to substantial sums—a decade ago, that perception was accurate because investing wasn’t as popular or accessible. Platforms like Robinhood allow you to start with an amount equivalent to the cost of a loaf of bread. The more you can put regularly and forget about, the better.

Here are two things I’m confident about:

Compound interest

Compound interest may sound complex, but it truly works wonders. Compound interest occurs when the interest earned on your investments begins to generate interest itself.

Here’s an example:

If my 15-year-old daughter decides to contribute $10 per month for the next 40 years, assuming an interest rate of 7%, she would accumulate an portfolio value of $26,411.25. And that’s just considering the worst-case scenario compared to the average return of 11% for the S&P 500.

As opposed to the 5% average bank basic interest rate:

Never throw money on stuff you don’t understand or because someone else told you to. The most crucial element in compounding is time.

Guaranteed Retirement Income

Without considering life obstacles, investing at a young age holds more promise than abstaining from it. Many individuals harbor the long-term goal of amassing sufficient funds to retire comfortably. However, achieving this objective typically requires a significant amount of time. By investing at a young age, you’re already leaps ahead of those who are still formulating their financial plans.

Invest in what you know

Before putting your money to work, ensure it’s funds you won’t need anytime soon.

Once you’ve confirmed that, take a moment to observe what many of your peers are purchasing and wearing. Pay attention to current trends. Instead of simply purchasing the product, consider matching the amount spent with an investment in the company’s stock. For instance, before spending $100 on a pair of Lululemon leggings, consider investing that same amount in the company’s stock (ticker symbol: $LULU).

Perhaps you’d prefer to invest in mutual funds or exchange-traded funds (ETFs) that cover the entire market. You should be in good hands no matter which path you choose.

When my kids request Nike apparel, it’s no surprise given that Nike is a favorite retail brand among teens; the brand is closely associated with anything sports-related. Social media contributes to this by creating a “cool” halo effect among Gen Z and millennials.

It’s as straightforward as that.

Financial literacy starts at home

As creatures of habit, it falls upon us as parents to lead Generation Z by example; otherwise, it can be challenging to encourage a culture of young investors. Despite the abundance of technology at our fingertips, financial literacy remains low among many U.S. adults.

With the onset of the Great Wealth Transfer, Generation Z is already drawing lessons from their predecessors. Unlike previous generations, Gen Z is beginning to question the value of a traditional college degree, and they have valid reasons to do so. Nowadays, virtually any subject can be learned online. Furthermore, with the proliferation of social media and the effectiveness of digital marketing, generating income has become more accessible than ever before.

Bottom line

I’m trying to teach my kids about investing while they’re young. They both have accounts and enjoy seeing the gradual growth.

Investing is a vital tool for achieving financial freedom, regardless of age. Starting young offers a significant advantage due to the power of compound interest, which can turn small contributions into substantial wealth over time.

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Did you start investing early? What else would you

**Valuable Resources I Use Daily:

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Robinhood is a platform that does not charge commissions. You can start investing with as little as $1 in stocks, ETFs, and REITs. It's simple to operate and navigate. Sign up now to receive a free stock.